Today, we would like to remind you of two things: one is a law that will affect our friends in Sonoma County this year, and the other is a cordial invitation to an industry event in the area on May 30th!
Sonoma County has seen great growth over the past few years, especially in 2012. According to our latest direct shipping report, created in conjunction with Wines & Vines, we have seen sales through direct shipping out of the area rise over 10% in the past year alone. Several regional organizations have taken note of this growth, and helped pass legislation in August of 2010 to ensure that Sonoma-based wines are properly branded and marketed.
Sponsored by the Sonoma County Vintners and the Sonoma County Winegrape Commision, AB 1798 requires that any wine from an American Viticultural Area (AVA) located in Sonoma County must also include the words “Sonoma County” on its bottle labels. Though the legislation was passed three years ago, very little action has been required by vintners—until now. The state of California will begin enforcing this new requirement on January 1st, 2014. The possible punishment of neglecting this new rule is the revocation of one’s winery license.
This marks the fourth kind of law, called “conjunctive labeling,” enacted in the Golden State. Napa Valley, Lodi, and Paso Robles have had this type of requirement enacted in the past.
The rationale is twofold:
- According to the sponsor organizations’ market research, Sonoma County’s brand recognition is much greater than most of the individual AVA’s that make their home in Sonoma County
- A voluntary program to place “Sonoma County” on the region’s wine labels resulted in a 20% participation, and sponsors of the bill want to increase those numbers significantly.
There is a counter-argument to this new initiative, however. Wineries have been using more detailed AVA information to better market their region, such as “Russian River Valley” and “Dry Creek Valley.” Adding Sonoma County to the label is seen by some as diluting the brand. Regardless, the legislation has long since passed.
While this may have been on your radar when it was first enacted, we wanted to remind you that this would be a good time to make sure your upcoming COLA submissions to the TTB are properly ready to go.
More detail on label requirements can be found at :
As for that invitation…ShipCompliant is pleased to participate in the eWinery Solutions “State of the Industry” seminar at Sonoma State University on May 30th. We’ll be digging deeper into our recent direct shipping data, and talk about ways to use this data to your advantage! Click here to sign up!
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.
Since the 2005 Granholm v. Heald Supreme Court decision addressing the interstate direct shipment of wine, the number of states allowing out-of-state wineries to ship directly to consumers has increased from 31 states to 40. The experience for licensed wine retailers (for example: brick and mortar wine shops, California Type 85 or 20 licensees and auction houses) however, has been somewhat different. The number of states previously available to retailers since 2005 has declined from 18 to 14 states and the District of Columbia.
What Retailers Need to Know
To help retailers navigate the market, we’ve created a quick reference guide, including basic information on regulations in the states available for retailer-to-consumer wine shipping. This guide includes links to license applications, statutes, state websites, and volume limits (if applicable). Note that four states on this list are “reciprocal” states. Reciprocity means generally that if state X’s retailers are allowed to ship into state Y, then state Y’s retailers may ship into state X without the need to obtain a direct shipper license or permit in the destination state. These states are: Idaho, Missouri, New Mexico, and California. General requirements that apply to interstate retail shipments also include but are not limited to:
- Customer volume limits (all regions but Alaska)
- Direct shipping permits (Louisiana, Nebraska, Nevada, New Hampshire, North Dakota, Oregon, Virginia, West Virginia and Wyoming)
- Producer consent (Virginia)
- Label registration (Virginia, West Virginia)
- Third party marketing restrictions (Virginia)
- Direct shipment to dry areas prohibited (Alaska, New Hampshire, West Virginia)
Download the Retailer Wine Shipping Guide
All states available to retailers are also available to wineries, and in many cases the regulations for the two shippers are similar. Indeed, permit-required states like North Dakota and New Hampshire allow for retailers and wineries to use the same application process and abide by the same rules in order to direct ship wine to that state. With this observation in mind, it would stand to reason that there is the potential for retailers to be welcomed to the same direct shipping states as wineries; actual practice, however, gives wineries access to three times the amount of the US market share.
As we like to do at the beginning of each year, we once again look into our crystal ball and offer you some informed prognostications as to what the world of wine direct shipping might have in store for the coming year. While we don’t see any negative trends impacting the compliance world in the next year, we do anticipate the continuation of certain trends of which we believe you should be aware.
