Posts from the Legislation Category
Wisconsin Becomes a Limited State Today: I’ll Have Some Wine with that Cheese, Please
October 1st, 2008
Beginning today, October 1, 2008, Wisconsin is open to direct wine shipments from wineries throughout the country. Direct shipments to consumers in Wisconsin must be shipped under Wisconsin’s new “Direct Wine Shipper’s Permit”; reciprocal shipments of wines are no longer allowed. New direct shipping regulations include: a $200 Direct Shipping license, payment of sales and excise taxes, and quarterly reporting. Additionally, the consumer is limited to receiving no more than 108 liters (12 cases) of wine per year from any combination of licensees; the consumer is responsible for staying within the limit, however an individual direct shipper may not ship over 108 liters of wine to any individual in Wisconsin.
Also included in the legislative changes is the ability for wineries that produce less than 25,000 gallons of wine per year, to sell wine to retailers through a “co-operative wholesaler”. Co-operative wholesalers must be created before December 31st, 2008. To learn more about the legislative changes and co-operative wholesalers, read “Direct Shipping Bill Receives Governor’s Signature“. Also, “Permit Applications Available” contains more detailed information on these legislative updates, and information on how to become permitted as a Direct Wine Shipper in Wisconsin.
District of Columbia Increases Volume Limits
September 29th, 2008
Washington, D.C. recently made an adjustment to its direct-to-consumer wine shipping law that benefits the industry and consumers. The volume limit has increased from 1 quart to 1 case per person per winery per month. Washington, D.C. consumers are now allowed to order up to 1 case of wine per month from any number of wineries. There continues to be no permit, reporting or tax requirements for direct shippers. However, wineries must comply with their common carrier’s wine shipping policy.
Annie Bones, State Relations - Wine Institute
Louisiana Shipping Rules
September 18th, 2008
In response to questions about shipping wine to Louisiana, I thought a short summary of direct-to-consumer wine shipping rules was in order. Louisiana regulations do not prohibit wineries with a relationship with a licensed wholesaler in Louisiana from making off-site direct-to-consumer shipments. The Alcohol and Tobacco Control Office allows a winery to direct ship any label that is not consigned by contract to a licensed wholesaler in the quantity stated in the law. This is allowed even if the winery has other labels consigned to the wholesaler. Wineries may ship up to 4 cases per household per year and are required to obtain a direct shipper’s permit before shipping to Louisiana consumers. In addition, wineries must pay taxes and file reports. Should you have any questions please contact Wine Institute’s State Relations Department at 415-356-7530.
Annie Bones, State Relations - Wine Institute
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.
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
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.
Half-Year Hullabaloo: New Laws Take Effect in Three States Today
July 1st, 2008
Just a quick reminder of the legislative changes that take effect today, July 1st, 2008.
- Georgia’s new permit system takes effect. All wineries can now apply for a permit, regardless of distributor representation. Click here to see how to apply for a direct shipping permit.
- Ohio is increasing their capacity cap, making it possible for wineries that produce under 250,000 gallons annually to apply for a direct shipping permit.
- Washington is implementing a destination-based sales tax for all in-state entities.
Ohio Ups Gallonage Cap
June 23rd, 2008
On June 2nd, Governor Strickland signed an emergency measure that upped the capacity cap from 150,000 gallons to 250,000 gallons. The measure goes into effect on July 1, 2008 and amends Section 4301.10(A)(8)(c) of the Ohio Revised Code.
The 100,000 gallon increase results in benefits for wineries and consumers alike. Now wineries producing between 150,000 and 250,000 gallons annually will be able to get a direct shipper’s permit and have access to the state which, in turn, provides Ohio residents with a wider selection of wines from which to choose. However, the cap is still in place, and until Ohio joins the ranks of states which have no capacity caps, both wineries and consumers will suffer.
Wineries that produce between 150,000 gallons and 250,000 must apply for the B-2a and/or S permits with new application forms, however, as of June 23, 2008 Ohio has not yet updated their permit applications to reflect the increased capacity cap. To obtain general information on obtaining a B-2a and/or S permit, visit the Ohio Division of Liquor, and click on “Direct Shipping Information”. To check for updated applications, click on “Agency Operations Section (Liquor Agencies, Spirituous Liquor)”.
