Effective July 1, 2010, the filing and payment due date the Hawaii Gallonage Tax, will change from the last day of the month to the 20th day of the month. Wineries shipping to consumers in Hawaii are required to file a “Combined Monthly Return of Liquor Tax and Report of Wine Gallons and Dollar Volume of Taxable Sales” (Form M-18) and pay gallonage tax to Hawaii’s Department of Taxation each month. Please see the document, “Announcement No. 2010-02,” issued by the Department of Taxation for additional information about changes to the payment of taxes in Hawaii.

By Annie Bones, State Relations – Wine Institute

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The direct shipping applications for Iowa are now available. As of July 1, 2010 Iowa will require wineries to obtain a direct shipping license to ship wine directly to consumers. Previously a reciprocal state, Iowa’s borders will soon be open to all wineries across the country who obtain a permit, regardless of reciprocity status with the state. Additionally, there are no restrictive requirements on the winery (such as a volume production cap), making Iowa’s market accessible to all permitted wineries.

The permit application can only be completed online at Iowa’s elicensing website. You may view Iowa’s user guide for instructions on how to begin the licensing process. The “Wine Direct Shippers License (DS)” requires a fee of $25 and a $5,000 bond. Though the direct shipper license application is completed online, copies of state and federal winery licenses, and bond should be mailed to the Iowa Department of Commerce, Alcoholic Beverages Division. Monthly reports and excise taxes are required although they have yet to release these forms. Iowa will not require wine direct shippers to collect sales tax. Start your application process today and be one of the first to become compliant in Iowa.

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Hundreds of wineries will get an inside look at leading strategies for building customer loyalty, hear about the latest and upcoming changes in the direct shipping environment, learn best practices to get the most out of their direct shipping program, and be the first to see the unveiling of groundbreaking new features at ShipCompliant’s 5th annual Direct Shipping Seminar & Users Conference.

This year’s event, taking place June 10 at the Napa Valley Marriott, is staged to be the most comprehensive conference yet with the addition of in-depth breakout sessions to help wineries get a closer look at some of the most important issues affecting the direct shipping environment.

Nationally-recognized speaker and best-selling author, Fred Reichheld, will kick of the day describing how some of the world’s most successful firms–including Apple, Zappos and eBay—are creating more loyal customers and generating new customers through word-of-mouth recommendations to friends and colleagues. Reichheld is considered by many to be the world’s leading authority on loyalty. Jim Gordon, editor of Wines & Vines, will follow Reichheld with a first look at new market research on direct-to-consumer wine shipments developed by Wines & Vines in conjunction with ShipCompliant.

Steve Gross, director of state relations at Wine Institute, will lead the second half of the day with a state-by-state review of all recent and upcoming legislative changes that affect wine direct shippers. Gross and respected attorney Evan Lawson, senior partner at Lawson & Weitzen, will debate the issues surrounding controversial HR 5034 and its potential impact for the wine industry.

In the Third-Party Marketing and Fulfillment panel discussion, Matt Botting, general counsel for the California Department of Alcoholic Beverage Control and John Hinman, partner at Hinman & Carmichael will help wineries understand the intricacies of evaluating third-party marketing and fulfillment agents—a valuable discussion for any winery considering this option.

ShipCompliant will be unveiling an impressive new set of features to help further streamline compliance and reporting for wineries that ship direct and will provide hands-on training for customers at the event.

ShipCompliant’s certified technology partners will also be showcasing their software solutions and latest and greatest features and integrations.

This Direct Shipping Seminar sells out every year and draws approximately 400 wine producers, wine retailers, compliance experts, and wine shippers among others. Register now to secure your seat to hear Fred Reichheld, Steve Gross, Matt Botting, John Hinman, Evan Lawson, and other expert speakers address the issues critical to your wine direct shipping business.

