Archive for October, 2006
Lawsuit filed in Tennessee
October 22nd, 2006
Add Tennessee to the list of at least nine states that have ongoing direct to consumer litigation. A “wine enthusiast” recently filed a lawsuit in Tennessee to challenge the laws prohibiting the direct shipment of wine to consumers. Tennessee currently is a felony state that allows for a one gallon federal onsite provision, but otherwise forces wineries to use the three tier system to get wine to consumers.
Interview with Jeremy Benson from Free the Grapes! - Part 1
October 12th, 2006
Below is the transcript from the first part of an email interview with Jeremy Benson, Executive Director of Free the Grapes!
Q: Can you start with some background on Free the Grapes! and its mission?
Free the Grapes! was founded in 1998 as a result of the wholesaler’s success in making Florida a felony state for direct shipments to adult consumers in late 1997. Several groups met to discuss how to best work with consumers in Florida and other states, who form a natural constituency, and were vocal despite the Florida defeat. Soon thereafter the Wine Institute, Napa Valley Vintners, WineAmerica, Coalition for Free Trade and Family Winemakers of California formed the organization and conducted an agency search. Fortunately Benson Marketing Group was retained to manage the consumer and media outreach campaign starting in May 1998.
Our mission has never changed: to ensure consumer choice in wine. We focus exclusively on this issue, that is, the domestic direct shipping of wine from wineries and retailers to consumers.
We are a national grassroots coalition of consumers and wineries. We’re not lobbyists or attorneys, but we work closely with the organizations and firms that conduct these services. The Board of Directors of Free the Grapes! is comprised of professionals representing these areas, and wineries and retailers of course. In effect, Free the Grapes! serves as the table around which the wine industry can discuss the issue in a constructive, positive manner.
And this cooperative approach has been extremely successful. In 1998 there were 17 legal shipping states, now there are 32. Wineries now have the option of shipping directly to consumers in states that represent 78% of US wine consumption. The attorneys and plaintiffs had a huge victory in the U.S. Supreme Court. We have the support of the Federal Trade Commission. We have 300,000 consumers on our mailing list that sent 60,000+ letters to their state legislators in 2005.
There’s still a lot of work to do to do. Namely, we need to support lobbyists who are quietly cleaning up overly burdensome regulations. We need to oppose wholesaler campaigns that aim to set wineries and consumers back with new burdens on shipping. And because wine retailers can ship to, at most, consumers in just 12 states, we need to ensure that wine retailers also participate in a national marketplace with reasonable compliance requirements.
But I hope, and trust, that one day soon we’ll achieve our mission and fold up our tent, knowing that we’ve helped consumers, wineries, retailers and, yes, even wholesalers, to further wine in America by augmenting the 3-tier system with limited, regulated direct wine shipping. That will be a great party!
Q: What are the biggest challenges in your current efforts to remove direct shipping restrictions?
There’s really only one obstacle, and it’s the wholesalers, who mistakenly believe that direct-to-consumer wine shipments somehow infringe on their market. But direct shipping is a consumer-driven issue, and we know that direct shipping actually helps ALL tiers of the wine industry. Wine clubs, tasting room sales, and online and email sales are a significant portion of revenue for some wineries, but they help 3-tier sales for any sized winery. Clubs are like a pay-for sampling program that pulls those wines through the retailer-wholesaler tiers. So it is perplexing, to say the least, that wholesalers in positions of leadership continue to oppose these shipments and take an aggressively anti-consumer stance.
Q: What are the best ways for wine enthusiasts to get involved?
Consumers can log onto www.freethegrapes.org and sign-up for our free email list. We’ll contact them with periodic updates and when there is legislation pending in their state. It’s the best way for wine lovers to get engaged, and it doesn’t take many to really make a difference!
Clarifications on Direct Shipping Laws
October 11th, 2006
The enforcement and interpretation of various state laws for Direct-to-Consumer wine shipments continue to evolve. Following are three recent updates that wineries should be aware of.
Connecticut: Wineries of any size are eligible to apply for an Out-of- State Shippers Permit in CT. The cost of the permit is $250 and there is a $100 filing fee. Wineries producing 100,000 gallons a year or less that have an approved Out-of- State Shippers Permit are allowed self-distribution privileges in addition to shipping direct-to-consumers.
