Archive for March, 2007
Free The Grapes! legislative update
March 19th, 2007
Free the Grapes! recently provided an update on direct to consumer shipping legislation and litigation for 2007. As you can see below, many changes are likely to come this year.
LEGISLATIVE UPDATE
Wine Institute provided the following summary of direct shipping legislation around the country.
Alaska –House Bill 34 (Ledoux) would specifically allow in-state wineries to make DTC shipments to AK consumers, with a 5-gallon per shipment limit. Status: passed House 2/14/07 and moves to Senate Community and Regional Affairs and to Senate Labor and Commerce.
Arkansas – Senate Bill 592 (Whitaker), a positive bill, creates a DTC shippers permit for wineries. Provisions include: 24 cases annually, $10 permit application fee, sales and excise tax payments annually. Status: Introduced.
Connecticut — Senate Bill 1204 (Joint Committee on General Law) makes a change to the time period specified in the DTC shipping statute from 60 days to 2 months for the 5 gallon limit. Status: Passed out of General Law on 2/27/07.
Florida – Shipping into FL is currently legal. Senate Bill 126 (Saunders) and SB 2282 (Geller) would implement a version of the industry’s model direct shipping bill, but both bills include a discriminatory 250,000 gallon capacity cap opposed by consumers and wineries. Alternatively, House Bill 1217 (Bogdanoff) does not include a cap.
Georgia – House Bill 159 (Willard) and its companion Senate Bill 56 (Untermann) create a DTC shipping license for all wineries (and retailers in SB56), repealing existing law which prohibits wineries with a wholesaler from obtaining a license. Other provisions: $100 permit fee, 24-case annual limit, sales and excise taxes to be collected. This bill is getting industry support.
The wholesaler’s House Bill 393 (Stephens) includes a discriminatory 100,000 gallon capacity cap, creates a new “domestic farm winery” using at least 50% GA grapes, and a national “farm winery” definition of a winery under 100,000 gallons that uses at least 40% grapes from its state of domicile. Such wineries can obtain a DTC shipping permit to ship up to 20 cases of wine per consumer annually. Status: Favorably reported out of House Regulated Industries Committee on 2/21/07.
Hawaii – Two bills, House Bill 1093 (Say) and Senate bill 1019 (Taniguchi), appear to be dead in committee. They would have reduced consumer choice by limiting shipments under the existing DTC shipping permit to 6 cases annually per household from an aggregate of wineries (current system is 6 cases per winery).
Idaho – House Bill 11 would modify the permit legislation passed in 2006 to allow wholesalers and retailers in Idaho and other states to ship wine directly to consumers. Status: Referred to House Revenue and Taxation on 1/22/07.
Illinois – House Bill 429 (Acevedo) is similar to last year’s transition bill that creates a winery-only DTC shipping permit to replace the existing reciprocity law. Provisions include a tiered permit fee based on size of the winery from $150 to $1,000, 12 cases annually, with sales and excise tax collection. Free the Grapes! is encouraging inclusion of retailers in the bill. Status: Passed from House Consumer Protection Committee on 2/20/07 by vote of 11-0. There is also a similar bill in the Senate (SB123, Silverstein).
Iowa – ABC hearings were held on 2/24/07. The ABC recommended to legislators that the reciprocity statute be replaced with a DTC shipping permit system. Other proposals addressed at the hearing include changing the local winery preferential tax rate, changes in Iowa wine labeling rules for IA wineries, and changes to existing designation of 5% of wine tax revenues to Iowa Wine Development Board. Status: Awaiting action by legislature.
Maine – Senate Bill 54 (Bromley) creates DTC shippers permit for wine & beer. Winery or retailer obtains a COA and nonresident shipper’s license ($100 fee). Annual sales and excise tax payments required. Status: Introduced.
Missouri – House Bill 944 (Cooper) creates a DTC permit for wineries to ship 2 cases per month, and requires permit and tax collection. Carriers must obtain permit. Amendment to add retailers drafted on 2/26/07. Status: Introduced.
Montana – Senate Bill 524 (Wanzenried) proposes changes such as adding “purposely, knowingly or negligently” language to the connoisseur’s license, which does not currently work for consumers or wineries. Status: Reported “Do Pass” from Senate Business, Labor and Economic Affairs on 2/21/07.
