Archive for August, 2008
New Requirements for S Permit Applications and Renewals in Ohio
August 29th, 2008
For eligible wineries, SB 150 has created quite a bit of change to the existing direct shipping law. Since the dawn of Ohio’s direct shipping regulations, in order to be eligible for the “S Permit”, which allows wine manufacturers to ship wine directly to Ohio consumers, the wine manufacturer must produce less than a certain number of gallons per year. As was reported in June, SB 150 increased the maximum production requirement from 150,000 gallons to 250,000 gallons (the maximum production requirement described for S permit holders is also true for wine manufacturer’s that hold a “B-2a permit”, allowing for shipments of wine directly to retailers, a.k.a. self-distribution). SB 150 also lowered the excise tax rate for direct shippers and added a costly label registration requirement, which may further deter wine manufacturers from shipping into Ohio.
First the good news.
There are now only two types of excise taxes that must be paid by B2a and S permit holders, instead of three: taxes levied by a county for sports facilities (e.g. Cuyahoga County tax); and a $.02/gallon tax on wine and sparkling wine, levied by the state of Ohio to encourage Ohio grape industries. These taxes are not due until the end of the year; updated tax forms are not yet available.
Now, the not so good news.
Effective Monday, September 1st, label registration of all wine products sold in Ohio is required from all direct shippers. The registration fee is $50 per new label. Direct shippers should submit registrations for all products shipped into Ohio via the Application for Label Registration with a copy of the TTB COLA. If the direct shipper already sells products through an Ohio distributor, they only need to register additional products that have not already been registered. S permit holders should submit the applications for label registration form prior to the October 1, 2008 permit renewal deadline. B-2a permit holders should submit applications for label registration as soon as possible, as this requirement goes into effect September 1st, 2008.
As of September 1st, S permit holders must also register as “S-5″ wine suppliers. This is a new requirement, however if the S permit holder also ships to Ohio distributors, this registration will have already taken place. For those that have not already registered as a wine supplier in Ohio, the initial processing fee for this registration is $100. In addition to the processing fee, the Supplier Registration costs $300, however the $300 fee is waived for wineries that only hold an S permit and do not have a distributor relationship in Ohio. The Supplier Registration form requires notarization.
The Lone Star State: To File Monthly or Quarterly, that is the Question
August 22nd, 2008
As was reported earlier this week, the Texas C-240 Direct Shipper’s Report will change from a monthly to a quarterly return for orders shipped after September 1st. However, we’ve received a number of questions about how to report shipments for the month of August.
August is the last month that will require a monthly return, which will report shipments to Texas consumers only for the month of August. This report is due September 15th, and should include tracking numbers for each shipment. The newly updated quarterly frequency will commence on September 1, 2008, including orders shipped from September through November, and is due December 15th. Also, please note that the new quarterly frequency is based on Texas’ fiscal year (beginning September 1st), not on the familiar calendar year (beginning January 1st), therefore the quarterly reports will be due on the following schedule: December 15th, 2008; March 15th, 2009; June 15th, 2009; etc.
Good News from Texas
August 20th, 2008
On September 1, 2008 Texas will begin requiring direct shipping reports to be submitted on a quarterly basis. Reports will be due within 15 days of the completion of every 3 month quarter. Currently, direct shippers must file a report and pay taxes every month. The new report will no longer require direct shippers to report the common carrier tracking number for each shipment, the name of the common carrier will be sufficient.
All permit holders have been mailed a copy of the Quarterly Direct Shipper’s Report by the Texas Alcohol Beverage Commission and the form will soon be available on the TABC and Wine Institute website. The last monthly reporting period is August 2008. Shipments sent on or after September 1, 2008 should be included in the quarterly report.
Annie Bones, State Relations - Wine Institute
Georgia Clarifies Direct-to-Consumer Shipping Rule
August 19th, 2008
Wine Institute has received information clarifying Georgia’s direct-to-consumer wine shipping regulations. The rule allowing on-site shipments without a permit was not repealed on July 1, 2008 when the new permit law became effective. All wineries may continue to ship up to 5 cases of wine to a Georgia household annually provided the wine was purchased on-site. Wineries are not required to have a Direct Shipping Permit, pay taxes or file reports for on-site shipments.