Family Winemakers of California Making Headway in Massachusetts
June 15th, 2008
On May 29, 2008, Family Winemakers of California filed a motion for summary judgment in Family Winemakers of California v. Jenkins, now before the federal district court for Massachusetts. The suit alleges that section 19F, the Massachusetts law that permits direct-to-consumer wine shipping, is unconstitutional because it “unequivocally discriminates against interstate commerce in both purpose and effect” by limiting direct shipment privileges to wineries annually producing no more than 30,000 gallons. The motion asks the court to declare that discrimination unconstitutional and requests that the court allow section 19F to remain in force, but enjoin Commonwealth of Massachusetts officials from applying the volume cap.
Section 19F was modified to replace a prior Massachusetts local-only direct shipping law, which was found facially discriminatory and invalidated in Stonington Vineyards, Inc. v. Jenkins. The current motion argues that the new text in section 19F was simply a more subtle means to accomplish the same protectionist ends. The bill that amended 19F was vetoed by Governor Romney, who declared that the measure would not cure the previous law’s deficiencies. The Massachusetts legislature, however, overrode his veto and signed the bill into law, setting the stage for judicial determination of which side was right.
Section 19F as amended creates a two-classification system based on the size of the winery’s annual production and wholesaler relationship. Section 19F(a) presents a choice for wineries producing more than 30,000 gallons annually –in effect, they can ship directly to consumers or have wholesaler representation. Wineries producing no more than 30,000 gallons annually can ship directly to consumers while also maintaining a relationship with a wholesaler.
Family Winemakers of California’s summary judgment motion alleges that the “large” wineries are primarily out-of-state and that section 19F, though facially neutral on location, is in intent and effect protectionist and discriminatory. Moreover, the law specifically dictates that fruit wine does not count toward the gallonage cap; the motion argues that a much larger portion of wine produced in Massachusetts is fruit wine than wine produced elsewhere, enhancing the discriminatory effect.
Unsurprisingly, Massachusetts has filed a cross-motion for summary judgment in response, arguing that section 19F is facially-neutral, not discriminatory, and less restrictive than similar laws in other states that have been upheld. The Commonwealth’s motion requests that the court join the courts in Maine, Kentucky, and Arizona which have left production caps in effect in their respective states. An amicus brief filed by the Wine & Spirits Wholesalers of Massachusetts also supports the 30,000-gallon production cap. A key problem with challenges in other states has been the lack of economic evidence supporting discriminatory effects; the current motion attempts to bypass that requirement, in part on the grounds that the previous flat ban on out-of-state direct shipment prevented compilation of economic evidence, excusing the plaintiff from a burden of proof it could not meet because of the defendants’ unlawful conduct.
Oral argument is scheduled for July 29, 2008. If the court determines that a genuine issue of material fact does not exist as outlined in either of the individual motions, the court will grant the motion of the party whose legal argument It finds persuasive. However, the court could deny both motions and rule that evidence is required to resolve issues of fact.
If the court grants the plaintiff’s motion, the resulting injunction enjoining Massachusetts from enforcing the capacity cap and the wholesaler relationship restriction of 19F would, in theory, open the state to shipments from out-of-state wineries. However, obstacles to direct shipments into the state might persist. For example, the decision would not directly affect current carrier policies; FedEx and UPS could continue to refuse to ship to Massachusetts. In addition, an injunction might not resolve issues apart from the volume cap, such as how individual importation limits would be enforced by state officials.
Whatever its outcome, Family Winemakers of California v. Jenkins will serve as an important precedent on the constitutionality of capacity caps. In particular, a plaintiff’s victory on summary judgment would significantly lower the evidentiary bar for challenges to thinly-veiled protectionist measures presented as facially neutral.
Washington: Making Change, Streamlined Style
June 13th, 2008
On July 1st, 2008, when Substitute Senate Bill 5089 takes effect, Washington will join twenty-one other states that have conformed to the “Streamlined Sales and Use Tax Agreement”. The bill will change the way retail sales tax is collected for some Washington businesses. Beginning July 1st, 2008, any business with nexus in Washington must pay sales tax based on the destination of the shipped order. Previously, Washington businesses that shipped orders to Washington residents could pay sales tax based on where the order was originating from, making local taxes fairly easy to calculate.