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As expected, the Congressional subcommittee hearing on Legal Issues Concerning State Alcohol Regulation has been followed by a House bill. H.R. 5034 was introduced yesterday by Representative Bill Delahunt (D-Mass.) with support from the National Beer Wholesalers Association (NBWA). The bill is also called the "CARE" (Comprehensive Alcohol Regulatory Effectiveness) Act of 2010, and Wine & Spirits Daily posted a copy of it on their site.

It is the purpose of this Act to—

(1) recognize that alcohol is different from other consumer products and that it should be regulated effectively by the States according to the laws

thereof; and

(2) reaffirm and protect the primary authority of States to regulate alcoholic beverages.

The bill would amend both the Webb-Kenyon Act and the Wilson Act to “support State based alcohol regulation, to clarify evidentiary
rules for alcohol matters, to ensure the collection of all alcohol taxes, and for other purposes.”

The Wine & Spirits Wholesalers of America (WSWA) applauded the legislation, saying

It is important that states retain their constitutional power to regulate the distribution of beverage alcohol and are able to fend off litigation, which serves to destabilize or destroy that authority. Although we may oppose direct shipping and self-distribution as a matter of policy, our goal is not to overturn existing state laws. We simply believe the proper forum for resolving legitimate differences over these issues is in the state legislatures – not the courts.

We will have more coverage of this bill as the story develops.

Read more:

H.R. 5034

Wine & Spirits Daily (subscription required)

WSWA Press Release

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Massachusetts Attorney General Martha Coakley will not appeal a January Federal Appeals Court decision upholding an earlier District Court decision which overturned the 2005 direct shipping law.  In January, the 1st U.S. Circuit Court of Appeals upheld the 2008 district court ruling that found that the state law governing direct-to-consumer shipments by wineries was unconstitutional.

The court said the law has a discriminatory effect on interstate commerce because it favors instate interests by preventing direct shipments of nearly all out-of-state wine to Massachusetts consumers while allowing direct deliveries by all Massachusetts wineries.

The flawed shipment law provided that only wineries that produce less than 30,000 gallons a year and had not used a wholesaler for distribution in the last six months could ship directly to local consumers. The wholesaler backed law was enacted in 2005 and vetoed by then Governor Mitt Romney. It was enacted over his objection in 2006.

The Massachusetts Legislature is now considering legislation that will mimic the model direct shipping law which will establish a new regulatory framework for shipments by all wineries, large and small, including licensing, reporting and tracking requirements.

The Joint Committee on Consumer Protection and Professional Licensure in February reported favorably on legislation submitted by Senator Robert O’Leary (S 176) and Representative David Torrisi (H 317), two long time supporters of the model legislation. These two bills were combined into a single committee bill, H 4497. H 4497,”An Act regulating the direct shipment of wine”, has been referred to the House Committee on Ways and Means. It provides for a $100 per winery licensing fee, requires monthly reporting and tax collections, limits shipments to four cases per consumer per year per winery and establishes stiff penalties for noncompliance.  The bill also attempts to address a cost-prohibitive issue that has kept common carriers such as FedEx and UPS out of the delivery market.

Wine Institute is currently working with the House Ways and Means Committee to improve the bill by addressing the common carrier issue and the four case limit. Once the bill clears this House committee, it will likely be approved by the full House.

-Carol Martel, Counsel for the Northeastern States, Wine Institute

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The New Hampshire Liquor Commission has just established a new fax line dedicated to direct shipping. Direct Shippers should fax their monthly report to the new fax number 603-271-8424 on or before the 10th of the following month. Direct Shipping Reports must be filed each month regardless of activity. Wineries with no shipments to report are encouraged to email their reports as attachments to directshippers@liquor.state.nh.us instead sending via fax. The Direct Shipping Monthly Report form has been updated with the new fax number and is posted on the Wine Institute website. Should you have any questions please contact Annie Bones, Wine Institute’s State Relations Coordinator, at 415-356-7530 or abones@wineinstitute.org.

by Annie Bones, State Relations – Wine Institute

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You may have seen reports about a recent U.S. Congressional subcommittee hearing on “Legal Issues Concerning State Alcohol Regulation.” The hearing was important for anyone concerned about direct-to-consumer wine shipping since a primary question was whether federal courts should be stripped of their authority to strike down state alcohol laws that discriminate against out-of-state businesses—the very issue at the heart of the Supreme Court’s decision in Granholm v. Heald.