A Direct Shipping Permit is required for all off-site shipments to a Georgia address. All bonded wineries are eligible to apply for a GA permit. The holder of a Direct Shipping Permit may ship up to 12 cases of wine sold off-site to a GA address annually. Direct Shippers with an approved Direct Shipper’s Permit are required to report, pay state and local sales tax, and excise tax on off-site direct-to-consumer shipments. On-site shipments do not count against the 12 case volume limit and should not be included in any direct shipping reports.
For example, if a GA consumer visits a winery the winery may ship up to 5 cases of wine to the GA consumer’s address as long as the 5 cases of wine were purchased on-site. The same consumer returns to GA and decides he would like to join the winery’s wine club. If the winery holds a direct shipping permit the winery may ship up to 12 additional cases of wine to the GA consumer’s address during the same year. If the winery does not have a direct shipping permit the consumer cannot join the wine club or receive off-site direct-to-consumer shipments. Should you have any additional questions please contact Wine Institute’s State Relations Department at 415-356-7530.
Annie Bones, State Relations - Wine Institute
Follow us on Twitter: winecompliance
August 19th, 2008
When we make a post here on the ShipCompliant blog, we take the time to really understand an issue, research the facts involved, and make a substantive post that adds value to the issue that we are discussing. However, the ShipCompliant research team hears news and information from many different sources every day that may not necessarily end up as the subject of a post on this blog. Because of this, we recently started posting updates on Twitter to give you a heads up about articles or blog posts that we think are interesting in the world of wine compliance.
If you’re interested in learning more about wine compliance, please follow winecompliance on twitter! If you don’t yet have an account on twitter, we also added a sidebar widget that lists the five most recent updates on the bottom right of this page ->
Attention 17/20s: 17 + 20 ≠ 02
August 15th, 2008
That’s right – when California License Type 17 (Beer and Wine Wholesaler) and License Type 20 (Beer and Wine Off-Sale Retailer) are issued in conjunction, the privileges associated with the combination license are not equivalent to those of the 02 Winegrower’s License. A Type 17 License “permits incidental sales to other supplier-type licensees” and a Type 20 License “authorizes the sale of beer and wine for consumption off the premises where sold.” The joint issuance of the two licenses is authorized by Section 23378.2 of the California Code and permits the issuance of a package off-sale beer and wine license to a licensed California wholesaler if only wine is sold from the retail premises. It is significant to note that when shipping out-of-state, a 17/20 licensee is considered a retailer resulting access to fifteen states.
A month ago at the ShipCompliant Users Conference, Matthew Botting of the California ABC revealed that many 17/20 permit holders were not fulfilling all requirements of the combination license and were instead operating more like 02 licensees because many were unaware that 17/20 permit holders must act as a bona fide wholesaler in order to comply with the provisions of the license. Please note that in order to operate as bona fide wholesaler, a 17/20 permit holder must sell to retailers, in general, at least every 45 days. Section 23779 provides, in pertinent part:
No wholesale license shall be issued to any person who does not in good faith actually carry on or intend to carry on a bona fide wholesale business by sale to retail licensees of the alcoholic beverage designated in the wholesale license, and the department may revoke any wholesale license when the licensee fails for a period of 45 days actively and in good faith to engage in the wholesale business…Sale by a wholesale licensee to himself as a retail licensee is not the transaction of a bona fide wholesale business.
For more information on 17/20 licenses or other California wine-related licenses, check out Matthew Botting’s presentation and slides from the 2008 ShipCompliant Users Conference.
A Little Knowledge Is Not Enough: Evidentiary Burdens In On-Site Cases
August 10th, 2008
The August 7th decision of the Court of Appeals for the Seventh Circuit in Baude v. Heath has been characterized as a loss in the fight against on-site purchase requirements. Indeed, the opinion leaves Indiana’s initial personal visit requirement in place. That is not, however, the whole story.
It’s important to keep in mind in reading the opinion that the Court of Appeals is affirming the lower court’s granting of summary judgment against the state on one point and reversing it on another. That is, the district court had decided no trial was necessary because uncontested facts established the unconstitutionality of both the wholesale licensee ban and the initial on-site visit requirement. The appellate court agreed with the former conclusion and disagreed with the latter.