The new taxing regulation requires Washington wineries to pay local taxes to every destination to which they ship (via a single sales/use tax return). This could be a bit of a jolt for Washington wineries. With over 300 different tax rates and location codes, based on special districts that cannot be defined solely by city and county designations, filling out the periodic tax return could become significantly more difficult.
Out-of state wineries will see no changes in their tax payments. Destination-based sales tax in Washington should be nothing new for them; out-of-state wineries have had to pay destination-based sales tax since July 1st, 2006, when the Wine Shipper’s License first became available.
If you are a Washington business that ships or delivers goods, be sure to check the Washington DOR’s website for useful information about the change. On this page, you can use a number of different tax lookup tools as well as watch online tutorials.
Georgia is a “Go”: Residents Can Now Join Wine Clubs and Buy Wine Online from All Wineries
May 14th, 2008
Good news, wineries - shipping to Georgia just got a whole lot easier!
As we mentioned in a previous post, House Bill 1061 had passed in the House and has since passed in the Senate. It made its way onto the Governor’s table on April 15th, and Georgia Governor Sonny Perdue signed it into law yesterday. The long-awaited bill amends Code Sections 3-6-31 and 3-6-20, a source of problems for many wineries. Before the bill passed, Georgia’s direct shipping laws were very restrictive, only allowing direct shipment by wineries without a distributor relationship in Georgia and by all wineries for onsite purchases. Onsite shipments were limited to five cases per consumer or per household.
However, the passage of the bill effected many favorable changes to Georgia’s direct shipment law. The statutory amendments eliminate the problematic provision which prohibited wineries from shipping offsite orders to Georgia residents if the wineries were represented by a distributor in Georgia. This significantly opens up the state to both in- and out-of-state wineries that were not previously permitted to ship offsite sales directly to consumers.
Furthermore, the amendments added a definition of “winery” to the statute, defining it as “any maker or producer of wine whether in this state or in any other state, who holds a valid federal basic wine manufacturing permit.” (Section 3-6-31(a)).
Another noteworthy change is the addition of the age verification requirement found in Section 3-6-20(d)(4):
“Before accepting an order from a consumer in this state, the holder of a special order shipping license shall require that the person placing the order state affirmatively that he or she is of the age required by Code Section 3-3-23 and shall verify the age of such person placing the order either by the physical examination of an approved government issued form of identification or by utilizing an Internet based age and identification service;”
The new age verification requirement strengthens the affirmative statement of age provision (as was required prior to the amendments), working to assuage the fears of those who believe direct shipping creates an unreasonable risk of online ordering by underage individuals.
The bill also introduces a few minor changes. A winery no longer has to post a bond, designate sales territories, or name a wholesaler in each territory (thereby taking a conflicting law off the books). Wineries are also prohibited from shipping to licensed premises and are required pay excise taxes and state and local sales taxes from every sale shipped to a consumer in Georgia. In addition, of-age individuals can now purchase up to 12 cases of wine from each licensee per year (up from 5 cases per household pre-HB 1061).
Overall, although wineries must still obtain a special order shipping license and brands must still be registered in order to ship into the state, HB 1061 is going to live up to expectations and prove itself a valuable step for proponents of direct shipping. More wineries can now direct ship to Georgia and reach more consumers, benefiting both Georgians and non-Georgians alike.
The bill takes effect July 1st, 2008. Stay tuned for more details and permit requirements.
Florida escapes capacity cap at the wire
May 4th, 2008
It came down to the wire, but the always heated battle in Florida ended with the legislative session closing on Friday with no bills making it out of the state congress. Multiple bills were considered for wine direct shipping, most of which included a “capacity cap” on annual production for wine shippers. The major winery associations opposed all bills that included a capacity cap, and were therefore mostly pleased when the final bell rang without the passage of a restrictive bill. This was a truly classic battle between winery associations and the powerful wine wholesaler lobby.
Lacking legislation that would have created a permit system, the Florida Department of Business and Professional Regulation (DBPR) will likely maintain the status quo, meaning that wineries can ship to Florida without a permit as long as they remit excise taxes and do not ship to dry counties.
The scene at the Direct to Consumer Symposium in Napa on Friday was very interesting. Many attendees were listening to the “state of the states” update on direct shipping legislation, while we simultaneously received updates on the status of the session in Florida. Much of the two day event covered the subject of capacity caps, which have become an extremely hot topic of late. The Family Winemakers of California are currently making their case against the State of Massachusetts that production caps are unconstitutional. The action heats up again at the end of July.
