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Free The Grapes! legislative update

Free the Grapes! recently provided an update on direct to consumer shipping legislation and litigation for 2007. As you can see below, many changes are likely to come this year.

LEGISLATIVE UPDATE

Wine Institute provided the following summary of direct shipping legislation around the country.

Alaska –House Bill 34 (Ledoux) would specifically allow in-state wineries to make DTC shipments to AK consumers, with a 5-gallon per shipment limit. Status: passed House 2/14/07 and moves to Senate Community and Regional Affairs and to Senate Labor and Commerce.

Arkansas – Senate Bill 592 (Whitaker), a positive bill, creates a DTC shippers permit for wineries. Provisions include: 24 cases annually, $10 permit application fee, sales and excise tax payments annually. Status: Introduced.

Connecticut — Senate Bill 1204 (Joint Committee on General Law) makes a change to the time period specified in the DTC shipping statute from 60 days to 2 months for the 5 gallon limit. Status: Passed out of General Law on 2/27/07.

Florida – Shipping into FL is currently legal. Senate Bill 126 (Saunders) and SB 2282 (Geller) would implement a version of the industry’s model direct shipping bill, but both bills include a discriminatory 250,000 gallon capacity cap opposed by consumers and wineries. Alternatively, House Bill 1217 (Bogdanoff) does not include a cap.

Georgia – House Bill 159 (Willard) and its companion Senate Bill 56 (Untermann) create a DTC shipping license for all wineries (and retailers in SB56), repealing existing law which prohibits wineries with a wholesaler from obtaining a license. Other provisions: $100 permit fee, 24-case annual limit, sales and excise taxes to be collected. This bill is getting industry support.

The wholesaler’s House Bill 393 (Stephens) includes a discriminatory 100,000 gallon capacity cap, creates a new “domestic farm winery” using at least 50% GA grapes, and a national “farm winery” definition of a winery under 100,000 gallons that uses at least 40% grapes from its state of domicile. Such wineries can obtain a DTC shipping permit to ship up to 20 cases of wine per consumer annually. Status: Favorably reported out of House Regulated Industries Committee on 2/21/07.

Hawaii – Two bills, House Bill 1093 (Say) and Senate bill 1019 (Taniguchi), appear to be dead in committee. They would have reduced consumer choice by limiting shipments under the existing DTC shipping permit to 6 cases annually per household from an aggregate of wineries (current system is 6 cases per winery).

Idaho – House Bill 11 would modify the permit legislation passed in 2006 to allow wholesalers and retailers in Idaho and other states to ship wine directly to consumers. Status: Referred to House Revenue and Taxation on 1/22/07.

Illinois – House Bill 429 (Acevedo) is similar to last year’s transition bill that creates a winery-only DTC shipping permit to replace the existing reciprocity law. Provisions include a tiered permit fee based on size of the winery from $150 to $1,000, 12 cases annually, with sales and excise tax collection. Free the Grapes! is encouraging inclusion of retailers in the bill. Status: Passed from House Consumer Protection Committee on 2/20/07 by vote of 11-0. There is also a similar bill in the Senate (SB123, Silverstein).

Iowa – ABC hearings were held on 2/24/07. The ABC recommended to legislators that the reciprocity statute be replaced with a DTC shipping permit system. Other proposals addressed at the hearing include changing the local winery preferential tax rate, changes in Iowa wine labeling rules for IA wineries, and changes to existing designation of 5% of wine tax revenues to Iowa Wine Development Board. Status: Awaiting action by legislature.

Maine – Senate Bill 54 (Bromley) creates DTC shippers permit for wine & beer. Winery or retailer obtains a COA and nonresident shipper’s license ($100 fee). Annual sales and excise tax payments required. Status: Introduced.

Missouri – House Bill 944 (Cooper) creates a DTC permit for wineries to ship 2 cases per month, and requires permit and tax collection. Carriers must obtain permit. Amendment to add retailers drafted on 2/26/07. Status: Introduced.

Montana – Senate Bill 524 (Wanzenried) proposes changes such as adding “purposely, knowingly or negligently” language to the connoisseur’s license, which does not currently work for consumers or wineries. Status: Reported “Do Pass” from Senate Business, Labor and Economic Affairs on 2/21/07.

New Mexico – House Bill 1018 (Silva) creates DTC shipping permit for wineries and retailers to replace reciprocity. Provisions: $50 fee, pay excise and Gross Receipts Tax, 24 cases annually. Status: Passed favorably on 9-1 vote from House Business & Industries Committee on 2/25/07. Companion bill is Senate Bill 1047 (Taylor).

New York – Interestingly, Assembly Bill 4345 (Destito) replicates the wine DTC shipping program for beer manufacturers and beer wholesalers. Free the Grapes! has no activities or campaigns concerning this bill because it deals with beer and not wine. Status: Introduced.