Statutes that openly discriminate against out-of-state wineries are almost always unconstitutional and provide fit subjects for summary judgment. Statutes without openly discriminatory provisions, but whose effect in practice is to impose a greater burden on out-of-state wineries than on local wineries, may be unconstitutional, depending (in the locution of the leading case) on whether the burden is “clearly excessive in relation to the putative local benefits.”
That determination of excess is at the heart of the 7th Circuit opinion. The appellate court had little trouble in concluding that the kinky ban on shipment by wineries that had direct distribution rights anywhere provided virtually no benefits, except to wholesalers, and was substantially burdensome. Because uncontested facts in the district court demonstrated exclusion of a substantial number of out-of-state sellers, the plaintiffs had met their burden of showing discriminatory harm to interstate commerce, shifting the obligation to produce evidence to the defendants. The state and wholesalers had offered only one intelligible counterargument –the claim that requiring commerce to go through a local middle tier makes it easier to monitor sales and collect state excises. We can keep Baude v. Heath in the column of cases that do not consider that claim a substantial justification for demonstrated burdens on commerce.
In the other (and more important) half of the 7th Circuit opinion, the same burden-benefit analysis reached a different conclusion with respect to the supposed economic consequences of Indiana’s requirement that the consumer travel to the winery site before receiving the first direct shipment order. Faced with a contention that such a burden is inherently excessive, the chief judge offered some unvarnished advice to plaintiffs’ counsel: “It is impossible to tell whether a burden on interstate commerce is [excessive] without understanding the magnitude of both burdens and benefits. . . . . Exact figures are not essential (no more than estimates may be possible)[,] and the evidence need not be in the record if it is subject to judicial notice, but it takes more than lawyers’ talk to condemn a statute . . . .” In other words, you can’t litigate a burdening case as if it were a case of overt facial discrimination. See Notes on Wine Distribution, pages 8-10, for my discussion of that point and of Cherry Hill Vineyard (which was cited in Baude) and similar cases.
Regarding judicial notice (which occurs when a court accepts something, such as a tide table, as true from published sources, without live testimony), courts seldom take notice of controversial facts. That point came up when the chief judge, sounding a bit offended by plaintiffs’ argument that there was no point in having a face-to-face screening system because determined underage purchasers would defeat or circumvent it, declined to take judicial notice of propositions they advanced in support. Plaintiffs cited some studies and attempted to use an on-line ID check provider’s advertising to show on-site screening is unnecessary. The appellate court wasn’t having it and noted that “it would be awfully hard to take judicial notice that in-person verification with photo ID has no effect on wine fraud and therefore flunks the interstate commerce clause.”
Thus, although delivery requirements involve face-to-face proof of age, Baude stands for the proposition that plaintiffs would have to prove that carrier screening undercuts the enforcement benefit of the initial winery site requirement. The appellate opinion refers to Rowe v. New Hampshire Motor Transport Ass’n, a case involving a specific tobacco-regulating statute, as forbidding states to require carriers to check age of persons receiving intoxicating liquor. That is, I believe, an egregiously wrong reading of the case (see blogging on both sides of the issue here), but the opinion does not rely on it. Rather, it describes the face-to-face transaction between carrier employee and recipient of the shipment as facially inferior to age screening at a winery, to a degree that allows the state to treat the former as inadequate. As with economic effects, plaintiff evidence was, in the court’s view, simply absent on the efficacy of at-delivery age screening: “Given the state of this record, and the state of the empirical literature, we know very little.” The take-away is that before you can knock down a duly enacted state statute, you need to know –and show– rather a lot about its discriminatory effects.
The primary importance of Baude is to add weight to an already substantial body of judicial opinion that suits based on a facially neutral law’s burdensome effects on interstate commerce relative to local commerce have to be tried quite differently from suits like Granholm, which was based on overt and explicit discrimination against interstate commerce. The case does not say that the face-to-face law would prove constitutional in a properly presented case, only that it was wrong to conclude that its unconstitutionality was so clear as to require no presentation of quantitative evidence on its burdens.