Wine Is Not the Maine Event
April 18th, 2008
A bill that would have allowed in-state and out-of-state producers, suppliers, importers, wholesalers, distributors and retailers to ship wine to Maine consumers passed through the Senate but after a close vote, died on the House floor yesterday evening. If LD1987 (a.k.a. SP781) would have passed as amended by the Senate, the bill would have allowed licensed entities to ship up to 108 Liters of wine to an of-age individual in a calendar year. Other requirements:
- Containers of wine shipped cannot be smaller than 750 mL
- Report and pay sales and excise taxes
- The bureau may adopt rules requiring specific labeling and registration requirements for direct shippers
- “The direct shipper or 3rd party carrier contracted by the direct shipper… check for a valid form of identification demonstrating proof of age.” Common carriers register with the state of Maine.
LD 1987 went far in its legislative journey before failing in the House. The bill would have been a step forward for Maine consumers and offered wine producers, retailers, and wholesalers alike an equal opportunity to ship wine directly to eager consumers.
Caps Off to Dolan’s Intentions
April 11th, 2008
In October of last year, wineries began shipping directly to Ohio residents under a new direct shipping permit law. When the provisions of the law in Ohio were first announced, one of the major subjects of controversy was the capacity cap, which only allows wineries that produce less than 150,000 gallons annually to obtain a permit. Capacity caps continue to be a subject of controversy in all the states that use them (currently Arizona, Massachusetts, Indiana Kentucky and Ohio; Florida could adopt a 250,000 gallon cap if SB1096 or HB1293 is passed).
Continuing the controversy, Ohio Representative Matthew J. Dolan is looking to increase the capacity cap for wineries from 150,000 to 250,000. Though the increase in production volume may be a “little step” in the right direction, it certainly seems like a very little step, allowing only 17 more California wine labels to be shipped to Ohio residents. According to The Plain Dealer, Dolan originally vowed to eliminate the cap altogether, but got a lot of pushback from the Ohio Department of Commerce and from Ohio Distributors (as Uncorked points out, “no surprise”).
Just next door, Indiana also prevents wineries producing over a certain amount of wine per year from shipping directly to its residents. Indiana’s original capacity cap was 500,000, but will increase on July 1, 2008 to 1,000,000 gallons since SB0107 was signed on March 13th by governor Daniels. Though this is the highest volume cap of the four states that have said restrictions,
Many will agree that any permit system that discriminates against a winery for the amount of wine produced is not an ideal permit system. Furthermore, the constitutionality of these caps is being challenged through litigation (see Family Winemakers of California vs. Jenkins). State legislators may adopt a capacity cap restriction for any number of reasons, but none of them seem very fair. The state may claim that it is trying to protect its own wineries by establishing the volume cap just above that of the highest producing in-state winery, but who else is being protected while the consumer’s interests fall by the wayside?
Update: In our original post, we mistakenly stated that that Indiana has a capacity cap that is similar to OH, KY, MA, and AZ. The 500,000 gallon “cap” in Indiana that will increase to 1,000,000 gallons on July 1st, 2008 only applies to wineries in that the applicant must not sell more than this amount of wine per year IN Indiana, excluding wine shipped to an out-of-state address.
Rhode Island and Alabama: Let My Pinot Go!
March 27th, 2008
As legislative sessions continue to progress across the country, more and more legislative bills concerning direct shipments of wine are being considered. If the bills mentioned in this post pass, two states will change from being prohibited states to permit states. The last state to change from a prohibited state to a permit state was Indiana, and that turned out to be a little messy. The bills for Rhode Island and Alabama are straight forward and fair - let’s hope they make it through the process.
If HB 520 or its companion SB 412 in Alabama, and S 2125 in Rhode Island pass, they would allow for any licensed wine producer, supplier, importer, wholesaler, distributor or retailer to apply for a direct shipper license ($100 initial fee; $50 per year thereafter) that would allow them to ship up to 24 cases of wine per year to an of-age resident of the state, as long as the resident is not located in a dry area. Sales and excise taxes must be paid annually.