Here are our picks for important compliance trends to keep a close eye on in 2013
1. Limited But Important Direct Shipping Changes
Wineries now enjoy the opportunity to ship into 40 states (including Washington D.C.). The remaining closed states are predominantly those that have given little hint of changing their policy. However, we once again have our sights trained on two states where we believe some opening in the direct shipping landscape might occur: Pennsylvania and Massachusetts.
Pennsylvania has considered direct shipping legislation for the past few years, but so far the direct shipping initiatives have become more or less attached to the heated battle over the privatization of the Pennsylvania Liquor Control Board (PLCB). The privatization battle will wage on concurrently with efforts to “modernize” the PLCB. Direct shipping is reportedly part of a six-point plan to modernize the state control system. A sticking point for direct shipping legislation will be how to deal with the 18% “Johnstown Flood Tax” that is applied to sales through the state system.
Massachusetts also saw a direct shipping bill in play in 2012 for the third straight year, but it went nowhere. This non-action occurred despite the fact that a 2010 Federal Appeals Court decision ruled the current wine shipping law in the state unconstitutional and despite Governor Deval Patrick’s stated support for direct shipping. We expect another tough battle in the Bay State over this issue in 2013.
2. Changes to COLA Processing at TTB
Over the past couple of years the TTB has given every indication that they are going to completely overhaul the process of obtaining Certificates of Label Approval (COLAs). It still remains a fact that one must get a federal pre-approval through the COLA process before bringing a new product to market. However, given the increase in new products and decreased budgetary resources at the TTB, this crucial federal agency is looking for ways to decrease the burden that administering the pre-approval of labels places on them.
Toward this end, TTB has taken steps to make it easier for suppliers to make adjustments to labels without applying for a new COLA. We expect the TTB to continue to move towards a more streamlined pre-approval process this year. This process will not happen overnight, but will force suppliers, wholesalers, and state agencies that depend on the COLA for different purposes to review and adjust their processes.
3. Privatization and Modernization
While it is probably too early to pass judgment on the recent move in Washington State voters to privatize the state liquor control system, it can be said with some assurance that other states currently involved in one way or another with alcohol sales will look closely at privatization. A move in Pennsylvania to privatize alcohol sales has been underway and debated for a couple years now with the governor behind the effort. Other control states are also looking to modernize their control systems to add more value for their constituents and to get out ahead of privatization pushes.
Larger retailers tend to support privatization, while wholesalers and small retailers are typically wary. All eyes are on the ongoing transition in Washington State.
4. Regulating Third Party Providers (TPPs)
Last year we predicted that more Third Party Providers (unlicensed marketers using their reach to advertise wine products) would get into the business. With both Amazon and Facebook now doing just this, we have pretty clear evidence that third parties are investing in the wine vertical. The key to opening up the TPP landscape was the Advisory by the California Alcohol Beverage Control issued in 2011 that laid out the special method by which TPPs and suppliers had to structure their relationships.
Other states are now looking closely not only at the California model but are also considering exactly how to regulate and enforce this new advertising channel in their own states. We expect to see other advisories and clarifications coming from states addressing how TPPs and suppliers can work together compliantly.
Finally, if states take a position similar to California’s view of the marketplace channel, we would not be surprised to see other niche players enter this vertical, helping suppliers to reach a larger wine buying audience.
5. Revisions to Direct Shipping Regulations
Since the Granholm Supreme Court decision in 2005, numerous states somewhat quickly addressed and changed their direct shipping laws and regulations. After seven years with new regulations, many states we believe will revisit their laws and make adjustments.
In some cases we see changes in the capacity caps that currently restrict the size of the winery that can ship direct. In other cases, we would not be surprised to see some states lift restrictions on how fulfillment houses ship into their states as well as changes to report and tax filing regulations. The hope is that these changes make both compliance reporting and state agencies more efficient while also giving the state agencies the tools they need to maintain a level playing field.
6. Changing the Product Registration Process
For decades, state product registrations have been done with paper. As more and more products enter the marketplace, state response times have slowed. This has been exasperated by budget cuts to various state regulatory agencies in the wake of the recession and state budget deficits. The response has been to work to bring state product registration into the 21st century by allowing them to be submitted online and responded to online.
