Monthly filings in 40+ states can be quite a burden, especially for suppliers who don’t have significant sales every month in every state. Idaho has recognized over the years that wine direct shippers generally do not have significant sales every month and is reaching out to licensed wine direct shippers letting them know they may be eligible to file the “Idaho Form 1752 Wine Wholesalers, Wineries and Wine Direct Shippers Tax Return” and/or the “Idaho Form 850 Sales and Use Tax Return” on a less frequent basis. This eligibility is dependent on requirements outlined in the Idaho Administrative Rules:
- Monthly tax filers liable for the Idaho wine or sales taxes who owe $600 or less per quarter and have a satisfactory record of timely filing/payment of their taxes may request to file quarterly or semi-annually.
- Monthly tax filers liable for the Idaho wine or sales taxes who have seasonal activities and have a satisfactory record of timely filing/payment of their taxes may request to file annually.
Any licensed wine direct shipper that files either or both of these returns on a monthly basis and falls under the criteria noted above may submit a request for a less frequent filing preference by sending an email to firstname.lastname@example.org or writing a letter to:
- Meaghan McCandlish
- Unit: RO/PAS
- Idaho State Tax Commission
- PO Box 76
- Boise, Idaho 83707-0076
You must receive confirmation of approval by the Idaho State Tax Commission before you may begin filing at a less frequent reporting frequency. Also, if you are approved to switch from monthly to quarterly in the next two months, the soonest you may begin filing quarterly would be for the quarter beginning January 2014 and you would still need to file a monthly reports for the last months of 2013.
Please note, wine suppliers that only sell to Idaho distributors and do not partake in any direct-to-consumer sales with Idaho do not need to submit Form 1752 to the State Tax Commission.
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.
Idaho and New York wine direct shipper licensees can anticipate a simpler licensing process as the new year approaches. These improvements are expected to alleviate some of the burden that accompanies the amount of paperwork attributed to the licensing process. Details on these updates are outlined below.
Previously an applicant had to submit two applications containing the same information: the Beer and Wine Tax Permit Application (BWA) for a wine tax permit, and the Idaho Business Registration (IBR1) for the sales tax permit. The Idaho State Tax Commission updated form BWA to accommodate for both the sales tax and wine tax permits to be applied for on one application by direct shipper applicants. Once the Tax Commission reviews and issues both the sales and wine tax permits, the application is forwarded on to the Idaho State Police’s Alcohol Beverage Control Bureau (ABC) for review and issuance of the direct shippers license. This new process therefore alleviates direct shipper applicants from completing the IBR1 and only requires one application-the BWA-to be completed.
Furthermore, the Idaho Tax Commission has made it easier for direct wine shipper licensees to wave the need for a bond. With the newly designed Wine Direct Shipper Bond Waiver Request Form, applicants can submit a waiver request during the application process. The decision to allow for a bond waiver by direct shippers comes after the Tax Commission reviewed historical data and determined the majority of wine direct shipper licensees typically have returns with a small amount due and therefore a bond is not needed.
For more information on this new process, you may review the Idaho Wine Direct Shipping Requirements.
Beginning January 1, 2013, out-of-state direct wine shipper licenses need to be renewed every 3 years. The idea behind lengthening the license lifespan stems from the New York State Liquor Authority desiring to lessen the burden of renewing every year. Applicants should be aware, however, that the fee is increased to $375-three times more than the current price of $125, to match the new lifespan of the license.
Also to note, in-state winery and farm winery licensees, wine wholesale licenses and wine store and satellite store licensees are also upped to a 3 year limit with subsequent adjusted license fees. Licenses to sell wine at retail for on site consumption will only go to 2 years at twice the current annual fee.
For more information on these changes, you may refer to the advisory available on the New York SLA website.
On November 5, 2010, Idaho State Tax Commission officials sent out a letter to qualified wine tax return filers, offering the opportunity to change their filing frequency from the mandatory monthly submission to quarterly, semi-annually or annually. “Qualified Filers” include direct shippers who report less than $600 of wine tax per quarter (approximately 186 9-liter cases per month) and have a good filing history. Recipients of letters from the department, in order to change their filing cycle for the upcoming year, must respond to the letter by December 1, 2010. Filers should continue to submit monthly returns until after January 1, 2011 when the new filing frequencies will come into effect. The Idaho State Tax Commission encourages qualified filers to take advantage of this opportunity; submitting returns less frequently will mean filers no longer need to submit returns for negligible amounts of tax and will reduce the amount of required paperwork.
Note: ShipCompliant users will see the new frequency options available on the Report Settings page at the end of December.
Before jumping into a direct shipping program in a new state, wineries should consider their current prospect list, market potential, shipping difficulty and costs. When it comes to calculating start-up costs to enter a new state, there is often more than meets the eye. In addition to license fees, wineries may need to budget for a number of “hidden” fees including bonds, label registration fees and other application fees.
Some states require wineries to obtain a bond in order to secure a direct shipping license. A bond is a written guaranty, purchased from a bonding company (usually an insurance firm or a surety company), to guarantee that all taxes due will be paid to the state. If there is a failure to pay, the bonding company will make good up to the amount of the bond.
Bonds for direct shippers range from $500-$1500 depending on the state, but premiums, or out-of-pocket costs, to wineries typically average around 10% of the total bond price, or $50-$180 out-of-pocket on an annual or biannual basis. Different bonding agents may quote different rates, so it pays to shop around.
Connecticut, Idaho, Illinois, Indiana, Kansas, Texas and Wisconsin all require that wineries secure a bond before submitting your license application. For wineries that ship 40,000 gallons or more annually, Oregon issues a bond document after the license application has been received but before the license is issued. Wineries that ship less than 40,000 gallons to Oregon annually can apply for a bond wavier.
Several states require brand or label registrations for direct shipping. Ohio, a state that 26% of direct shippers have in their program, requires wineries to register all the labels that will be shipped into the state for a one-time registration fee of $50 per label.
If that sounds pricey to you, consider Connecticut who charges $200 per label and requires labels to be re-registered every 3 years if they are still actively shipped into the state.
Georgia, Michigan, New York, North Carolina and Virginia do not charge a fee though label or brand registration is required in these states.
Some states may require business, Secretary of State or tax registration, or other one-time application fees. This varies from state to state and depends on how your business is structured. Wineries that start shipping to Arizona, Connecticut, Hawaii, Kansas, Maine, Michigan, North Carolina, Ohio, Tennessee, Virginia or Wisconsin may encounter one or more of these fees.
License, bond, label registration and application fees all factor into the true break-even costs of shipping to a new state. The key to ensuring a profitable direct shipping program is to research thoroughly in order to avoid getting caught off-guard with unexpected costs.