Georgia: Wineries shipping direct-to-consumers in Georgia are not required to pay sales tax, unless they have a nexus (an office or employees) within the state. The Special Order Direct Shipping License in GA does not trigger a sales tax requirement.
North Carolina: Wineries that have an approved Direct Shippers Permit for NC are allowed to ship direct-to-consumers throughout the entire state, including dry counties. Direct-to-consumer shipments are legal in the 4 dry counties because the transaction is not taking place outside of the restricted area.
Virtual wineries taken to court
October 10th, 2006
Last week the California Department of Alcoholic Beverage Control took three “virtual” wineries to court stating that they violated the provisions of their licenses by pouring wine for consumers at a wine festival. So called virtual wineries typically hold two licenses in combination, a type 17 which is a wholesale license and a type 20, which is a conditional retail license allowing the licensee to sell wine directly to consumers via a wine club or internet sales. This combination of licenses allows a business owner to have a lot of the same privileges as a winery or type 02 license holder without having a bricks and mortar winery or the on-going compliance requirements that wineries have. The main prohibition of the 17/20 combo is that those licensees are not allowed to pour wine at consumer tastings and they cannot have tasting rooms. California is the only state that allows wholesalers to sell wine to consumers. The three wineries are arguing that the prohibition on public tasting is unfair to small proprietors and the charitable organizations that host the tasting events and are challenging what they claim is a “little known” law. The penalty for pouring wine at a consumer event without the correct permits is a 15 day suspension of the license or a fine. An administrative judge will give the ABC a decision within 30 days and the ABC will act on the decision within 100 days. At this point the California Assembly is not proposing a change in the law.
New COLA form available
October 9th, 2006
TTB published a new Certificate of Label Approval or Exemption (COLA) form in June of this year and is now requiring that all applicants use this new form. According to Customer Service Staff at the TTB Labeling and Formulation Division in Washington, D.C, they will reject all applications submitted on the old form that were received after October 1. If you have submitted applications this or last week on the old form, you should go ahead and resubmit them on the correct form. TTB staff admitted that they will not catch and reject all those submitted on the old form because the forms are nearly identical so if you have time to wait it out you may still get approval.
The new form can be downloaded at http://ttb.gov/forms/f510031.pdf
Clarification on the South Carolina application process
October 5th, 2006
There has been some confusion about the application process for wineries shipping direct-to-consumers in South Carolina. The correct forms to complete are listed below and can also be found at http://wi.shipcompliant.com/StateDetail.aspx?StateID=39.
Wineries must complete the following steps to legally ship wine directly to consumers in South Carolina:
1. Complete the Out-of-State Wine Shipper’s License (Form ABL-571). The application cost $600 and is good for two years. The license expires 8/31 during the even years (2008..2010).
2. Complete the Department of Revenue Business Tax Application (Form SCTC-111). Wineries register to pay sales tax and complete section 3 of the form. There is a one time $50 fee to register.
3. Do NOT complete the Application for Producer of Beer and Wine Certificate of Registration and pay $400.
4. File the Excise Tax Return for Wines Shipped Direct to Residents (Form L-2166) and the Sales Tax Return (Form ST-3) by January 20th of each year.
More on the Family Winemakers lawsuit
October 4th, 2006
Tom Wark from Fermentation posted a lengthy comment in response to Doug Caskey’s thoughts on the Family Winemakers lawsuit. This was another great response, so I wanted to post it to make sure everyone reads it.
Doug:
First, anyone accusing you of being a traitor to the wine industry simply doesn’t know you or doesn’t care for honesty.
That said, I want to comment on your elequent plea for respecting the postion Colorado and other smaller state wine industries find themselves in vis a vis the current debate over direct shipping regulations.
First, with regard to the Granholm ruling, it strikes me that the ruling did not so much “reinforce” the validity of the 3-tier system as much as it simply concurred that it was a legitimate way for a state to structure the distribution of alcohol. By this I mean, it did not endorse the excusionary charachter of system, but rather acknowledged its legitimacy. This is important.
The idea that the state is preventing direct shipping by those that produce over a certain amount because it “values small businesses that stimulate agriculture” belies the facts and machinations in the direct shipping debate. Were direct shipping to consumers open to all wineries, large and small, there is no reason to believe that a small Colorado winery would be hurt by CA wineries of any size trying to attracte consumers to wine clubs or occassional Internet sales. In fact, being closer to the Colorado consumer than a CA or WA winery, the Colorado winery should have an advantage in reaching that consumers.
