Archive for October, 2007
Doyle uses veto on Wisconsin budget bill
October 26th, 2007
There was a flurry of activity this week in Wisconsin related to DTC shipping and self-distribution. You will recall that last month a host of onerous shipping provisions were included in the House version of the budget. These proposals would have repealed the existing reciprocal shipping statutes, replacing them with an entirely unworkable and exorbitantly expensive permit system. Just this week, we were able to amend the language related to DTC shipping in the final budget package to an acceptable package that would have allowed for a reasonable permit fee, as well as a 12-case per consumer limit (up from the 3 case original proposal). Unfortunately, the local wine industry was unable to secure a fix to the language banning self-distribution, which remained in the final budget. Early this morning, Governor Jim Doyle vetoed the entire section dealing with alcohol statutes, saying
“While the changes to the distribution system included in these sections may help address some concerns with sales of alcohol to minors, they also may have stifling economic effects on the small wineries around the state, forcing them out of business…While I am vetoing these provisions, I support the concept of a three-tier distribution system. The language included in the bill, however, does not adequately address the needs of small entrepreneurial wineries…”
Wine Shipping Permit System Passes via Badger Budget Bill
October 25th, 2007
Governor Jim Doyle is expected to sign into law Senate Bill 40, the Wisconsin Budget Bill that passed both chambers of the state congress on Tuesday. Within an amendment to the budget bill are provisions that would strike the existing reciprocal statutes for direct shipping and insert language that creates a permit system for wineries from any state. If signed by Governor Doyle (which could happen “within days“), the budget bill would take effect seven days later.
As of today, Wisconsin is one of only three states, including Iowa and New Mexico, that have reciprocity requirements for wine shipping. Oregon and Illinois also recently passed legislation that removes reciprocity and creates permit systems that will take effect on January 1st and June 1st, respectively. Wisconsin currently only has an official reciprocity arrangement with the state of California. Because of this, wineries in other states technically can not ship into Wisconsin.
The new law would establish an annual volume limit:
No individual in this state may receive more than 108 liters of wine annually shipped under authority of the section. Each individual shall be responsible for compliance with this annual limit.
and a tiered permit system:
(a) For a permittee that ships more than 90 liters of wine annually to individuals in this state, $100.
(b) For a permittee that ships not less than 27 liters nor more than 90 liters of wine annually to individuals in this state, $50.
(c) For a permittee that ships less than 27 liters of wine annually to individuals in this state, $10.
See our previous post for background on this bill. Key changes from the original version passed by the Senate make this bill much less onerous.
Jim Barbuti joins as panelist in fourth Shipping Compliance Virtual Seminar
October 24th, 2007
Don’t miss out on the fourth installment of our quarterly Shipping Compliance Virtual Seminar on Friday, October 26th sponsored by ShipCompliant and Wine Business Monthly. Panelists include:
- Steve Gross, Director of State Relations, Wine Institute
- James H. Barbuti, Liquor Commission Examiner - New Hampshire State Liquor Commission
- Jason Eckenroth, President, Six88 Solutions
- Jeff Carroll, VP Compliance, Six88 Solutions
Only 150 out of 500 spots remain in this FREE virtual seminar.
Click here to learn more and to reserve your spot.
If you are already registered for the seminar, please send your questions in advance by completing our pre-seminar survey.
Indiana Clarifies Shipping Rules - Wine Institute Recommends Member Wineries Begin Shipments
October 15th, 2007
The Indiana Alcohol and Tobacco Commission, in response to a series of inquiries from Wine Institute’s Regional Counsel Nino Ciaravino and our local counsel John Keeler, today clarified their position with regard to an enforcement component of that state’s direct-to-consumer shipping statutes. Originally passed in March of 2006, Indiana’s DTC shipping statute contained provisions which had prevented WI from recommending that our winery members obtain the required permit and begin making shipments. A recent court ruling in Indiana removed one area of confusion that had related to an initial on-site visit requirement, as well as a potentially restrictive limitation for those who have a wholesaler in the state. An additional part of the law dealing with aggregate consumer case limits was more problematic and was not addressed by the courts. This requirement says that a consumer may receive no more than 216 liters (24 cases) of wine in any calendar year. This aggregate limit applies to multiple winery sources – rather than the more traditional quantity limits used in other states which limit that amount any one winery may sell to any individual consumer. Since there is no mechanism under Indiana’s statute for a winery to know if, in fact, a consumer has exceeded their 216 case limit from other sources, we have recommended wineries not make shipments until we could clarify that their winery licenses would not be in jeopardy.
