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Product Registrations Online: Out with the Old, In with the New

In the increasingly fast pace of wine, malt and spirit law and compliance, more and more states are recognizing the importance of doing more with less, optimizing processes, and going green. Over the last two years alone, seven states have begun using PRO (Product Registration Online) to accept online label registrations from licensees. For labels registered through PRO in these states, we’ve seen registration time-to-approval drop from weeks or even months to days, and in some cases just a matter of hours! It’s not surprising that states and licensees alike are swapping out traditional registration forms sent via snail mail for electronic registrations transmitted instantaneously and approved in short order.

Since it’s beginning in 2012, PRO has improved the registration process by making label registration move quickly and easily for licensees and state administrators alike. We’ve worked with licensees – covering over 4,000 wholesale brands – to learn what we can do to make registrations less frustrating and time consuming. We also learned about what users can do to make registrations accurate 100% of the time to ensure minimal delays or rejections.

How can I get started?

Need to register labels in Arkansas, Colorado, Illinois, Kansas, New Mexico, South Dakota, or Washington?  Getting started is easy. ShipCompliant users have PRO already integrated into their accounts, and are utilizing end to end workflows including TTB COLA submission and state subsequently automated registrations to multiple states. Outside of a ShipCompliant account, PRO is available by visiting www.productregistrationonline.com.

Where will I be able to register electronically next?

Well, we can’t spill the beans on this yet, but we’re working with quite a few states that have gotten feedback from you, raving about PRO in the existing states. We’re looking to have a new PRO state (or two) in the next couple months. (Hint) one sported a boxing legend and the other produced two brothers with one of America’s finest inventions.  Okay, maybe you can guess the states… In the world of compliance, who needs more time-consuming and tedious forms to fill? Questions? Have a state you’d like to see adopt PRO? Contact us.

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.

More on the Family Winemakers lawsuit

Tom Wark from Fermentation posted a lengthy comment in response to Doug Caskey’s thoughts on the Family Winemakers lawsuit. This was another great response, so I wanted to post it to make sure everyone reads it.

Doug:

First, anyone accusing you of being a traitor to the wine industry simply doesn’t know you or doesn’t care for honesty.

That said, I want to comment on your elequent plea for respecting the postion Colorado and other smaller state wine industries find themselves in vis a vis the current debate over direct shipping regulations.

First, with regard to the Granholm ruling, it strikes me that the ruling did not so much “reinforce” the validity of the 3-tier system as much as it simply concurred that it was a legitimate way for a state to structure the distribution of alcohol. By this I mean, it did not endorse the excusionary charachter of system, but rather acknowledged its legitimacy. This is important.

The idea that the state is preventing direct shipping by those that produce over a certain amount because it “values small businesses that stimulate agriculture” belies the facts and machinations in the direct shipping debate. Were direct shipping to consumers open to all wineries, large and small, there is no reason to believe that a small Colorado winery would be hurt by CA wineries of any size trying to attracte consumers to wine clubs or occassional Internet sales. In fact, being closer to the Colorado consumer than a CA or WA winery, the Colorado winery should have an advantage in reaching that consumers.

The bottom line is that production limits are approved by Wholesalers becauase it keeps the vast majority of direct sales from occuring while allowing in-state wineries that they rarely deal with to go about their business without criticizing wholesalers. As a bonus for wholesalers, it puts wineries in-state into conflict with out-of-state wineries that are prevented from entering the market via direct sales.

As for monopolistic tendencies, it is indeed easy to accuse wholesalers of being monopolies. But the idea that “the same can be said of the large wineries in California” just doesn’t wash for one simple reason: The Wholesalers benefit from STATE SPONSORED monopoly status. By dictating the use of the three tier system the States guarantee that a smaller and smaller group of wholesalers take a piece of every sale in the state. Yet, there are no provisions that they represent any winery that wants to sell in that state. If in addition there are production requirements on those that can sell direct in a state that has granted a monopoly to wine wholesalers many wineries will be prevented entirely from doing business in that state.