New Mexico – House Bill 1018 (Silva) creates DTC shipping permit for wineries and retailers to replace reciprocity. Provisions: $50 fee, pay excise and Gross Receipts Tax, 24 cases annually. Status: Passed favorably on 9-1 vote from House Business & Industries Committee on 2/25/07. Companion bill is Senate Bill 1047 (Taylor).
New York – Interestingly, Assembly Bill 4345 (Destito) replicates the wine DTC shipping program for beer manufacturers and beer wholesalers. Free the Grapes! has no activities or campaigns concerning this bill because it deals with beer and not wine. Status: Introduced.
North Dakota – Senate Bill 2135 (Senate Finance and Taxation Committee) makes changes to existing DTC shipping statute. Provisions: increases amount of shipments to 3 cases per month (currently 1 case per month), removes “reciprocal” provision passed in 2005 but never implemented. Removed vague language that could have been interpreted to allow an in-state winery to also hold a wholesalers license – clarifies no self-distribution, which was believed to be the case by in-state industry at this time anyway. Status: Passed Senate 1/23/07 and now to House Finance and Taxation.
Oklahoma – Several bills in the House and Senate have been introduced, several of which request a voter referendum to allow OK consumers to receive DTC shipments from out-of-state wineries, but a permit system has not been outlined.
Oregon – House Bill 2171 (Minnis) transitions OR from a reciprocal DTC to a permit system. Would cover wineries only. Status: Introduced. This is the OLCC bill. House Bill 2488 (House Business and Labor Committee) is similar, allowing wineries, retailers and “associations” to obtain permits. $50 fee. Excise taxes to be paid. Unlimited shipments. Status: Introduced.
Pennsylvania – House Bill 255 (Godshall) is a positive DTC shipping permit bill with a $100 registration fee, 2 cases per month to any individual. Taxes collected. Status: Introduced.
Tennessee – House Bill 1850 (Todd) creates a DTC shipping permit for 2 cases annually. Provisions: $100 fee, annual reports, annual excise and sales tax payments. Status: Introduced. Companion bill in Senate (1977, Stanley).
Virginia – Senate Bill 984 (Edwards) creates an “internet wine retailer license” to allow sales by a retailer having no physical premise. Status: Passed both House and Senate and sent to Governor on 2/22/07.
West Virginia – Senate Bill 712 (Kessler) is an omnibus liquor bill, that among many provisions, includes creation of a DTC shipping permit for wineries, wholesalers and retailers. Provisions include: $150 permit fee, 2 cases per month, sales and excise tax payments. Removes self distribution privilege for instate wineries. Original 50% tax increase has been removed. Creates a “wine spa” license, a wine B&B license, and a “mini” winery license to replace farm winery permits.
LITIGATION UPDATE
Texas — The Specialty Wine Retailers Association (SWRA, www.specialtywineretailers.org) litigation in Texas to address that state’s discriminatory stance between in-state and out-of-state retailers is in its discovery phase. Until the case is decided, out-of-state retailers may continue to ship to Texas consumers.
Massachusetts — The Family Winemakers of California reports that its lawsuit against the State of Massachusetts seeking to overturn the 30,000 gallon production cap in the DTC law is still in the discovery phase. Once discovery is complete both sides will be preparing motions for summary judgment for later in the year.
Tea Leaves & One Fact
March 18th, 2007
Some historians say the origin of foretelling the future from tea leaves is an ancient Greek practice of reading wine sediment patterns in the drinking vessels.
Wine-related or not, the lawyer’s pastime of seeking clues to future judicial decisions from what judges say during oral argument is about equally reliable. Nonetheless, it’s difficult to resist a comment or two, following the hearing of the Costco appeal in the Ninth Circuit.
First, the hard news: The Ninth Circuit Court of Appeals granted a stay of the trial court’s judgment that significant chunks of Washington liquor law are invalid, pending rendition of the appellate ruling. Because the case has already been argued and has priority status, the Ninth Circuit stay will not keep those rulings in limbo very long, although a further appeal to the Supreme Court could extend it.