Mr. Keeler, on behalf of the Wine Institute, met with the members of the Indiana Alcohol and Tobacco Commission, along with their staff, and presented our concerns. Subsequently, the Commission has agreed to the following outline for a winery to ship into the state and avoid any violation of the statutes: “…[T}he Commission, until further notice, [agrees] not to take enforcement action against the holder of a direct wine seller’s permit for violation of I.C. 7.1-3-26-14 (annual limit on wine received by a consumer), provided that: (1) the holder of the direct wine seller’s permit has not directly shipped in excess of 216 liters within the calendar year to the particular Indiana consumer; (2) the direct wine seller has no actual knowledge that the particular consumer has received in excess of 216 liters within the calendar year; and (3) at the time of the sale transaction, the consumer represents to the direct wine seller that the sale will not result in the consumer receiving in excess of 216 liters in the calendar year.”
With this very important clarification, Wine Institute is now in a position to recommend to our members that they proceed with obtaining the required permit in order to begin servicing their Indiana customers. Wineries should ensure that their order-taking procedures are modified to accommodate the special requirements outlined above in order to obtain the required assurances from the consumer that they are in compliance with Indiana’s rules. We thank you for your patience while we worked through these important details. We will be posting the necessary permit applications and background materials on our website in the next few days. For further information, please contact State Relations at (415) 356-7518.
Is the retail to consumer shipping battle headed to the Supreme Court?
October 15th, 2007
The issue of direct shipments by retailers to consumers has become a very hot topic of late. As of today, retailers can ship to less than half of the number of states to which producing wineries can ship. The Specialty Wine Retailers Association is fighting hard with both legislative efforts and litigation to open more states for retail to consumer shipments. The heated battle in Illinois, where out-of-state retailers recently lost the ability to ship to consumers under HB 429, raised national awareness to this issue.
The fundamental question is whether the decision in Granholm v. Heald that said states must treat in-state and out-of-state wineries evenhandedly should also apply to in-state and out-of-state retailers. R. Corbin Houchins recently made two posts (September 18th and October 5th) that do an excellent job of highlighting the legal questions that come into play when attempting to extend Granholm to retailers. In his October 5th post, Mr. Houchins indicates his disagreement with the reasoning of the recent and important Arnold’s Wines v. Boyle opinion, which upheld discrimination against out-of-state retailers in New York.
There is a very interesting recent article, with substantial background materials for lawyers who do not practice in the subject area, on FindLaw.com titled “The Fight Over State Laws Favoring In-State Alcohol Purveyors: Do Such Laws Violate the Dormant Commerce Clause?” that also examines the important ruling in Arnold’s Wines. This article is definitely worth reading.
The Court has had to examine the intersection between the dormant Commerce Clause idea and the Twenty-First Amendment a number of times. Two years ago, in the seminal case of Granholm v. Heald, the Court appeared to send a message that while the Twenty-First Amendment may indeed empower states in some ways, it does not trump the anti-discrimination, anti-balkanization norm of the Commerce Clause.
The federal district judge in the recent Arnold case in New York properly acknowledged the importance of Granholm. Nevertheless, the judge held that Granholm’s ban on state discrimination against out-of-staters applied only to state laws regulating producers of alcohol, not laws (such as the one at issue in the recent New York case) that regulated wholesalers or retailers.
The New York judge’s interpretation of Granholm is, I believe, in error.
The Arnold’s Wines case will likely impact current (Texas, California) and future (Illinois?) cases in the battle over retail to consumer shipments and could possibly end up in the Supreme Court, where a favorable decision could potentially open the legislative floodgates for retailers as Granholm did for wineries in 2005.
Wrong, but Not Surprising: A Loss in Extending Granholm to Shipments by Retailers
October 5th, 2007
The recent decision in Arnold’s Wines, Inc. v. Boyle, Docket No. 06 Civ. 3357 (Southern District of NY, Sept. 9, 2007), which upholds New York’s requirement that retailers be located within the state to sell and ship to New York residents, illustrates the difficulty of separating dictum from holding in the Granholm case. (See the September 18th blog post for an explanation of the difference.)
My reading of the Arnold’s Wines opinion is that Judge Howell failed to put a famous statement from the 1990 North Dakota case, quoted in Granholm, in the context of the Granholm holding. The key quotation is that North Dakota had a 21st Amendment right “to require that all liquor sold for use in the State be purchased from a licensed in-state wholesaler.” States and local licensee trade associations cite the statement as a fundamental principle of constitutional law, while out-of-state plaintiffs dismiss it as mere dictum and therefore incapable of serving as the decisional principle in discrimination cases. In Arnold’s Wines it appears each side was half right.
To determine whether the North Dakota reference in Granholm is controlling precedent, one must examine the latter opinion to see if it was necessary to the result. When one does that, it seems clear that New York has the right to require all wine to go through a three-tier system, but no right to require that any element of that system be located within the state of New York unless the discrimination against out-of-state sellers can be justified under the Commerce Clause.
