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    Big Changes in Arkansas for Wine and Spirits Brand Registrations

    Big changes regarding alcohol regulations continue to unfold for Arkansas this year with the passage of HB 1480, now Act 1105 (signed into law shortly Arkansas’ recent direct shipping bill). Act 1105 effectively changes the current wine and spirits brand registration process. Below is a table comparing the current requirements with the new requirements outlined in the Act, which will go into effect mid-August.

    Of the changes outlined above, the biggest to note is the new fee requirement of $15 per “brand label” and “brand label size” and the implementation of annual renewals. The Act defines a “brand label” as “…the label carrying the distinctive design of a brand name of a spirituous liquor or vinous liquor”. In the past, Arkansas has not required additional sizes to be separately registered, nor did they explicitly require notification of new brand label extensions.

    Also noteworthy is a new license requirement for wine and spirits suppliers. The $50 license will allow producers and importers to continue to sell to Arkansas wholesalers. Those already licensed as an “Arkansas Small Farm Winery” (needed to sell wine directly to Arkansas retailers) do not need to obtain additional licenses to sell to Arkansas distributors; their existing license will suffice.

    Updated procedures are not public yet, however as time draws near the effective date, Arkansas will surely release information on their implementation process. Keep an eye on the ShipCompliant blog for updates.

    Limited to On-site Sales, Arkansas Passes Bill to Allow Direct Shipping

    On March 21, 2013, House Bill 1749 became Act 483, signifying its passage into law. Once enacted mid-August, the state of Arkansas will be added to the list of states that allow wineries to ship wine directly to consumers — but with many limitations.

    Aside from the low cost of the license, the requirements under this new shipping law limit the abilities of licensed out-of-state wineries, arguably more than any other state that currently allows direct-to-consumer wine shipping. These limitations include requiring all shipments to be purchased in person at the winery, and affixing a special, ABC-provided, shipping label to each shipment.

    For those wineries interested in navigating these one-of-a-kind requirements, Arkansas consumers will no doubt enjoy the ability to ship home a case of wine after visiting their favorite wineries. No license applications or information are available as of yet. Below is a breakdown of the licensing process, as well as the requirements and restrictions to operate, as stated in the new law:

    Restrictions/Requirements (not limited to the following):

    • Consumers must be physically present at the winery when purchasing the wine to be shipped to Arkansas consumers (onsite orders only)
    • Every shipment must be affixed with a shipping label provided by the ABC, costing up to an additional $10 per label
    • Collect and remit sales and excise tax, “as if the sale took place on the premises of a Arkansas Small Farm Winery”
    • Ship only to a private residence – added difficulty, as shipments require an adult signature
    • Customer volume limit of one case per customer, per quarter

    Licensing Process

    • Registration with the Arkansas Department of Finance and Administration Alcoholic Beverage Control Division (ABC), including a $25 annual fee.
    • Provide the ABC with a copy of the winery’s home-state license as well as the winery’s TTB Federal Basic Permit

    The Pac Northwest is Heating Up! Learn How to Harness the Growth

    Next week, our team will be in Napa to celebrate our 8th annual DIRECT Conference. If you’ll be in the area on June 13th, we’d love for you to attend!

    But did you know that we’ll also be holding events in Oregon and Washington this month?

    It’s easy to see why hundreds of brands in the Pac Northwest have begun to use ShipCompliant in the past few years; the region is now a formidable force in direct-to-consumer sales. When we compiled our 2013 Direct Shipping Report, we saw growth across the entire market, but Oregon and Washington stood out as outperformers. Though their direct wine sales are about one fifth of Napa’s, the upward trend is hard to ignore.

    Let’s take a closer look at Washington.

    According to our 2013 Direct Shipping Report, the Evergreen State has seen monumental growth in its wine industry, with year over year volume growth of more than 18% in 2012.Not only that, but the average price of a bottle from Washington has risen 19%. This has pushed the market past the $50 million mark for the first time last year, and is showing no signs of slowing down.

    It also seems that the best food pairing for a glass of Washington Cabernet Sauvignon, is, in fact, another glass of Washington Cabernet Sauvignon. Sales of the varietal have shot up over 69% in the past year. Cabernets, Syrahs, and blends now represent 70% of the state’s market for wine by volume.

    Heading south a bit, our friends in Oregon have also enjoyed huge success in recent years. The state boasted a 10% gain in direct shipping sales last year, and its average price per bottle has risen to over $37, slightly above that of both Washington and Sonoma.

    The 2004 Paul Giamatti film “Sideways” was set in Santa Barbara, where the actor’s character was obsessed with Pinot Noir. Based on our data, the film could have easily been set in Oregon, where the varietal represents 60% of total shipping volume, as well as the highest average bottle price at $47. No other region is more dominated by a single type of wine than the Beaver State.

