November 22nd, 2010

On November 5, 2010, Idaho State Tax Commission officials sent out a letter to qualified wine tax return filers, offering the opportunity to change their filing frequency from the mandatory monthly submission to quarterly, semi-annually or annually. “Qualified Filers” include direct shippers who report less than $600 of wine tax per quarter (approximately 186 9-liter cases per month) and have a good filing history. Recipients of letters from the department, in order to change their filing cycle for the upcoming year, must respond to the letter by December 1, 2010. Filers should continue to submit monthly returns until after January 1, 2011 when the new filing frequencies will come into effect. The Idaho State Tax Commission encourages qualified filers to take advantage of this opportunity; submitting returns less frequently will mean filers no longer need to submit returns for negligible amounts of tax and will reduce the amount of required paperwork.

Note: ShipCompliant users will see the new frequency options available on the Report Settings page at the end of December.

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November 11th, 2010

Arizona

Permit Required

	Producers	Retailers
Onsite
Offsite

Complexity: Hard

Summary	Wineries that possess a Domestic Farm Winery License and produce less than 20,000 gallons per year are permitted to ship off-site and on-site direct shipments, with no volume restrictions; privilege and excise tax are required. If a winery does not possess a license or produces more than 20,000 gallons per year, they will be limited to sales made to consumers physically visiting the winery only; volume limits apply.
Approved & Active Carriers	FedEx and UPS both ship to this state.
Shipping Rules	Tax:  Wineries holding a Domestic Farm Winery License are required to pay local privilege and excise tax. Privilege tax rates, similar to sales tax, range from 6.6% – 11.725%, depending on the shipping destination. An excise tax of $0.84/gallon must be paid monthly. Non-licensed wineries shipping on-site orders only are not responsible for paying tax on wine shipments.
	Permit:  Wineries that produce less than 20,000 gallons a year and possess a Domestic Farm Winery License may make unlimited direct shipments to Arizona residents. Wineries that produce more than 20,000 gallons or do not hold a Domestic Farm Winery License are not permitted to make off-site shipments in Arizona. Wineries which fall into the latter category (non-licensed, over 20,000 gallons) however, may make on-site shipments to consumers, and may make subsequent shipments within a calendar year of the the on-site visit, as long as the wine was purchased while the purchaser was physically present at the winery.
	Customer Volume Limit:  Licensed wineries may make unlimited shipments to Arizona Consumers. Orders placed at a non-licensed winery are limited to two cases per individual per calendar year.
License Requirements	To be eligible to make unlimited off-site and on-site shipments, wineries that produce less than 20,000 gallons a year must first obtain an Out-of-State Domestic Farm Winery License at the cost of $300 ($100 initial application fee plus $200 for the license). Licenses are good for one year from date of issue; half-year licenses are also available for a reduced price. To ship limited on-site shipments only, no license is required.
History	Arizona officially opened to on-site direct shipping in 1999. In 2002-2003, the state passed SB 1073 allowing Arizona residents visiting a winery, either in-state or out-of-state, to ship one case of wine per year to their homes. In 2003, volume limits were increased to 2 cases per year. After the Granholm v. Heald decision in 2005, Arizona modified its direct shipping laws to address concerns that out-of-state and in-state producers were not being treated equally. Governor Janet Napolitano signed into law SB 1276 in 2006, which opened the state to limited direct shipping and self-distribution.
Litigation / Legislation	In 2008, an Arizona federal district court ruled that the required visitation to a winery without a license did not violate the Granholm decision of 2005. In Blackstar Farms v. Oliver, Blackstar Farms presented the argument that the on-site visitation rule was a limitation that favored in-state producers, based on the argument that an Arizona resident was more likely to visit an in-state winery than to travel out of state to order wine products. The courts ruled in favor of Oliver (the state’s Liquor Licenses and Control director at the time) using the “accident of geography theory,” meaning, simply because it is less likely that an Arizona resident will visit a California winery, does not mean out-of-state producers are being discriminated against. In another case filed by Blackstar Farms in 2006 (Blackstar Farms v. Morrison), Blackstar Farms challenged the existing 20,000 gallon volume cap for farm wineries. The courts ruled in favor of Morrison, the states LLC director, and the volume cap was left in place; the 9th U.S. Circuit of Appeals rejected Blackstar Farms’ appeal in April, 2010, leaving the cap in place.

 

Side Note: For suppliers interested in selling to retailers (self-distribution), Arizona law permits holders of a Domestic Farm Winery License that produce less than 20,000 gallons per year, unlimited shipments to Arizona retailers.