The background: The appellate issues in Costco are based on antitrust law, not directly on the Commerce Clause. Thus, the questions raised will be resolved in the light of Sherman Act cases, not Granholm (except as to what that case may have to say about 21st Amendment defenses generally). Of those questions, the most important is to what extent price-affecting rules that would be clearly illegal under the Sherman Act if adopted by collusion among private parties are also Sherman Act violations when imposed on the private parties by state law, with no evidence of collusion. That question divides into three categories of conduct, one in which the state makes and enforces a price rule but leaves it to the private parties (in this case, wholesalers) to say what a price that will be held for a specified time is to be (e.g., price posting), another in which the rules simply eliminate a form of competition (such as quantity discounts), without inviting the private parties to set a specific price, but facilitate anticompetitive conduct in the first category, and a third, in which the rule is just a rule, and any anticompetitive result from obeying it is unrelated to category one. The trial judge found price posting, quantity discounts, uniform pricing to all retailers, prohibition of charging separately for goods and delivery, and prohibition of taking delivery at retailer warehouses for sub-distribution to individual stores all illegal, both as a group (readily understandable) and individually (a somewhat avant-garde view); she put the prohibition on retailers selling to retailers in the third category and did not rule that part of the law invalid.
Now the speculation. Although the Washington price posting law had recently been changed in an effort to reduce its antitrust vulnerability, the judges seemed reluctant to accept it as significantly different from the Oregon law previously struck down by the same court (though not the same judges) and appeared to accept the reasoning of a subsequent case on Maryland price posting, relied on by the Costco trial judge. The “post-and-hold” part of Washington’s price posting law still looks dead. The same statutory scheme also forbids quantity discounts and requires that the same delivery-included price be charged to all retailers, but the judges appeared receptive to the possibility that without post-and-hold, those restrictions might be OK –in effect, move from category two to category three. On the other hand, they could defer to the trial judge’s implicit determination that the legislature’s integrating them into the price posting system meant they were intended to be part of it, and therefore stand or fall with post-and-hold. Jump ball; my guess is they will affirm the trial court, but may provide some guidance to the legislature on what parts of the law could be reenacted. No perceptible clues appeared on central warehousing, which is the most creative part of the trial court judgment. Net impression: The judges aren’t convinced the Sherman Act condemns non-price rules that aren’t clearly ancillary to price rules, might reverse on central warehousing, and almost certainly won’t reverse on retailer-to-retailer sales. On the 21st Amendment, this panel seems as puzzled as nearly every other court before which a state has claimed the defense as to what it would look like if proven. Prediction: They won’t declare the 21st Amendment snipe hunt over, but won’t report seeing a snipe, either. More significantly, they appeared to doubt it would add anything to the existing immunity defense that applies to state action generally, not just liquor. That defense applies both to states acting unilaterally in their sovereign capacities and to hybrid systems like price posting, in which states and individuals play roles, but in the latter case requires a degree of state supervision the trial court found lacking. The appellate panel did not seem inclined to question her finding on that point or to accept the state’s contention that Costco had the burden of proving inadequate supervision. Thus, the big imponderable remains not whether there is immunity for antitrust violations, but how much of Washington law is an antitrust violation in the first place.
Direct shipping bill passes West Virginia Congress
March 14th, 2007
In May of 2005, in the case of Granholm v. Heald, the United States Supreme Court effectively invalidated the practice of reciprocity because it discriminates against wineries in non-reciprocal states. At that time, there were 13 reciprocity states. Today, there are only seven reciprocity states left (Oregon, New Mexico, Iowa, Missouri, Wisconsin, Illinois, and West Virginia), and at the end of 2007 there may be only two as Oregon, New Mexico, Missouri, Illinois, and West Virginia have legislation pending that would move their states into the “limited direct”, or permit state category.
West Virginia may be the first reciprocal state to change in 2007. Senate Bill 712 recently passed the West Virginia Congress and is expected to be signed by the Governor. This bill would create a permit system where in-state and out-of-state wineries can apply for and receive a license to ship up to two cases of wine per month directly to adult residents. Permitted wineries would be responsible for reporting monthly excise tax (beginning July 1, 2007), sales tax, and a schedule of shipments made in the previous month. The permit would cost “One hundred fifty dollars per year for a direct shipper’s license for a licensee who sells and ships only wine and two hundred fifty dollars for a direct shipper’s license who ships and sells wine, nonfortified dessert wine, port, sherry or Madeira wines” plus a brand registration fee of $100 per brand for three years. Common carriers shipping into WV would be required to collect an adult signature upon delivery of wine packages.