The bottom line is that production limits are approved by Wholesalers becauase it keeps the vast majority of direct sales from occuring while allowing in-state wineries that they rarely deal with to go about their business without criticizing wholesalers. As a bonus for wholesalers, it puts wineries in-state into conflict with out-of-state wineries that are prevented from entering the market via direct sales.
As for monopolistic tendencies, it is indeed easy to accuse wholesalers of being monopolies. But the idea that “the same can be said of the large wineries in California” just doesn’t wash for one simple reason: The Wholesalers benefit from STATE SPONSORED monopoly status. By dictating the use of the three tier system the States guarantee that a smaller and smaller group of wholesalers take a piece of every sale in the state. Yet, there are no provisions that they represent any winery that wants to sell in that state. If in addition there are production requirements on those that can sell direct in a state that has granted a monopoly to wine wholesalers many wineries will be prevented entirely from doing business in that state.
The State of California does not impose any regulations that result in CA wineries selling the vast amount of domestic wine in the United States. This difference in who imposes a monopoly is important.
If the concern is for fairness and a desire to see Colorado wineries expand and prosper there is a simple way to accomlish this: Allow wineries to self distribute in the state as well as sell direct to consumers. No one represents a brand better than the owner. But as long as the state imposes the 3-tier system, this can never happen because under Granholm if CO wineries can self distribute then out of state wineries must be able to also. Wholesalers would just as soon see small state wine industries disappear altogether than allow this sort of situation.
And this brings us to the idea that “Under the guise of “equal protection” as spelled out in the Granholm decision, their (those bringing suits) legal actions have the impact of squelching the advantages that state governments want to give small agribusinesses like wineries.”
If government and legislators were truly interested in giving small agribusiniess a hand up, they would ignore the demands and campaign donations of wholesalers and allow unrestricted direct sales and unrestricttd self-distribution in their states. It’s clear the legislators too would rather throw CO wineries and other small state wine industries under the bus before upsetting the antiquated but very profitable apple cart known as the state sponsored wholesaler monopoly, AKA “Three Tier System”.
In the end, the restrictions that states put on who can ship to consumers don’t merely inhibit the “Big Boys”. They inhibit the very small boys too, the very boys that most distributors don’t want anything do do with. But the big problem is that as long as the three tier system is imposed by the state, small industries like that of Colorado will be hampered.
Idaho increases sales tax rates
October 3rd, 2006
From the Idaho Tax Commission memo:
The Idaho Legislature passed a new law increasing the sales and use tax rate to 6% as of October 1, 2006.
Be sure to update the rates in your order management system(s) if you haven’t done so already.
Terroir in Court
October 2nd, 2006
For the first time in post-Granholm legal maneuvering, a court has recognized the geographic distinctiveness of wine as a factor in applying the “level playing field” requirement.
Kentucky is one of about eight states that responded to Granholm by authorizing only on-site sales. The argument by the wholesalers and their allies in favor of that approach was that applying the on-site requirement to all wineries, local and out-of-state, constituted equal treatment for Commerce Clause purposes.
The Granholm opinion had, of course, rejected New York’s argument that all wineries were treated equally because out-of-state sellers were, like local producers, entitled to rent warehouses and maintain offices in the state. Thus, we already knew a state could not adopt facially equal provisions that introduce substantial impracticalities for interstate sellers not shared by local wineries. The question was whether an on-site-only law was such a provision.
In Huber Winery v. Wilcher, a federal court in Kentucky ruled that Granholm forbids laws that allow residents to purchase wine at wineries in all locations, noting that the effect is to foreclose a larger number of wineries in the major producing states, while imposing only a minor inconvenience on consumers who travel to wineries in Kentucky and adjacent states. The opinion is important because (1) it applies the “strict scrutiny” test, which is standard for overt discrimination, to the de facto discrimination before it, and (2) it recognizes that practical availability of wine from one growing region does not compensate for denying practical access to the greater variety of wines from others –i.e., that “interstate commerce” is not all the same. In reaching the latter conclusion, the court agreed with the plaintiffs that “each winery’s products are distinctive,” expressly declaring that the consumer rights to interstate commerce recognized in Granholm are not satisfied by Kentuckians’ ability to purchase Tennessee and Indiana wine on-site, to the exclusion by travel distance of the products of California, Oregon and Washington.