The State of California does not impose any regulations that result in CA wineries selling the vast amount of domestic wine in the United States. This difference in who imposes a monopoly is important.

If the concern is for fairness and a desire to see Colorado wineries expand and prosper there is a simple way to accomlish this: Allow wineries to self distribute in the state as well as sell direct to consumers. No one represents a brand better than the owner. But as long as the state imposes the 3-tier system, this can never happen because under Granholm if CO wineries can self distribute then out of state wineries must be able to also. Wholesalers would just as soon see small state wine industries disappear altogether than allow this sort of situation.

And this brings us to the idea that “Under the guise of “equal protection” as spelled out in the Granholm decision, their (those bringing suits) legal actions have the impact of squelching the advantages that state governments want to give small agribusinesses like wineries.”

If government and legislators were truly interested in giving small agribusiniess a hand up, they would ignore the demands and campaign donations of wholesalers and allow unrestricted direct sales and unrestricttd self-distribution in their states. It’s clear the legislators too would rather throw CO wineries and other small state wine industries under the bus before upsetting the antiquated but very profitable apple cart known as the state sponsored wholesaler monopoly, AKA “Three Tier System”.

In the end, the restrictions that states put on who can ship to consumers don’t merely inhibit the “Big Boys”. They inhibit the very small boys too, the very boys that most distributors don’t want anything do do with. But the big problem is that as long as the three tier system is imposed by the state, small industries like that of Colorado will be hampered.

A response to the Family Winemakers lawsuit

Doug Caskey, from the Colorado Wine Industry Development Board, responded to our post about the lawsuit in Massachusetts with a lengthy comment. I wanted to republish it in a new post because it is well worth reading.

At the risk of sounding like a traitor to the cause of wine, free trade and the American Way, I would like to challenge the premises that underlie Mr. Kronenberg’s lawsuit against the revised wine shipping statutes in Kentucky. As a representative of the very small wineries in Colorado, the last thing I want to do is “protect and perpetuate a wholesaler monopoly at the expense of wineries seeking market opportunities,” as Mr. Kronenberg accuses the Kentucky legislature of doing. Yet, I take exception to his comment that we are “one national economic market.” As recent court rulings in Virginia and Michigan have shown, the local implementation of the three-tier system was reinforced, not invalidated by the Granholm decision, as long as the implementation is not discriminatory or preferential. States still have the right to regulate alcohol in a meaningful way that suits the “needs and desires” of their residents, as the language of the Colorado Liquor Code requires.

If a state chooses to impose size limits on certain privileges for liquor distribution or market access, that state may well be doing so because it has determined that small wineries have more difficulty getting their products through the three-tier system than large wineries with sales teams and marketing budgets. That state could be saying that it values small businesses that stimulate agriculture, and it should not have to defend that position against the legal whims of wineries that produce more wine in a year than the entire state. While the Family Winemakers of California represents the “smaller” wineries in that state, I doubt if many of Mr. Kronenberg’s members produce less than the entire state of Kentucky or Colorado or both states combined.

We should remember that prior to Prohibition and the 21st Amendment, the beverage alcohol industry was made up of small, local breweries and wineries in almost every community. The advent of the mega-breweries and corporate wineries was something that happened as a result of Prohibition. The 21st Amendment was designed to protect states against the liquor monopolies spawned in the void created by Prohibition. The framers of that amendment wanted to return to the alcohol industry model of the late 19th and early 20th Centuries. It is easy to accuse the wholesale industry of being monopolistic because a handful of companies dominate the market in every state. But the same can be said of the large wineries in California.

The grape growing industry did not disappear in California and New York as a result of Prohibition the way it did in most other states, such as Colorado. Our vineyards were replanted to peach trees. Consequently, California wineries, and certain breweries in St. Louis and Golden, were able to capitalized on the demise of the local wine industries and recover more quickly than those in the rest of the county. The wine industries in states other than New York, California and Washington are just now coming back from Prohibition.