Wisconsin Direct Shipping Bill Receives Governor’s Signature
March 14th, 2008
Senate Bill 485 was passed into law yesterday, making Wisconsin the newest addition to the list of permit states. Wisconsin was one of the three remaining states that had yet to change their direct shipping laws since the Granholm ruling. Direct shipping law did not authorize intra-state shipments of wine to consumers, and the reciprocity agreement defined by Wisconsin only allowed California wineries to ship directly to the state’s residents. Now, a winery in any state may ship wine directly to a Wisconsin resident once the winery has received a direct wine shipper permit from Wisconsin.
The new direct wine shippers permit allows licensees (licensed wineries that are located in- and/or out-of-state) to ship wine directly to an of-age and non-intoxicated individual in Wisconsin. The individual may receive no more than 108 liters of wine annually from any combination of licensees. The individual is responsible for compliance with this annual limit. The fee for this permit is no more than $100/year. Sales tax, excise tax and reporting are required quarterly.
This is good news for direct to consumer sales - no capacity caps, no touchy age-validation restrictions… but there’s a catch concerning self-distribution: all sales to retailers must go through a wholesaler.
Legislative Intent… Without the 3-tier system, the effective statewide regulation and collection of state taxes on alcohol beverages sales would be seriously jeopardized. It is further the intent of the legislature that without a specific statutory exception, all sales of alcohol beverages shall occur through the 3-tier system, from manufacturers to licensed wholesalers to retailers to consumers. Face-to-face retail sales at licensed premises directly advance the state’s interest in preventing alcohol sales to underage or intoxicated persons and the state’s interest in efficient and effective collection of tax.
Luckily, there are a couple safeguards for small manufacturers.
“All wholesalers must work diligently to ensure that distribution channels are available for the sale of intoxicating liquor products through wholesalers to retailers in this state.”
The legislation isn’t clear about methods or consequences for wholesalers if they fail to adhere to this clause.
The other safeguard: small wineries (producing under 25,000 gallons of wine in a year) may group together to form a “Cooperative Wholesaler”; this Cooperative must become licensed to act as a regularly-licensed-wholesaler in order to sell to retailers or other regularly-licensed-wholesalers. The maximum number of Cooperatives allowed is six, and they must be created between October 1, 2008 and December 31st, 2008. The Cooperative must have a single location within the state of Wisconsin (a winery can only belong to one Cooperative). If the Cooperative’s members consist of both in- and out-of-state wineries, then the board of directors must also include both in- and out-of-state members. Members may not be employees of the Cooperative, but may volunteer.
The bill passed through the Senate and the House in late February and was approved by Governor Doyle on March 13th. Last year, a similar bill was passed by the House and Senate, but was vetoed by Governor Doyle partly because the bill would have banned self-distribution altogether, and did not “adequately address the needs of small entrepreneurial wineries.” This year’s bill seems to address the aforementioned needs and received backing by the Wisconsin Wine and Spirit Institute. The new law goes into effect on October 1, 2008.
Just Peachy: More Wineries Could Be Eligible for Direct Shipping
March 10th, 2008
A bill is being considered in Georgia that could potentially open up the state to all wineries for direct shipping. The permit system that is in place right now works pretty well for eligible wineries, but the major issue is that some funky language makes it so that wineries cannot ship offsite orders to Georgia residents if the winery is represented by a distributor in Georgia.
3-6-31.(c)(4)No holder of a special order shipping license shall accept any order for any wine that is otherwise registered and designated pursuant to this title or from a person who is licensed under this title;
That little paragraph causes big problems for many wineries. House Bill 1061 would eliminate the distributor restriction, and would introduce a few more minor changes:
- a winery would no longer have to pay a bond, designate sales territories, or name a wholesaler in each territory (a conflicting law);
- brands must still be registered;
- the person placing the order must state affirmatively that he or she is of age before the order can be processed;
- of-age individuals are limited to 12 cases of wine from each licensee per year (up from 5 cases per household); and
- it is explicitly stated that wineries may not ship to licensed premises,that sales and excise taxes must be paid and that a shipper must be a winery.
House Bill 1061 has already been approved by the house and was read and referred to a committee on February 28th by the Senate. All in all it’s not a bad bill: More wineries can ship to Georgia, the law makes more sense, and Georgia gets more money.
Wine Distribution Notes - Release 26
March 6th, 2008
Release 26 of Notes on Wine Distribution by R. Corbin Houchins is now available for viewing.