One thing to note about this bill is that it would level-down on self-distribution, meaning that in-state wineries would lose their privilege to ship wine directly to retailers. There are also some requirements that are a bit gray as they are written, but will hopefully be sorted out and clarified after the bill is signed by the Governor and the rules are promulgated by the Alcohol Beverage Control Commissioner.
Free the Grapes! Updates Wine Industry Code for Direct Shipping Practices
March 4th, 2007
Free the Grapes! recently updated its Wine Industry Code for Direct Shipping. The Code is a voluntary set of guidelines for direct to consumer wine shipments. The new Code, listed below, is fully endorsed by Wine Institute, Family Winemakers of California, and WineAmerica.
Wine Industry Code for Direct Shipping
- Out-of-state licensees may direct ship wine sold to adult consumers, for personal use, only in states where it is legal to do so.
- Out-of-state licensees must not ship to an address in an area identified by an appropriate state department of alcohol beverage control as a “dry” or local option area for such shipments.
- Cartons used to direct ship wine to adult consumers must be conspicuously labeled with a minimum notification “signature of person age 21 or older required for delivery” and must include a return address and other language required by specific state laws. Licensees may opt to further identify the contents, including words such as “wine enclosed” or “contains alcohol.” Free the Grapes! recommends that wineries support shippers, fulfillment companies and freight consolidators who utilize this labeling procedure.
- Licensees must verify the purchaser’s age at the point of online purchase before completing any transaction. Some state laws now require age verification using a state-approved vendor, or by receiving a copy of the purchaser’s drivers license, prior to the completion of the transaction. Additionally, licensees must notify purchasers that the recipient will be asked to show identification upon delivery.
- Wineries must comply with all anti-spam legislation. For example, some states have enacted laws designed to prevent wine-related emails that might be unintentionally sent to underage consumer who have registered on a “do not email” database, and requires wineries to have their email lists scrubbed against a database of “do not email” lists.
- Free the Grapes! encourages licensees to contract only with shippers who check the identification of recipients at the time of delivery to ensure that the recipient is 21 years of age or older.
- All out-of-state licensees must report to the appropriate state authority the total of wine shipped into the state the preceding calendar year, as required by state law. Additionally, as required by state law, out-of-state shipper licensees must pay the appropriate state agency sales and excise taxes due on sales to residents of that state in the preceding calendar year.
- Out-of-state licensees should offer consumers resources for answering their questions about direct shipping, including Free the Grapes! (www.freethegrapes.org), Wine Institute (www.wineinstitute.org), Family Winemakers of California (www.familywinemakers.org), WineAmerica (www.wineamerica.org), and Specialty Wine Retailers Association (www.specialtywineretailers.org), among other resources.
- Free the Grapes! encourages wineries to conspicuously post this code and train employees, to increase the knowledge of and appreciation for, the industry’s responsibilities in direct shipping.
- Wineries, their agents, retailers, fulfillment companies, freight consolidators and other shippers who do not abide by this voluntary code of business practices are not in compliance with wine industry sanctioned standards. Non-compliance undermines the wine industry’s desire to: a) fulfill consumer demand, b) comply with government regulations and controls, and c) support a dynamic distribution system which embraces both the efficiencies of the traditional three tier system, and the evolution of a dynamic, direct-to-consumer marketplace.
The new addition to the Code is step 4, which specifies that wineries should verify the age of the purchaser of the wine at the time of transaction for all off-site transactions (Internet, phone, mail, fax, etc.). This can be done either by obtaining a photocopy of the purchaser’s drivers license or by using an approved online age verification vendor such as ChoicePoint or IDology.
We highly recommend that wineries and wine shippers fully abide by this voluntary Code. Free the Grapes! works very hard to fight for access to wine shipping in new states and to ease burdensome restrictions in states where shipping is already allowed. If any of the 5,600+ wineries across the country are exposed making “under the table”, or non-compliant shipments, it significantly undermines the efforts of Free the Grapes! and the trade associations.
North Dakota sales tax clarification
March 2nd, 2007
There have been some recent questions regarding North Dakota sales tax requirements. Wineries shipping directly to consumers in North Dakota are required to pay the 7% State retail alcohol tax. Additionally, Wineries have the option of deciding whether or not to collect local ND city & county taxes. However, if a winery collects local taxes they must be remitted to the appropriate taxing authority.