Reversing a grant of summary judgment does not require that the lower court enter summary judgment for the other side. Rather, it provides guidance to the district court as to evidentiary requirements if the case goes on to trial, and leaves the statute in place if there are no further proceedings below. The plaintiffs’ burden of proof in Baude is substantial but not unsupportable. It ain’t necessarily over.
7th Circuit Reverses Indiana Face to Face Ban
August 8th, 2008
The 7th Circuit Court of Appeals made an important decision yesterday regarding face-to-face transactions when shipping wine directly to Indiana consumers. After Indiana initially passed its direct shipping laws to comply with Granholm, the face-to-face requirement was successfully challenged in August of 2007. However, yesterday’s decision will eventually reverse the face-to-face clause.
None of the plaintiffs contends that Indiana’s law has led him to buy more wine from Indiana and less from other states. The law simply shifts sales from smaller wineries (in all states, including Indiana) to larger wineries (all of which are located outside Indiana). The Indiana Winegrowers Guild has filed a brief as amicus curiae opposing the face-to-face clause, which the Guild maintains has made it unduly difficult for its members to ship their wine direct to consumers. But if what the Guild says is
true, then the statute—although bad economically for Indiana’s wineries—must be sustained against a challenge under the commerce clause. Favoritism for large wineries over small wineries does not pose a constitutional problem, and the fact that all Indiana wineries are small does more to show that this law’s disparate impact cuts against in-state product than to show that Indiana has fenced out wine from other jurisdictions.The judgment of the district court with respect to the wholesale clause is affirmed, and with respect to the face-to-face clause is reversed. The case is remanded for the entry of a judgment consistent with this opinion.
We expect to receive clarification from the lower court or from the Indiana ABC on how current and future permit holders can comply with the existing statutes. We’ll update you here as we receive more information.
The Poster Prohibited State Slackens Slightly
August 8th, 2008
Last Friday, Wine and Spirits Daily reported that Utah’s grip on liquor has let up, at least a little bit. The recent rule change applies only to Utah brewers and distilleries but this could potentially be good news for everyone in the alcohol industry. The new ruling allows Utah residents to purchase onsite orders from Utah breweries and distilleries. Utah wineries have enjoyed this same freedom since 1991. This decision is part of Governor Huntsman’s effort to free the state of the private clubs. Though it hasn’t been mentioned as a step in the governor’s plans to “liberalize” Utah’s liquor laws, perhaps this loosening will open up the gateway for responsible direct shipping legislation in the future.
Woman of the Hour - Tracy Genesen
August 7th, 2008
Tracy Genesen of Kirkland & Ellis, LLP is one of the prominent forces currently driving legal change in the wine industry and was the keynote speaker at ShipCompliant’s 2008 Users Conference a few weeks ago.
Genesen’s speech analogized her role in the industry to a “court of last resort” when legislative means are unsuccessful in remedying protectionist state laws that have remained in effect despite the Granholm ruling in 2005. Granholm resolved many instances of differential treatment by the states and was extended to apply to self-distribution in the Costco ruling. However, Genesen revealed that the post-Granholm time of prosperity has given way to another host of problems. For example, states like Maine and Arkansas, in which direct shipping markets do not exist, have level playing fields; however, treating everyone the same by not allowing anyone to ship is a detriment to the wine industry. In addition, courts are struggling to deal with retail-to-consumer shipping laws in many states. Challenges to these laws have produced interesting results, like the “funky remedy” by a district court judge in a Texas lawsuit which declared that Granholm applied to retailers, but that retailers must first buy wine through Texas-licensed wholesalers. Wholesalers have also maintained their grip on states like Massachusetts by crafting legislation that is beneficial to them but also facially neutral. The 30,000 gallon capacity cap in Massachusetts exemplifies such economic protectionism and is the contention in the Family Winemakers of California case. Oral arguments in the case took place on July 29th in Boston and the decision is expected sometime this fall.
Many thanks to Tracy Genesen for sharing her insights into the current legal atmosphere of the industry. To view Genesen’s speech in its entirety or that of any of the other speakers at the conference, please see the 2008 Users Conference Simulcast. More information on the cases in Massachusetts and Texas is also available on the ShipCompliant Blog.