ShipCompliant’s own PRO (Product Registration Online) system has been adopted by a number of states to help speed up and make more efficient the product registration process, driving improvements in efficiency both for suppliers and the state agencies. We expect the pace of implementing online product registration to increase in 2013 for the same reason it initially was instituted in a number of states: budget cuts, efficiency efforts and modernization pushes. This will also be accelerated by TTB’s push to redefine the concept of a COLA, which is currently a resource that states depend on as part of their state label approval processes.
Editor’s Note: The following post is part of our series on the Third Party Providers
The rapid emergence of online wine marketers might be the biggest innovation in wine sales over the past five years. But selling and marketing your wine through these third-party channels poses many compliance and business-related challenges. That’s why we’ve put together this comprehensive 5-point checklist to help you sell through third-party marketers efficiently, compliantly and profitably.
1. Know Your Why
There are lots of great business reasons why wineries work through third-party marketers to sell their wine. It could be to move excess supply, help launch a new brand or label, power your social media efforts, or perhaps target a new demographic. And not all marketers are alike.The first thing you need to ask yourself is “Why?” Understanding this will help you best determine which marketer is best positioned to help you reach your business goals.
Key Questions to Ask:
- Which online marketers are best able to attract my target customers?
- How much inventory should I dedicate to this?
- Which type of online marketer best satisfies our business objectives – a daily deal site, social shopping, niche wine site or a mass market platform?
- How would my brand be impacted across these different options?
2. Know Your ABCs
From a compliance perspective, selling wine through third-party marketers had been somewhat of a gray matter until the release of a very important advisory from the California ABC last fall. In the advisory, the ABC provided clear guidance on how wineries and third-party marketers can work together in a compliant fashion. The guidance covers everything from pricing to fulfillment to disbursement. Luckily, there’s a great blog post that breaks down the full advisory, so you know exactly what landmines to look for.
Key Questions to Ask:
- Is my third-party marketer familiar with the ABC advisory?
- Have they considered the ABC’s guidance in how they’ve constructed their service?
- Am I assured that I won’t be putting my license at risk?
3. Know How Funds Get Handled
When working with third-party marketers, payments and disbursements can often be the trickiest steps of the process. In order to follow the guidelines set forth in the ABC advisory, the licensee must be in full control over all aspects of each transaction. This can be hard to balance as third-party marketers typically secure the credit card info and payment authorization. So make sure the process by which funds are collected and transferred is crystal clear.
Key Questions to Ask:
- What’s the checkout experience like from a user perspective?
- When do I take control of the order funds?
- Am I fully in control of the funds throughout the entire process?
- How are the marketing fees structured and when are they paid?
- How will taxes get calculated, collected and paid?
4. Know How Compliance Gets Handled
In online shopping environments where customers are used to lightning fast checkouts and no additional actions are needed, compliance checks can also be a very delicate thing to handle. Technology has now evolved to a point that holistic compliance checks and tax rate calculations can happen in real-time; online orders can also be automatically bundled into your overall numbers for state reporting, but the third-party marketer must work in close concert with your compliance provider. If you want to keep your back-office paperwork to a minimum, this point is truly important.
Key Questions to Ask:
- Is the third-party marketer integrated with our compliance solution?
- If not integrated, how will orders get checked for compliance? How quickly can it occur after transaction?
- How do I consider my other direct shipments when evaluating the compliance of these orders?
- If the transaction is found to be out-of-compliance, how does that get communicated back to the customer?
- How do I retrieve the order information needed to aggregate and consolidate for tax and shipping reports?
5. Know How To Measure Success
In addition to the hard costs involved in selling through third-party marketers, there are several soft costs to consider as well. Namely, how much time will it take for me and my staff to launch and maintain this sales channel? Make sure mechanisms are also in place to measure progress towards your original business objectives, whether it’s tracking new Facebook fans, wine club members, or net proceeds on a certain batch of inventory.
Key Questions to Ask:
- Did this third-party marketer help us achieve our original objectives?
- What would make working with this third-party marketer an easier process?
- Was our brand well represented through the entire marketing, transaction and distribution process?
- What information will I receive about the customers who buy through this marketer?
At ShipCompliant, we believe compliance should never get in the way of your success in the wine industry. That’s why we’re intently focused on making sure you’re fully aware of both the potential and risk involved with selling through online wine marketers.
