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.
Louisiana recently made an adjustment to its direct-to-consumer wine shipping law that benefits the industry and consumers. The volume limit for direct-to-consumer shipping has increased from 4 cases per consumer each year to 12 cases (144 750ml bottles) per consumer each year. Wineries must have a direct shipping permit in order to ship to consumers in Louisiana. The annual fee is $150 and direct shippers are required to pay sales and excise taxes and file monthly reports. However, beginning January 1, 2012 Louisiana will transition to quarterly reporting periods.
Annie Bones, State Relations – Wine Institute
Use ShipCompliant’s Volume Converter to easily calculate volume limits
In response to questions about shipping wine to Louisiana, I thought a short summary of direct-to-consumer wine shipping rules was in order. Louisiana regulations do not prohibit wineries with a relationship with a licensed wholesaler in Louisiana from making off-site direct-to-consumer shipments. The Alcohol and Tobacco Control Office allows a winery to direct ship any label that is not consigned by contract to a licensed wholesaler in the quantity stated in the law. This is allowed even if the winery has other labels consigned to the wholesaler. Wineries may ship up to 4 cases per household per year and are required to obtain a direct shipper’s permit before shipping to Louisiana consumers. In addition, wineries must pay taxes and file reports. Should you have any questions please contact Wine Institute’s State Relations Department at 415-356-7530.
Annie Bones, State Relations – Wine Institute
Wow, there have been a lot of changes to direct shipping laws this year and we are not even at the six month mark! Many reciprocal and prohibited states are becoming permit states. This is good news for wineries and consumers, but it is hard to keep track of all the changes. There are several states that have passed direct shipping legislation this year that is not yet effective. Here is a brief summary of states that will change to permit systems later this year. Colorado, effective July 1, 2006: A permit is required, but there is no fee. Wineries can ship an unlimited amount to consumers and must pay excise tax. Sales tax is not required. Idaho, effective July 1, 2006: A $25 permit is required. Wineries may ship up to 24 cases to a consumer annually. Sales and excise tax must be paid by the winery. Indiana, awaiting promulgation of rules: Wineries eligible for the $100 permit must have sales under 500,000 gallons with no Indiana wholesaler. The initial sale must be an on-site transaction. There is a 24 case consumer aggregate total and 3,000 case winery total. Sales and Excise tax must be paid by the winery. Massachusetts, awaiting promulgation of rules: The direct shipper�s permit will cost $100. Any winery under 30,000 gallons may obtain a direct-to-consumer and self-distribution permit. Any out-of-state winery over 30,000 gallons who has no wholesaler may apply for a direct-to-consumer permit only. Households will be limited to 26 cases per year. Excise tax is required. In addition, there are some very complex common carrier requirements that could prevent the use of permits even for wineries that qualify. There is one piece of good news, if a winery manages to overcome all of these obstacles it will not be responsible for paying sales tax. Washington, effective June 7, 2006: The cost of a permit $100. Wineries can ship an unlimited amount to consumers and are responsible for paying sales and excise tax. The new laws will not be posted on the Wine Institute website until their effective date, but direct wine shipper applications and tax registration forms will be posted as soon as they are available. I am especially excited about the unlimited shipment amounts in Colorado and Washington. I wonder just how many wine clubs my friends at ShipCompliant will join?
There has been a flurry of wine legislation activity around the country recently…
Indiana: House Bill 1016 was approved by the Indiana House and Senate and awaits signature from the governor. This is one of the stranger bills out there to say the least. It allows for limited direct shipments from both in-state and out-of-state wineries if they get a $100 permit. However, lawmakers inserted a previous visit requirement that says an initial onsite visit to the winery must be made before consumers can make offsite purchases. There is also a requirement that each consumer is limited to 24 cases per year across all wineries. This is crazy. How will one winery know how much wine a consumer has received from other wineries?
Oklahoma: The Oklahoma Grape Growers and Wine Makers Association is pitted against the wholesalers in a battler where the two sides seem too far apart. Although President Gary Butler proclaimed that both House and Senate versions of direct shipping legislation died on the floor, the OGGWMA continues to fight for direct to consumer shipments through lawsuits and public relations campaigns.
Louisiana: Two separate bills are under consideration in the LA House to allow for the direct shipment of wine. The wholesalers are putting up a good fight as usual and of the options would create a small farm winery exception where wineries that produce less than 2,000 cases only could ship directly to consumers. This would merely create an “incubation period” where small wineries could get off the ground before being forced to use distributors.
Kentucky: Compromise legislation passed the House and is expected to pass the Senate that would allow direct shipments from in-state or out-of-state small farm wineries for onsite sales only.
Maine: Two proposed bills and a lawsuit to lift the current ban on direct shipments have muddied the waters significantly in Maine. Resolution seems pretty distant at this point.
Florida: Florida is currently open to shipments, but on the “honor system” until permanent legislation is passed. A couple of different bills are on the table that would allow for direct shipments with restrictions. Florida consumers and wineries are pushing SB 282, which does not include a “capacity cap” that would prevent wineries that produce more than 250,000 gallons from shipping directly to consumers.