    The source of Oregon’s rise in direct shipping, however, is not forged by Pinot alone. Now that Oregon has established itself as a haven for aspiring grapes, more varietals have stepped up to the plate, as Pinot Noir’s annual volume remains flat. Syrah/Shiraz, Sauvignon Blanc, and Cabernet Franc have all exploded in 2012 with growth of over 100% each. Meanwhile, Cabernet Sauvignon’s average price per bottle has risen 30%, to $35. Though these varietals have a long way to go to catch up to Pinot Noir, it’s this diversity that is truly fueling the state’s rapid ascent.

    We welcome this growth, and we love to see it. In fact, we’re hosting two events in the Pacific Northwest this month, along with our sponsors, Moss Adams LLP. We call it “Step-by-Step,” and we’ve designed these seminars to help wineries finance, account for, and act compliantly through the rapid positive changes happening in their businesses.

    To sign up for our June 18th seminar in Oregon, click here!

    To sign up foro ur June 20th seminar in Washington, click here!

    Is the Marketplace Fairness Act Fair for Wineries?

    In short, yes, for a couple of reasons:

    1. Wineries already pay sales tax in most states
    2. The vast majority of wineries will likely be exempt from the law

    So what is it, exactly?

    Senate Bill S. 743, more commonly known as the “Marketplace Fairness Act“, is a pretty simple bill that would give states the ability to require out of state businesses that have “remote sales” in excess of $1 million annually to remit sales taxes. Each state would be able to opt in to the Act, but only after they have simplified their tax structure, either by joining the Streamlined Sales and Use Tax Agreement or to follow the steps outlined in the bill to simplify their sales tax requirements.

    Will it pass?

    With broad bi-partisan support, S. 743 passed out of the Senate with a vote of 69 to 27. However, a tough battle is expected in the House, and therefore the Marketplace Fairness Act has a long way to go before it is enacted with a signature from President Obama. Amazon.com is supporting the bill (presumably because they would like to move forward with their plans to build warehouses in each state to support same-day shipping), while eBay is one of the main voices in opposition.

    What will it mean for wineries?

    A lot hinges on the definition of “remote sales”. Keep in mind the fact that state legislation to allow wine shipments typically includes a provision that also requires wineries to register for and pay sales tax. As it stands in the Senate version, and based on our interpretation of the current language, sales by wineries to states where they are already required to pay sales tax would not be counted when considering the $1 million threshold for remote sales.

    Based on some quick analysis, there are a few hundred wineries in the US that ship more than $1 million worth of wine to consumers each year. BUT, if you include sales only to those states (Alaska, Colorado, D.C., Florida, Iowa, Kansas, Minnesota, Missouri, New Hampshire, Oregon, and Wyoming) that do not require wineries to pay sales tax, then we estimate that less than 25 wineries would exceed the $1 million cap. In other words, the vast majority of the 7,000+ wineries in the US would be exempt from this law.

    Wineries are already accustomed to calculating, collecting, and remitting sales taxes in most states. So, for those wineries that would not be exempt from this law, it would probably not be that big of a deal to add a few more states (initially the states of Iowa, Kansas, Minnesota, and Wyoming) to the list of states to which they would be required to remit sales tax. They already have the technology and processes to do so.

    The bill would take effect, at the earliest, on October 1st, 2013. Once effective, the 22 “Streamlined” sales tax states would begin requiring sales tax for remote sellers with over $1 million in sales. After that, each of the remaining 28 states would choose whether to opt in to the Act and start requiring sales tax from remote sellers.

    Nebraska Tightens up Existing Direct Shipping Law

    LB 230 passed Nebraska’s unicameral legislature and was signed by the Governor on April 24, 2013. The new law will go into effect on September 6, 2013. Nebraska is currently open to direct shipping from wineries and retailers (although there was some debate recently as to whether retailers should qualify under the current law), with easy-to-navigate regulations. The new law introduces several new restrictions that Nebraska direct shippers should be aware of before the new law goes into effect.

    Though the bill’s statement of intent indicated that only manufacturers (wineries) would be able to obtain a license, after amendments to the bill, retailers were added back in and will be eligible for the Nebraska direct shipping license. So, at the end of the day (following a confusing set of hearings and deliberations) currently licensed wineries and retailers will both be able to continue to ship to Nebraska consumers, but with added complexity and requirements.

    Direct shippers will see several marked changes to rules and licensing processes. Here’s a quick breakdown of these and other requirements in the new law – additional descriptions follow below:

    Item Before
    Sept. 6
    September 6
    Nexus status Not required In addition to requiring sales tax payments (common for direct shipping law), the potential to trigger additional tax obligations exists
    Brand identification Not required Retailers and manufacturers may "only ship the brands of alcoholic liquor identified on the application
    Distributor notification Not required Manufacturers (but not retailers) must notify Nebraska distributors carrying the identified brands, of the manufacturer’s intent to apply for a direct shipping license.
    Notification of any violations Not required “…the applicant agrees to notify the commission of any violations in the state in which he or she is domiciled and any violations of the direct shipping laws of any other states…”
    Non-sellable products Not required Required. Shippers may “…not ship any alcoholic liquor products that the manufacturers or wholesalers licensed in Nebraska have voluntarily agreed not to bring into Nebraska at the request of the commission;”
    Excise tax Annual filing Monthly filing
    Common carrier approval Not required Required

