Maine, New Mexico, and Washington are the only states that have separate excise tax rates for wine and wine fortified with spirits (Edit: Some states consider a product to be fortified if it is over a certain ABV, regardless of the addition of spirits). To date, we’ve accommodated wineries that shipped fortified products to consumers by having two separate versions of the report or used calculations based on product ABV in each state. Based on user feedback, we wanted to make this process easier and more accurate, so we recently added the ability to specify that a product is fortified in ShipCompliant. With this change, we updated the Maine, New Mexico, and Washington returns listed below so that any orders containing “fortified” products will be taxed at the corresponding rate, beginning with returns that are due on or after March 20.
- Maine Direct Shipper Excise Tax and Premium Report of Table Wine, Sparkling and Fortified Wine
- New Mexico Liquor Excise Tax Return for Direct Shippers
- Washington LIQ-318 Wine Authorized Representative Certificate of Approval Holder Summary Tax Report
- Washington Liquor Shipment and Tax Report (LIQ-778 Distributor)
- Washington Liquor Shipment and Tax Report (LIQ-870 Wine Shipper)
If you are subscribed to one of the returns listed above, we will automatically update your return to tax products based on the new “fortified” product settings starting Friday, February 28 – you do not have to take any action in your ShipCompliant account unless you have fortified products.
To mark products as fortified, select the “Fortified” checkbox when adding or editing products in your account. Please note: Any orders entered prior to specifying that a product is fortified will not be retroactively updated. To learn more, read our client Knowledge Base article.
Effective October 1, 2013 Maine will increase the general sales tax rate from 5% to 5.5%. This state rate increase adds to the list of statewide tax changes seen this year, including but not limited to: California, Virginia, Ohio, Arkansas, and Tennessee (food only). Accompanying the rate change, filing for the tax period containing the rate change for semi-annual and annual filers will be unconventional.
Maine is requesting that semi-annual and annual filers submit returns on a ‘special’ frequency schedule to accommodate the transition from a 5% to a 5.5% tax rate. Semi-annual filers will need to submit two quarterly filings, July 1 through September 30 and October 1 through December 31 to reflect the old and new rates, then continue to file semi-annual per norm for 2014. Annual filers will need to submit one report to cover the time period of January 1 through September 30, then a quarterly filing for October 1 through December 31, then return to their annual filing per norm for 2014. Monthly and quarterly sales tax filers, however, should see no change to their filing frequency.
Maine has not had a state sales tax rate change since 2000, when the rate decreased from 5.5% to the soon-to-be replaced rate of 5%. Born out of the Maine budget bill, the coming rate increase is not permanent, and the additional 0.5% is set to expire June 30, 2015.
ShipCompliant account holders required to file any of the above special frequencies will find this automatically updated in their accounts.
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.
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.
The latest version of “Notes on Wine Distribution”, by R. Corbin Houchins, is now available. Release 32 includes updates on legislation, litigation and general discussions on available distribution channels for wine. This release includes substantial changes, including new sections on age and identity, facial neutrality, and logistical support services, as well as updates to state summaries in Arizona, Delaware, Kansas, Kentucky, Maine, Maryland, Massachusetts, Montana, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Tennessee, Texas, Virginia, Washington, and Wisconsin. Read about these and other updates that affect the way wine is sold and shipped within the United States.
If you are at all interested in the shipping and distribution of wine, this is an excellent resource that is well worth reading. You can view the most recent version of the document anytime by visiting the ShipCompliant Blog and clicking the link located under “Compliance Resources”, or by visiting CorbinCounsel.com and clicking on the home page link, “Notes on Wine Distribution.”
Click Here to View NWD Release 32
The direct shipping applications for Maine are now available on the Wine Institute website. The direct shipping permit allows wineries to ship up to 12 nine liter cases of wine to a recipient’s address each year. The Department of Public Safety, Liquor Licensing and Inspection Division has confirmed that there are no prohibited shipping areas at this time. The annual permit fee is $200 plus an additional $100 filing fee. Applicants will have to register with Maine Revenue Services to pay sales and use taxes before submitting their permit application. Maine Revenue Services will send applicants a Retailer’s Certificate to confirm that their sales tax account has been established. There is no fee to register with Revenue Services and the tax registration forms can be sent in via U.S. mail or electronically. The processing time for electronically filed applications is significantly shorter. Only sections 1 and 5 of the tax registration form must be completed.
Once wineries have received their Retailer’s Certificate they can submit their completed direct shipper application to the Liquor Licensing and Inspections Unit, along with a copy of their federal basic permit and application fee. The direct shipper application must also be notarized. Once wineries receive their direct shipping permit they will be responsible for paying excise tax to the Department of Public Safety and sales tax to Revenue Services. In addition, a direct shipping report must be filed twice a year. Reporting forms will be posted on the Wine Institute website once they become available. Should you have any questions please contact Annie Bones in Wine Institute’s State Relations Department at firstname.lastname@example.org.
Annie Bones, State Relations – Wine Institute