Click image to view video (RealPlayer required)

The hearing followed a reportedly aggressive lobbying campaign by the National Beer Wholesalers Association (NBWA). The common speculation is that NBWA is concerned that large retailers and global brewers are trying to put beer wholesalers out of business, and that litigation over self-distribution—Costco v. Hoen and a recent lawsuit in Illinois over whether Anheuser-Busch can obtain a wholesaler permit—is a particular threat to their state monopoly pricing power. The undertone of the NBWA effort is that the industry needs to return to a simpler time when the 21st Amendment meant what the wholesale tier thought it did, before the Supreme Court had a chance to weigh in and reset the balance.

While the wine industry has not always benefitted from court decisions, the federal circuits and the Supreme Court have for more than 40 years consistently sought to weigh the interests of states and the market carefully when examining state alcohol laws. Under this court precedent, states have broad authority under their police powers—their ability to protect the public—and the 21st Amendment to regulate the movement and sale of alcohol beverages. But they cannot use state power to discriminate against interstate commerce or to protect in-state monopoly behavior. Despite NBWA’s apparent beliefs to the contrary, there is no evidence that courts have abused their power of judicial review in any way that would justify the blunt reconfiguration of the relationship between federal and state law.

Not that all the state regulators who testified at the hearing would agree. The chairman of Michigan’s Liquor Control Commission offered completely unsubstantiated testimony that because of litigation, direct shipping is a free for all, allowing out-of-state wineries to deliver wine into Michigan on the “honor system,” and resulting in the loss of millions in uncollected tax revenue. This position is questionable since in the wake of Granholm states have more aggressively regulated shipping and have established comprehensive systems of licensing and compliance.

Apart from the fact that state licensing systems make it easier for states to determine whether alcohol is contraband—wine can only be shipped by licensees—Michigan has at least two substantial hammers to ensure their state direct shipping laws are followed. The 21st Amendment Enforcement Act allows states to file for federal injunctions against out-of-state businesses that ignore their laws, and Alcohol Tobacco Tax & Trade Bureau (TTB) policy provides TTB authority to punish federal basic permittees, such as wineries, that violate state law.

Whether the subcommittee hearing will lead to legislation is anyone’s guess. But should a new federal law along the lines sought by NBWA come to fruition, the impact could be substantial for winery direct-to-consumer shipping. States would be free to rewrite their laws to discriminate against out-of-state wineries and subsidize local monopoly behavior. Such a federal law would be an open invitation to roll back the gains wineries have spent nearly two decades fighting to achieve.

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Wine Institute Eastern Counsel Terri Beirne has been working since July 2009 with the Virginia ABC Board, and representatives of Wine America and the Virginia wineries to resolve problems created by Virginia ABC Circular Letter 09-05. That Circular prohibited Virginia direct wine shippers from using any third-party service providers, namely fulfillment or pick and pack warehouses. To resolve this problem, Wine Institute drafted legislation and identified sponsors in the 2010 General Assembly to permit a third party, under the direction and control of a Virginia wine shipper license, to solicit and receive orders for wine, and to pack and ship wine.

Like sausage, the bill that started in Virginia was quite different from what passed. Most importantly, the new law allows wine shipments into Virginia from out-of-state shipper licensee through an “approved fulfillment warehouse.” The ABC is charged with developing regulations governing such approval. They will require the fulfillment warehouse to: 1) show ABC its home state license; 2) to maintain/give records that the ABC will describe; and (3) demonstrate it has a contract with a wine shipper licensee designating that fulfillment warehouse as its agent. Wine Institute will actively participate in the creation of these regulations, but it is unlikely they will be finalized before July of 2011.