    Under current regulations, it was somewhat unclear whether or not direct shippers were required to register to pay sales taxes, though most direct shippers did. The establishment of nexus under the new law could also mean that, in addition to requiring sales tax registration (common for direct shipping law), there is a potential to trigger additional tax obligations. Brand listings will be required as part of the licensing process, and wineries (but not retailers) must notify their Nebraska distributors carrying the listed brands of the manufacturer’s intent to apply for a direct shipping license. If a Nebraska manufacturer or wholesaler volunteers not to sell certain products within Nebraska’s borders, direct shippers would also not be allowed to sell those products under the new law. Furthermore, direct shipper applicants will have to notify the Nebraska Liquor Control Commission of any violations of direct shipping laws of any other states and any violations in the state in which the shipper is domiciled.

    Many of the new laws will require clarification as to how currently licensed direct shippers should proceed in order to remain licensed and compliant – for example, will existing licensees have to notify distributors of their existing direct shipping license on Sept 6, or will this new requirement take effect once their current license expires in April? As we get closer to the September effective date, we will notify our clients and readers of any published guidelines or additional information.

    Variety: The Spice of Life for Direct Shipping?

    Among the most revealing facts in the new 2013 Direct Wine Shipping Report we recently released with Wines & Vines is that, given all the various types of wines produced and sold by wineries, a very select few types of wine dominate those shipped direct to the consumer.

    Together, Cabernet Sauvignon, Pinot Noir, Red Blends, Chardonnay and Zinfandel represent 70% of the total volume of wine shipped and just over 80% of the value of all specified varietal wines shipped from winery to consumer. This line up of dominant direct-shipped wines is somewhat similar to the dominant wines in the overall wine market where Cabernet, Chardonnay and Pinot Noir are also in the top five varietals.

    But take a look what happens when you compare the top five wines shipped direct to the consumer and the top five wines sold in the larger retail marketplace, and when you look at their share of total volume.

    Direct-to-Consumer % of Volume Retail Marketplace % of Volume
    Cabernet Sauvignon 20% Chardonnay 21%
    Pinot Noir 16% Cabernet Sauvignon 12%
    Red Blends 15% Merlot 9%
    Chardonnay 12% Pinot Gris/Grigio 8%
    Zinfandel 8% Pinot Noir 6%
    All Other Varietals 29% All Other Varietals 44%

    The direct shipping channel is a much less varietally diverse sales channel than the overall retail marketplace. In fact, some wines that play a key role in the overall marketplace only show up as a blip in the direct shipping channel. In 2012 Moscato held a 6% share of total sales volume in the overall retail sector. In the direct shipping channel, it accounts for a mere .1% of volume. This should be a reminder to wineries and retailers that every sales channel is different. Anyone that has enjoyed success in 3-tier distribution and is considering direct shipping, or vice versa, should review their product mix ahead of marketing efforts.

    Beyond those varietals that dominate the direct shipping space, there is the equally important question of which varietals are trending up and trending down in popularity.

    In 2012, only four varietals showed a significantly greater increase in shipments than the overall channel average of 7.7%: Rose, Sparkling Wines, Chardonnay and Pinot Noir. It’s important to note that the data we’ve looked at over the past three years has shown a fairly strong correlation between increased sales and movement in a varietal’s average price. When a varietal’s average price goes up, sales tend to go down and vice versa. What we are looking for are examples of varietal wines where shipments have increased despite a price increase or a slowdown in sales despite a price decrease.

    Price/ Bottle Change Volume Change
    Rose -7.60% 32%
    Sparkling Wine -4.80% 20%
    Chardonnay -3.80% 10%
    Pinot Noir 3.30% 16%

    Clearly, we have a winner here. Pinot Noir is on the ascent in the direct shipping channel. In 2012 the wine not only increased in average price per bottle, but it significantly increased in volume sales. This in turn led to Pinot Noir seeing a whopping 19% increase in sales value. The majority of this growth is found in Sonoma, where shipments of Pinot Noir increased by 27% on an average price per bottle that increased by 4.2%.

    On the tumbling side of the scale, three wines saw a significant decrease in the volume of wine shipped in 2012 over 2011: Riesling, Merlot and Cabernet Franc. Again looking the change in price per bottle a story unfolds.

    Price/Bottle Change Volume Change
    Riesling -12.00% 2.80%
    Merlot -8.30% -9.40%
    Cabernet Franc -7.60% 9.10%

    Merlot is not only losing pace in its shipments, but in its average price per bottle. In Napa specifically, the average price per bottle of Merlot fell a whopping 12.4% (more than any other varietal from the region) and volume dropped by 11.2%.

    For more complete data on the varietal make-up of the direct shipping channel, including how various specified varietal wines perform on a regional basis, download the 2013 Direct Wine Shipping Report today!