These notes are a great resource for keeping up to date with developing trends in direct shipping and direct distribution. As always, you can find the most recent version of these notes at the ShipCompliant Blog by clicking on the “Wine Distribution Notes” link under “Compliance Resources” on the right hand side of the page.
Each new release shows green highlighting on sections with changes from the preceding release. Release 26 highlights changes from the last two releases: highlights from release 25 include updates to Alaska, Maryland, New Mexico and Tennessee. Highlights from release 26 include updates to Florida, Indiana, and others. Read the notes to find out what else is new.
Three New Florida Bills: Not the Ducks or the Bucks, but the Winery Shipper Ones
February 24th, 2008
The Regular session of the Florida Legislature will convene on March 4, 2008. During the 60 days following, legislators should decide on one of three winery shipping bills that could be introduced into Florida law. I say should, hoping that last year’s unsuccessful passage will not be repeated. Since 2006, wineries have been able to send relatively unrestricted shipments to Florida consumers. Back in 2006, the Florida Department of Business and Professional Regulation (DBPR) decided to become compliant with Granholm; because of this they have allowed shipments, hoping legislation would be passed. In 2007, many thought they might take this allowance away after all three bills failed to pass into law.
The 2008 winery shipping legislation contestants have several things in common. The bills would require a $1000 - $5000 bond, a $250 permit (the annual application and registration fee for Florida Farm wineries is $100), varied annual shipment quantity limitations per household, reporting and payment of sales and excise taxes, and applicants must produce less than 250,000 gallons of wine annually.
HB 693 (Bogdanoff) - In 2007, the only bill that did not have a capacity cap was authored by Bogdanoff. Unfortunately, this year the cap is set to 250,000 gallons just like the other two bills. Other restrictions that stand out: Fingerprinting of applicants; consumers may not purchase more than 18 cases of wine per household; Age verification (receiving a copy, electronic or otherwise, of a purchaser’s driver’s license; or asking for and recording all purchasers’ names, ages, and dates of birth); if the applicant is owned by a winery that sells more than 250,000 gallons of wine, the division may not issue a license.
SB 1736 (Geller) - Geller was also an author of a competing 2007 bill. The 2008 version looks pretty much the same: The applicant must produce less than 250,000 gallons of wine annually; brand registration is required for all wine shipped; the Winery Shipper must require the person to state that he or she is 21 years of age or older, ship no more than 15 cases per household per year; the Winery Shipper shall offer the brands of wine shipped under this section to license distributors; knowingly and intentionally shipping wine to a person under 21 is a 3rd degree felony.
Of the three bills in 2008, it seems SB 1096 (Margolis) is the one wine lovers and makers will be rooting for the least. Without focusing too much on the regular restrictions, let’s just note the more shocking ones:
Legislative intent
“The Legislature finds that the importation, distribution, and sale of alcoholic beverages require strict regulation in order to promote temperance by discouraging consumption by underage persons… fiscal health of the state… these purposes are best achieved through the state’s comprehensive system of licensing and regulation, including the three-tier system of alcohol distribution which has been the law of this state since the repeal of Prohibition.”
– Confusing distributor language: “The division may not issue or renew a license under this section if the applicant or licensee has appointed a distributor in this state, unless the applicant provides to the division a copy of a written notice sent to the distributor of intent to obtain a winery shipper’s license 1 year before applying for a winery shipper’s license under this section” (if passed, this would go into effect 4 months from now making it hard to give 1 year notice before the license becomes available.) However, it is later stated that “A licensed winery shipper must offer to its distributor for purchase and sale per calendar year the same brands and quantities of wine shipped per calendar year under this section”
– Licensees may not ship more than 4 cases per year per household. In addition to the licensee restriction, consumers may not purchase more than 4 cases per household per year. For common carriers, the signature form must inform the recipient that the wine is for personal or household consumption only, and not for resale. Wineries must have a written contract with the common carrier saying that the common carrier will do this.
– Knowingly and intentionally shipping wine to a person under 21 is a 3rd degree felony.
Since 2006, wineries and wine lovers have enjoyed relative freedom when shipping wine directly to Florida consumers. Florida is ranked #2 in table wine consumption, which accounts for a big chunk of addressable market share of direct shipments. If any of these bills pass as is, it might feel like you’re living with your parents again; you can go to the party, but you can’t stay out past 8:00. Maybe if we keep putting the pressure on the lawmakers, we’ll at least be able to stay out past midnight.