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November 1st, 2010

On November 2, 2010 citizens of The Evergreen State will see two separate measures on the ballot concerning the distribution of liquor. Both initiatives represent a big change to the current liquor distribution system. The Washington State Liquor Control Board currently regulates the sale of all liquor (wine, beer and spirits) and maintains total control over distribution and retail sale of spirits. Washington is one of the nineteen control states, and is one of three control states, along with North Carolina and Virginia, that took a hard look at privatization in this election year.

Initiatives 1100 and 1105 would privatize liquor sales, completely removing the state’s involvement from the sale of liquor. However, the state would retain its involvement in the enforcement and regulation of liquor products sold within the state. The measures could significantly decrease the amount of tax collected from liquor sales; initiatives 1100 and 1105 would both discontinue some portion of the current taxes collected on liquor, and both seek to replace the lost revenue with alternate collection methods. A loss in revenue is one of the main concerns with both initiatives, particularly I-1105.

Initiative 1100 is sponsored, in part, by Costco and Wal-Mart, large retailers who stand to receive significant benefits from its passage. If the initiative is adopted, retailers would no longer be required to to purchase liquor from a wholesale distributor; retailers could purchase spirits, wine and beer directly from the manufacturer. Additionally, retailers could negotiate volume discounts, a practice currently banned for wine, beer and spirits. Lower prices for retailers means lower prices to consumers, but some producers fear that they will not be able to compete with the low prices that large producers may be able to offer. Several other important changes would also occur, including adding the ability for retailers to charge liquor suppliers for shelf space (slotting fees) and eliminating Cash on Delivery (COD) requirements.

Like I-1100, I-1105 would remove the state’s presence from the selling of liquor, however, there are few other similarities. I-1105 is sponsored, in part, by the Washington Beer and Wine Wholesalers two Washington wholesalers, Odom Southern Holdings and Young’s Market Company. If the measure passes, state distribution centers would be forced to close by April 2012. Volume discounts would be permitted for spirit products only; not for beer or wine. Additionally, with passage of I-1105, spirit products could be sold at retail stores alongside beer and wine.

If I-1100 passes, state retail stores would be required to close, and state distribution centers could not purchase any new products effective December 1, 2011. Spirit-only distribution centers would be able to apply for a spirit distribution license as early as December 2, 2010, while new liquor permits to distribute any combination of liquor products would become available in January 2011. Liquor retailers’ licenses would be made available in June, 2011.

If I-1105 passes, operation of state liquor stores would cease, and state distribution centers would have to sell all assets by April 1, 2012. Newly licensed spirits retailers would be allowed to commence sales on November 1, 2011. Newly licensed spirit distributors would be able to begin distributing spirits on October 1, 2011.

A ballot poll from mid-October suggests that neither initiative has emphatic support, but of the two, I-1100 is in the lead. Though it is unlikely, if both initiatives pass, the common provisions of both initiatives would become effective, leaving the state legislature to sort out conflicting language. Any decision (or lack thereof) made by the state legislature could be challenged in court.

For more details on the specifics of Initiative 1100, please view the full text of the initiative or view the Senate summary. For more specific details on Initiative 1105, read the Senate summary, or view the full text of the measure. For further information and a detailed comparison of each initiative, a suggested account is Sean Sullivan’s four-part series in the Washington Wine Report. Brief summaries, quoted from the Senate summaries linked above, are provided below.

I-1100 Brief Summary:

Initiative 1100 (I-1100) amends state laws regarding the manufacture, distribution, and sale of liquor in Washington. There are two main components to the initiative. The first component changes the way the state regulates the distribution and sale of beer and wine. Washington has a three-tiered system of beer and wine regulation: a manufacturing tier, a distribution tier, and a retail tier. Beer and wine must generally move through each tier before it can be purchased by a consumer. A number of laws regulating the relationships and business transactions between and among the tiers are repealed by I-1100, including uniform pricing requirements and restrictions on financial interest, quantity discounts, and moneys’ worth.

The second component changes the way spirits, also known as hard liquor, are sold in Washington. Washington is a control state, meaning the state has exclusive control over the distribution and retail sale of spirits in the original package. I-1100 eliminates the state’s exclusivity and privatizes the distribution and sale of spirits.

I-1105 Brief Summary:

Initiative 1105 (I-1105) amends state laws regarding the distribution and sale of spirits in Washington. Washington is a control state, meaning the state has exclusive control over the
distribution of spirits and the retail sale of spirits in the original package. I-1105 eliminates the
state’s exclusivity and privatizes the distribution and sale of spirits (hard liquor).

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