So at this point in history when California’s wine industry, which has been growing nicely for 40-50 years, complains that states are discriminating in favor of small wineries, it is in truth asking the courts for special protections. In effect, the 40-50 year advantage that California has over wine industries in the rest of the country, during which time small wineries enjoyed special protections and privileges from the California government, makes them the monopoly now. Under the guise of “equal protection” as spelled out in the Granholm decision, their legal actions have the impact of squelching the advantages that state governments want to give small agribusinesses like wineries.

The economic reality is that large wineries can afford to navigate the spiffs and expenditures of the three-tier system. Just because few states have wineries that produce more than 20,000 gallons annually, or whatever number a state uses to define a small winery, imposing size limits on direct shipment or self-distribution is not an attempt to inhibit trade. It is an acknowledgement we are not starting with a level playing field.

To my friends (and I hope we remain friends, as this is a friendly debate) Paul, at the Family Winemakers, and Steve, at the Wine Institute, I call on you to recognize the historic disparity between where your industry is and where the industries are in Colorado, Kentucky, Missouri and other states. You have a big economic head start on the rest of us. Our attempts to limit how the “big boys” play in our states are not attempts to keep you out. They are the implementation of each state’s right to define the rules for the three-tier system within our state, to identify who is small enough to need help and who doesn’t. This is the American Way.

Colorado permit process

Colorado’s new legislation effecting wine shipments will become effective July 1, 2006. The new permit application is available on Wine Institute’s direct shipping website here. Wineries that have been shipping to Colorado under the reciprocity law DO NOT have to complete a new application. The annual renewal fee for applications will remain $50.00. Wineries must pay excise taxes on a monthly basis. The excise tax payment forms will be mailed to wineries that have completed the Winery Direct Shipper’s Permit Application. A physical visit to the winery is no longer required and there are no quantity limits.

The broader effects of Costco

I. Discrimination against Direct Distribution from Outside the State

There seems little doubt that Costco�s reading of Granholm will survive appeal. Nothing appeared in the Costco record to distinguish direct shipment of beer and wine to retailers from direct shipment of wine to consumers.

Most states with wine industries allow local wineries some form of direct distribution. Only Washington extends an equal privilege to out-of-state wineries, a result of the Costco remedial legislation. A few states, such as New Jersey, have taken preemptive action by eliminating or restricting direct distribution rights of in-state producers. Limiting direct distribution according to annual production of the producer is emerging as a common theme. Florida recently arrived at a legislative “compromise” that set the cutoff just above the size of the largest Florida winery, a transparently protectionist measure that may or may not evade analysis as discrimination, but, like all size caps, is open to Commerce Clause objection for disproportionate burden on commerce originating outside the state.

Thus, the immediate concern is with legislation in the states that must level up or down. The Costco decision accommodated state concerns by leveling down (with a stay for legislative override) and thus does not constitute precedent for requiring open access to local markets. Because other lower courts may also find the unconstitutionality of discriminatory schemes in the protectionist measures favoring local wineries, rather than in the more basic regulatory objective of controlling the traffic pattern of liquor entering the state, neither Granholm nor Costco suggests that suppliers can rely on widespread opening of markets to direct distribution.

II. Posting and Ancillary Restraints

Costco illustrates a great divide in basic Sherman Act jurisprudence. For some observers, no contract, combination, or conspiracy can be inferred from private actors� facially unilateral acquiescence in state restraints, even if the effects are anticompetitive. That is, roughly, the Fisher v. Berkeley view. See, e.g., Sisters of St. Vincent Health Services, Inc. v. Morgan County, 397 F. Supp. 2d 1032, 1046 (S.D. Ind. 2005), citing Massachusetts Food Ass’n v. Massachusetts Alcoholic Beverages Control Comm’n, 197 F.3d 560, 564-66 (1st Cir.1999).