If you feel that you are ready to engage in selling your wine through third-party marketers, we’d be happy to answer any questions that you have or introduce you to similar sized wineries that have already navigated these waters and experienced success. Learn more about ShipCompliant MarketPlace.
Editor’s Note: The following post is part of our series on the Third Party Providers
In the quickly evolving world of third party wine marketing, it’s important that marketers and licensed sellers work together in such a way that puts the licensed seller in full control of all aspects of each transaction. One of the most important elements of control is the concept of acceptance.
The fundamental concepts behind third party marketing are quite simple on the surface: A third party provider (TPP) places and merchandises products from licensed wineries on its website, mobile application or platform, then solicits requests from consumers who would like to purchase the products, and passes the request on to the licensee for final sale and fulfillment.
Below the surface, the process can be much more complex. Technology has advanced to a point where almost all aspects of third party sales can be completely automated. For example, all of the following functions can be completed in real-time within seconds of the consumer actually clicking the button to complete/submit their order:
- Third Party Providers (TPPs) can dynamically display product information that licensed sellers have authorized for placement
- Inventory levels can be fully synchronized and reserved
- Sales tax can be calculated precisely based on the licensed seller’s tax preferences
- A comprehensive compliance check can be run against the licensed seller’s permits and volume from other channels
- Consumer age can be affirmed and validated
- Credit card funds can be authorized and reserved
- Orders can be released to the licensed seller’s preferred fulfillment location
In the past, many of these steps were typically carried out through some combination of phone, fax, snail mail, carrier pigeons, smoke, and mirrors. But today, as TPPs increasingly look for a world-class quality of service for their customers, automation and efficiency are paramount.
At the core of compliant third party marketing is the notion that licensed sellers are always fully in control of all aspects of each transaction. Although one could probably argue that the order-acceptance process could also be established contractually, we believe that it’s important for the licensed seller to always have an option to interrupt the automated flow so that they have every confidence in the orders that are fulfilled on their behalf, prior to payment capture and fulfillment.
Another significant consideration is that regulatory agencies place tremendous importance on this step. In its October 2011 Advisory on the issue of Third Party Providers the California Department of Alcoholic Beverage Control wrote, “The licensee responsible for the sale must be clearly identified and must ultimately control the transaction, including any decisions concerning acceptance or rejection of such orders.” It makes sense that regulators want to ensure that there is a licensee involved that they know is in control and that they can hold accountable for orders that are shipped into their state.
The Nuts and Bolts
An easy way to implement an acceptance mechanism is for the TPP to send an email with the order requests to the licensee for their review. Licensed sellers can then review the order details, and will likely consider the following when evaluating whether or not they would like to accept or reject the order:
- Compliance: Has this order request been checked for compliance, and aggregated against my other order sources (my winery website, wine club, tasting room, and phone orders)? Has the consumer’s age been affirmed and/or validated using an online age verification service.
- Pricing: Are the prices for the requested items within the predetermined ranges I established with this TPP?
- Inventory: Do I have sufficient inventory for these items to fulfill this request?
- Advertising Fee: Is the advertising/customer acquisition fee (if applicable) for this order request within the predetermined range that I established with this TPP?
- Sales Tax: Has the appropriate amount of sales tax been collected based on my tax preferences in the destination state?
If the answer to all of these questions is yes, then the licensee should have no reason to reject the order requests, and can therefore feel comfortable accepting them. Once the requests are accepted by the licensee, the orders can be released to the designated fulfillment location, and payment can be captured (note: payment should ideally be authorized at the time of transaction, but captured after acceptance and fulfillment).
The acceptance email can be implemented in a way that batches order requests over set periods of time (daily, twice/daily, every 4 hours, etc.). Each licensee may have different preferences about both the timing of the emails (during local business hours, for example), and the review period (4 hours, 8 hours, etc.), based on their desired level of control. This preferences-based method of acceptance is what we implemented into ShipCompliant’s MarketPlace platform, as we believe it provides a good amount of flexibility for licensed sellers.
In summary, the relatively straightforward process of creating an acceptance mechanism can really go a long way towards establishing the most important regulatory requirement for working with TPPs — licensee control. As wineries more and more look to work with TPPs that complement their brand and their direct to consumer strategy, relying on a robust and consistent acceptance mechanism becomes increasingly important.