Nothing in the Arnold’s Wines memorandum opinion suggests evidence of justification other than New York’s desire to have a three-tier system and the general objectives of states’ adopting such systems after Repeal. Three-tier systems are like any other exercise of regulatory power by the state; they are valid only if they either do not discriminate against interstate commerce relative to local or discriminate no more than necessary to serve a legitimate state purpose that cannot be achieved by available nondiscriminatory means. The burden is on the state to justify discrimination. However, the court decided that the defendants win as a matter of law, with no factual hearing. It looks to me as if the court wrongly deprived the plaintiff of its right to require the state to prove its case.
Free the Grapes!: New Illinois Law to Expand Consumer Choice for Winery-to-Consumer Shipments from 5 to 50 States, But Corks Out-of-State Retailers
October 5th, 2007
From Free the Grapes!:
Illinois Governor Rod Blagojevich yesterday signed House Bill 429 which goes into effect June 1, 2008. The new law dramatically expands consumer choice for winery-to-consumer purchases made by Illinois wine consumers. Under the new law, wineries in all 50 states may purchase a permit to ship. Under the old law, wineries in just five states, including Illinois, were allowed to direct ship to Illinois consumers. The trading network of states with so-called ‘reciprocal’ wine shipping arrangements has decreased from a dozen to just five: New Mexico, Wisconsin, Iowa, Oregon (changes to permit law in January 2008) and Illinois (changes to permit law in June 2008).
“The new law is a boon for winery-to-consumer shipments, and long overdue, but unfortunately it corks out-of-state retailers. An amendment, widely supported by Illinois consumers and Free the Grapes! would have allowed out-of-state retailers the same privileges as wineries. It was defeated by powerful Illinois retailers and wholesalers,” said Jeremy Benson, executive director, Free the Grapes!, a winery-consumer grassroots coalition.
Illinois wine shipping bill signed by governor
October 4th, 2007
Governor Blagojevich signed HB 429 yesterday, temporarily ending an extremely tough battle to pass wine shipping legislation in Illinois. The new laws will not take effect until June 1st, 2008. Illinois will move from a reciprocal state to a permit state for winery direct shipping and will also enable limited self distribution for wineries that produce less than 25,000 gallons per year.
HB 429 will allow Illinois retailers to ship to consumers, but will prohibit out of state retailers from doing the same. This will almost certainly be challenged by the Specialty Wine Retailers Association, who will seek evenhanded access to shipping directly to Illinois consumers.
For more information on HB 429, please see our previous post.
Ohio Direct Shipping Permits Available for Wineries Producing Under 150,000 Gallons Annually
October 3rd, 2007
As of October 1, 2007 only wineries producing up to 150,000 gallons annually with an approved S Permit issued by the Ohio Department of Commerce Division of Liquor Control and registered with the Ohio Department of Taxation may ship to Ohio consumers. Wineries producing 150,000 gallons or more annually are prohibited from shipping both on-site and off-site sales to Ohio consumers as of October 1, 2007. The application fee for the S Permit is $25.00 annually. Under the new law an Ohio family household may receive an aggregate total of 24 cases of wine annually.
Wineries applying for the S permit must pay a $25.00 fee and have the application notarized. The permit must be renewed by each year by October 1st. It is expected to take 3-4 weeks for the applications to be processed. Next are some tips to help you complete the permit application. Type of Applicant is determined by whether or not the winery has a relationship with an Ohio distributor. If the winery applying for a permit has a distributor in Ohio “out-of-state supplier” should be selected as type of applicant. Wineries that do not have a relationship with a distributor should select “unregistered in Ohio out of state wine manufacturer.” The first question on the application references a tax credit under 27 D.F.R. 24.278. This refers to a section of the “small producer’s tax credit” that all wineries producing less than 150,000 gallons annually are entitled to under federal law.
The Division of Liquor Control will notify the Department of Taxation, Excise Tax Division that you have applied for the S permit. Excise tax forms and instructions should arrive via U.S. Mail approximately 30 days after you have submitted your S permit application. Excise taxes are scheduled to be paid quarterly. Direct Shippers must register with the Ohio Department of Taxation, Sales & Use Tax Division. Registering your business by telephone is recommended. Call 1-888-405-4089 and press #1 after the message. There is also the option of registering with the Department of Taxation by submitting Form UT-1000. State and county sales tax must be paid. The state sales tax is 5.5% and the county tax ranges from.25%-1.5%.
S Permit holders are required to report annually to the Division of Liquor Control. The annual report must include a copy of each wine shipment invoice and a record of the name, address and quantity of wine purchased by each consumer. The reporting form is not yet available. It is likely that the annual reporting due date will coincide with the S permit renewal date of October 1. For more information visit the Wine Institute website.
Link to Form UT-1000
Link to S Permit Application
Small producers tax credit