North Dakota – Senate Bill 2135 (Senate Finance and Taxation Committee) makes changes to existing DTC shipping statute. Provisions: increases amount of shipments to 3 cases per month (currently 1 case per month), removes “reciprocal” provision passed in 2005 but never implemented. Removed vague language that could have been interpreted to allow an in-state winery to also hold a wholesalers license – clarifies no self-distribution, which was believed to be the case by in-state industry at this time anyway. Status: Passed Senate 1/23/07 and now to House Finance and Taxation.

Oklahoma – Several bills in the House and Senate have been introduced, several of which request a voter referendum to allow OK consumers to receive DTC shipments from out-of-state wineries, but a permit system has not been outlined.

Oregon – House Bill 2171 (Minnis) transitions OR from a reciprocal DTC to a permit system. Would cover wineries only. Status: Introduced. This is the OLCC bill. House Bill 2488 (House Business and Labor Committee) is similar, allowing wineries, retailers and “associations” to obtain permits. $50 fee. Excise taxes to be paid. Unlimited shipments. Status: Introduced.

Pennsylvania – House Bill 255 (Godshall) is a positive DTC shipping permit bill with a $100 registration fee, 2 cases per month to any individual. Taxes collected. Status: Introduced.

Tennessee – House Bill 1850 (Todd) creates a DTC shipping permit for 2 cases annually. Provisions: $100 fee, annual reports, annual excise and sales tax payments. Status: Introduced. Companion bill in Senate (1977, Stanley).

Virginia – Senate Bill 984 (Edwards) creates an “internet wine retailer license” to allow sales by a retailer having no physical premise. Status: Passed both House and Senate and sent to Governor on 2/22/07.

West Virginia – Senate Bill 712 (Kessler) is an omnibus liquor bill, that among many provisions, includes creation of a DTC shipping permit for wineries, wholesalers and retailers. Provisions include: $150 permit fee, 2 cases per month, sales and excise tax payments. Removes self distribution privilege for instate wineries. Original 50% tax increase has been removed. Creates a “wine spa” license, a wine B&B license, and a “mini” winery license to replace farm winery permits.

LITIGATION UPDATE

Texas — The Specialty Wine Retailers Association (SWRA, www.specialtywineretailers.org) litigation in Texas to address that state’s discriminatory stance between in-state and out-of-state retailers is in its discovery phase. Until the case is decided, out-of-state retailers may continue to ship to Texas consumers.

Massachusetts — The Family Winemakers of California reports that its lawsuit against the State of Massachusetts seeking to overturn the 30,000 gallon production cap in the DTC law is still in the discovery phase. Once discovery is complete both sides will be preparing motions for summary judgment for later in the year.

“New Vintage” of Wine Litigation

There’s an excellent article on law.com titled “New Vintage of Wine Litigation is Fermenting”. The article summarizes the “next wave” of wine lawsuits that will continue to shake up the landscape of direct shipping.

New suits and amended complaints filed in the past year are attacking requirements that consumers must purchase wine in person, with the first court decisions recently issued in Maine and Kentucky. Wineries also are challenging legal shipping limits that are based on production volume.

In both types of cases, out-of-state wineries accuse the states of discriminating against them.

It’s interesting that almost two years after the Granholm decision there are over 30 lawsuits in over 20 states, and almost all of them are trying to clarify what the ruling actually meant. Richard van Duzer predicts,

Ultimately, this will be back before the Supreme Court, which will have to be more explicit about what it said and what it hasn’t said.

Ken Starr also contributes a quote to describe the de facto discrimination,

It appears that the wholesalers are simply seeking legislatively to do indirectly what the Supreme Court said in Granholm they can’t do directly.

Below is a summary of the litigation discussed.

Maine: In Cherry Hill Vineyard v. John E. Baldacci, No. 1:05-cv-00153 (D. Maine), the judge upheld the in-person requirement in Maine’s law , claiming the face-to-face restriction applies equally to in-state and out-of-state wineries.

Kentucky: In Cherry Hill Vineyards v. Hudgins, No. 3:05-cv-00289 (W.D. Ky.), on December 26th, 2006, the judge struck down the in-person requirement, but did not strike down the 50,000 gallon capacity cap restriction.

Indiana: In Baude v. Heath, No. 1:05-cv-00735 (S.D. Ind.), IN residents are suing over the requirement that the initial purchase of wine be made in person.

Massachusetts: In Family Winemakers of California v. Jenkins, No. 1:06-cv-11682 (D. Mass.), the Family Winemakers of California is suing over the 30,000 gallon capacity cap, which is conveniently just over the production of the largest producer in MA.

Arizona: In Black Star Farms v. Morrison, No. 2:05-cv-2620 (D. Ariz.), five AZ consumers are suing over the 20,000 gallon capacity cap.

Click here to read the full article

"New Vintage" of Wine Litigation

There’s an excellent article on law.com titled “New Vintage of Wine Litigation is Fermenting”. The article summarizes the “next wave” of wine lawsuits that will continue to shake up the landscape of direct shipping.