The new law also creates a Virginia fulfillment warehouse license, as well as a Virginia “marketing portal” license. These two new licenses are available only to agricultural cooperatives (non-profit associations recognized by the Virginia Agricultural Cooperative Act of 5 or more growers within Virginia) operating under the direction and control of a Virginia wine shipper licensee. On behalf of wine shipper licensees, the fulfillment and marketing portal licensees can pack and ship wine for wineries/retailers, or solicit and receive orders for wine through an Internet site.

Virginia continues to permit wineries licensed as Virginia direct wine shippers to offer their wines to Virginians via their web sites. It also continues to allow retailers licensed as Virginia direct shippers to market their own inventory on a web site. However, the new law prohibits any marketing on web sites of wine not owned/possessed by the web site owner, unless done by a Virginia agricultural cooperative licensed as a marketing portal.

Unfortunately, the new law (resulting from HB 279, HB 630, SB 483 and SB 590) also raises the annual license tax for Virginia wine shipper licensees from $65 to $95. It will take effect on July 1, 2010, at which time Virginia ABC will begin to draft the regulations.

-Terri Cofer Beirne, Eastern Counsel, Wine Institute

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On March 10, 2010, Governor Culver signed Senate Bill 2088 which includes provisions to transition Iowa from a reciprocal shipping state to a permit state and allow unlimited direct-to-consumer shipments. The legislation will become effective on July 1, 2010, and brings Iowa into compliance with the Supreme Court’s 2005 Granholm v. Heald ruling by allowing all in-state and out-of-state wineries to ship to consumers in Iowa. Beginning July 1, 2010, wineries will be required to have a permit in order to ship to Iowa consumers. The permit fee is $25 and must be renewed annually. In addition, direct shippers will be required to obtain a bond, file monthly reports and pay excise taxes. The direct shipping permit application will be posted on the Wine Institute website as soon as it becomes available, along with any updates on the application process.

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Michigan

Direct shipping permits for Michigan are renewable on May 1. The annual renewal cost for the Michigan Permit is $100; the same as the initial permit fee. For those wineries that do not have a direct shipping permit for MI now is good time to consider applying. Licenses are valid from May 1 – April 30 and the $100 fee is not prorated.  The permit allows wineries to ship up to 1,500 9-liter cases to Michigan consumers.  Brand registration is required. This can be completed through the MLCC’s online label registration program for no fee. Sales tax and excise tax must be paid and reports must be filed.

New Hampshire

New Hampshire has updated its direct shipping permit application. The updated application is now available on Wine Institute’s website along with the instructions. Please be sure to complete the application in its entirety and attach all required documents. Incomplete applications will be returned.  Applicants will be happy to note that there is no permit fee. Approved shippers are allowed to ship up to 60 containers of not more than 1 liter each to each consumer during a calendar year. Monthly reports and tax payments are required.

Tennessee

The Tennessee Alcohol Beverage Commission has updated their ”Direct Shipper Application Requirements – ABC” document posted on the TN ABC and Wine Institute websites. The original version of the document did not include the “Wholesale Gallonage Letter” requirement. The Wholesale Gallonage letter is one of 2 documents issued by the TN Department of Revenue that wineries must submit with their application. The second document is the “Certificate of Registration for Sales and Use Tax.”  While the application on the TN Department of Revenue website says a bond is required, a bond is not required for wineries. For the TN DOR wholesale gallonage and sales and use tax application form, go to:  http://www.state.tn.us/revenue/forms/general/f13005_1.pdf.   Licenses are valid 1 year from the date issued and the annual license fee is $150.00. There is also a 1 time non-refundable application fee of $300.  Additional information about the application process is available on the Wine Institute website. Wineries may also contact Sharon Loveall at the TN Alcoholic Beverage Commission with any questions about winery direct shipping permits at 615.741.1602, ext. 141

By Annie Bones, State Relations – Wine Institute

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