Naturally, the district court in Seattle regarded Miller v. Hedlund as controlling 9th Circuit precedent. The reasoning in Miller is difficult to pin down. It appears influenced by anticompetitive effects (which we know are alone insufficient), but also to rely on the participation of private actors, consisting of filling in the blanks of a posting system which was then enforced by the state. The opinion mentions potential for collusion, but does not seem to require it. Last December�s antitrust rulings in Costco clearly rest on the wholesaler�s participation in the form of supplying prices that then become mandatory by the power of the state, resulting in a hybrid system requiring state supervision (which was lacking in Washington’s case) to survive preemption. However, all the U.S. Supreme Court authority overturning price posting deals with systems that require or condone private conduct that itself violate the Sherman Act. The Costco judge, like the Court of Appeals in Miller, seems to find a combination by, so to speak, putting the state in the same room with each private actor who posts a price. By contrast, Midcal and the other Supreme Court cases invalidating price posting laws deal with systems that send the private actors to a room where they constitute the unlawful combination on their own. How the Fisher-Miller dissonance resolves is, I think, the most important issue for the Costco appeal.

Another significant issue in applying Costco to the law in other states is the extent to which the cluster of other restraints that frequently accompany posting would fall with it. I see three bases on which that might occur. First, the court might conclude that the system is so integrated that the legislature would not have enacted the other restraints if it had known posting itself to be illegal. Second, on general principles of equity, a court issuing an injunction against unlawful conduct has power to enjoin lawful conduct associated with it if necessary to render complete relief from the threatened harm. Third, a court might conclude that the other restraints constituted per se antitrust violations on their own, which appears as an alternative basis for decision in the December opinion on summary judgment motions, incorporated by reference in the conclusions of law for the final judgment.

That third possible approach would extend Costco�s effects to more states, including some without price posting. It is, however, the most controversial of the three, as it requires finding a public-private hybrid restraint without an overt role for private parties, such as providing prices the state then enforces.

In sum, Costco is not carte blanche for ignoring other states’ posting laws, although within the Ninth Circuit an aggressive position could be justified. As a rough first look, here are some immediately vulnerable points: AZ quantity discount limits, CA beer posting, CT posting, DE delivered wholesale pricing, FL malt beverage price change waiting period and possibly the limits on quantity discounts, GA posting, HI possibly restrictions on quantity discounts, ID posting, IN posting, IA posting (possibly), KS posting (possibly), ME posting and discount restraints, MD posting and quantity discount ban (already analyzed in TFWS I through III), MA posting, MI posting and quantity discount ban, MN posting and possibly restriction on quantity discounts, MO posting and 1% limit on quantity discounts, NH beer posting, NY posting (including amendments effective in September), NC quantity discount ban, OH posting, OK posting and quantity discount ban, OR price record-keeping (possibly, because of deterrent effect on spot pricing) and price uniformity requirement, SD posting, TN posting and quantity discount ban, VT posting, VA posting, WV beer posting.

III. Central Warehousing

Central warehousing bans are difficult to analyze, because (unlike the case in Washington) they are often based on interpretation of retail license privileges or tied house laws, rather than on express prohibition. Caveats regarding ultimate application of Costco to posting and its ancillary restraints apply strongly to central warehousing bans, because they may appear more severable from direct restraint on price than, e.g., quantity discount bans. The Costco antitrust opinion of December and the recent findings of fact and conclusions of law do not present a clear rationale for distinguishing the central warehousing ban, which it classified as an antitrust violations, from the retailer-to-retailer sales ban, which it found was unilateral state action not preempted by federal antitrust law. Thus, it is difficult to predict how courts, even those following the Miller v. Hedlund line on antitrust combinations, will respond to the Costco ruling if asked to evaluate central warehousing in other states.

The following represents a currently incomplete survey of states potentially affected by Costco on use of central retail warehouses:

Central retail warehouses banned: AL, AR, CO, DE, ID, IL, IA, KS, MD, MI, NH, NM

Not banned: AK, AZ, CA, CT, DC, MA, OR

We are still researching the status of central warehousing in the states not listed above.