New suits and amended complaints filed in the past year are attacking requirements that consumers must purchase wine in person, with the first court decisions recently issued in Maine and Kentucky. Wineries also are challenging legal shipping limits that are based on production volume.

In both types of cases, out-of-state wineries accuse the states of discriminating against them.

It’s interesting that almost two years after the Granholm decision there are over 30 lawsuits in over 20 states, and almost all of them are trying to clarify what the ruling actually meant. Richard van Duzer predicts,

Ultimately, this will be back before the Supreme Court, which will have to be more explicit about what it said and what it hasn’t said.

Ken Starr also contributes a quote to describe the de facto discrimination,

It appears that the wholesalers are simply seeking legislatively to do indirectly what the Supreme Court said in Granholm they can’t do directly.

Below is a summary of the litigation discussed.

Maine: In Cherry Hill Vineyard v. John E. Baldacci, No. 1:05-cv-00153 (D. Maine), the judge upheld the in-person requirement in Maine’s law , claiming the face-to-face restriction applies equally to in-state and out-of-state wineries.

Kentucky: In Cherry Hill Vineyards v. Hudgins, No. 3:05-cv-00289 (W.D. Ky.), on December 26th, 2006, the judge struck down the in-person requirement, but did not strike down the 50,000 gallon capacity cap restriction.

Indiana: In Baude v. Heath, No. 1:05-cv-00735 (S.D. Ind.), IN residents are suing over the requirement that the initial purchase of wine be made in person.

Massachusetts: In Family Winemakers of California v. Jenkins, No. 1:06-cv-11682 (D. Mass.), the Family Winemakers of California is suing over the 30,000 gallon capacity cap, which is conveniently just over the production of the largest producer in MA.

Arizona: In Black Star Farms v. Morrison, No. 2:05-cv-2620 (D. Ariz.), five AZ consumers are suing over the 20,000 gallon capacity cap.

Click here to read the full article

Arizona permit available, FedEx begins shipping

The new wine shipping laws took effect yesterday in Arizona. Arizona has posted the Application for Out-of-State Domestic Farm Winery or Domestic Microbrewery on their website. Currently, only wineries that produce less than 20,000 gallons per year can ship directly to Arizona residents. Wineries that produce more than 20,000 gallons must “Provide the names and addresses of the wholesalers licensed in this state through which you will ship spirituous liquor into this state.”

FedEx began shipping to Arizona from out of state wineries yesterday. The following is from their update:

FedEx is expanding wine shipping services to accept legal wine shipments to consumers into, out of, and within Arizona. The effective date is September 21, 2006. For those shipping wine to AZ consumers, please note changes on the State Pairing Guide.

https://www.dmz.fedex.com/cgi-bin/wineShipping.cgi?State=CA

For more info on shipping wine with FedEx: http://www.fedex.com/us/wine/

For more info on the new AZ direct shipping changes: http://shipcompliantblog.com/blog/?p=121 and http://wi.shipcompliant.com/Home.aspx?SaleTypeID=1

New offsite rules take effect in Arizona on September 21st

As we mentioned in June, the new laws for shipping into Arizona are scheduled to take effect on September 21st. However, the Arizona Department of Liquor Licenses and Control has not made available the forms or processes necessary for obtaining a permit and is not expected to until at least September 21st. Once the forms are available, only wineries producing less than 20,000 gallons (roughly 8,400 cases) can apply for a direct shipping permit. FedEx will begin shipping to Arizona on September 21st for permitted wineries.

As expected, a group will immediately challenge the new laws in court. Because the 20,000 gallon capacity cap will exclude 90% of wine produced outside of Arizona but include all but one Arizona winery, the rules are seen as discriminatory and in violation of Granholm. The lawsuit will be watched closely by everyone in the industry since several states have introduced similar capacity caps.

We’ll keep you updated as the permits become available and the lawsuit unfolds.

Napolitano signs Arizona wine shipping bill

On Thursday, Arizona Governor Janet Napolitano signed into law SB 1276, opening Arizona for limited direct shipping and self distribution. As we mentioned below, this will establish a capacity cap for offsite sales of 20,000 gallons (roughly 8,400 cases). Onsite sales will continue to be allowed with a per customer volume limit of 2 cases per year. The new law will be effective 90 days after the end of the legislative session.

Reactions are mixed on this result. Arizona wineries are pleased with the decision as are wholesalers, but medium and large sized wineries outside of Arizona as well as the Wine Institute and Free the Grapes! are not happy with the outcome. Many of our readers point out that we should view this as a glass half full instead of a half empty. Arizona was previously completely prohibited for offsite sales, so it is a small step in the right direction even though a large number of wineries are excluded.

Tom Wark at Fermentation notes that the Wine & Spirits Wholesaler Association has stepped up their presence and will continue to use whatever means they have to limit and prohibit direct shipping and self distribution. The Arizona battle seems far from over as the the capacity cap will almost certainly be challenged in the courts.