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.
As the snow melts here in Boulder, it’s time for a status update on the direct shipping bills we expected to see in 2013, as well as other notable legislation.
1. How are Direct Shipping Bills Stacking Up?
Massachusetts has seen six direct shipping bills introduced this session, and though there hasn’t been much movement yet, HB 294 has the most promise – especially since former New England Patriots quarterback Drew Bledsoe has recently announced his support for this direct shipping bill.
Pennsylvania currently has three direct shipping bills under consideration: HB 121, SB 36, and SB 101. Only HB 121 has moved out of committee, but all three bills are being considered as part of the privatization push in the state. These bills will move forward if and when an agreement is reached on which portions of the modernization efforts are going to be moved independently from one another. Currently, all three of these bills include the very high “Johnstown Flood Tax” rates – 18% to 24%. The Wine Institute is working to negotiate a lower tax rate before passage of any of these three bills occurs.
Montana, which is effectively closed to direct shipping because of the problematic “connoisseur’s license” system, should see a change when HB 402 is made law. The legislation would replace the wine connoisseur’s license with a direct shipping “supplement”, available to Montana wineries and to out-of-state wineries holding an Importer License. Breweries, however, would still be subject to connoisseur license regulations. HB 402 has passed both the House and Senate, and is on its way to the governor’s desk for his expected signature.
Arkansas’ House and Senate passed HB 1749, a very restrictive direct shipping bill sponsored by the Speaker of the House. The bill was signed by Governor Mike Beebe on March 21, 2013, turning it into law. Act 483 will open up “direct shipping” to Arkansas consumers by wineries that obtain a $25 annual permit. All orders must be placed in person, at the winery; internet orders will not be allowed. Additionally, permit holders may only ship one case per calendar quarter to an individual’s residence only, state sales taxes and excise taxes must be paid, and a special label provided by the ABC at the cost of no more than $10 per label must be on all shipments.
In Delaware, HB 60 was introduced on March 21, 2013; this bill would allow wineries to ship 12 cases annually under a new $100 permit program. Excise taxes would be paid quarterly, and carriers would be required to obtain a permit as well.
A direct shipping bill was introduced in South Dakota earlier this legislative session, but SB 100 has been tabled for the year.
2. COLA Processing at TTB Shifts to Electronic
In keeping with their word to streamline the label submission and approval process, the TTB has revamped their website and included several helpful resources on their labeling page, including a table with up-to-date information on label processing times. Additionally, on February 1, 2013, the TTB began processing paper COLA submissions in the same way they process electronic submissions; paper submissions are scanned into the system and the TTB will notify applicants of approval or rejection via email, if an email address is listed on the application. Industry Circular Number 2012-03 contains more detailed information on this change. We expect more changes to the COLA process as the year progresses. Jeff Carroll of ShipCompliant will be moderating a panel called “COLA Changes on the Horizon” at the NCSLA annual conference in June.
3. Pennsylvania’s Privatization and Modernization
The latest news on modernization centers on HB 790 – a bill that calls for and addresses privatization of the sale of alcohol in the state of Pennsylvania. Though there are several accompanying bills that supplement Pennsylvania’s privatization plan, this bill is leading the charge for ending Pennsylvania’s status as a control state. HB 790 addresses how the state should make the changeover to private distribution & retail sale of alcohol, what should occur in the interim, and what should be the end result of a privatized system. Currently, this bill has passed the House and is awaiting action in the Senate.
4. Third Party Marketing
Two bills were introduced to limit third party marketing in Maryland: HB 1420 and SB 990. These bills contained the following language: “An order may not be transmitted to the holder of the direct wine shipper’s permit by a retailer, a wholesaler, or any other third party, including a marketplace site on the internet in which sellers offer products to customers.” Following a hearing on SB 990, the author has withdrawn the bill, and the author of the House bill no longer intends to move HB 1420 forward either. Defeating both of these bills took a great deal of work by lobbyists working in Maryland on behalf of the wineries and the third party companies.
5. Existing Direct Shipping Laws, Reworked
Nebraska currently allows wineries and retailers to apply for a direct shipping license. LB 230, a bill that would add restrictions to the current process, originally contained language to eliminate access of direct shipments from retailers including online retailers. However, after two amendments, the bill creates a direct shipping license for both wineries and retailers. If passed, wineries (but not retailers) would be required to “identify” the brands they will ship to Nebraska consumers, and submit “notification to wholesalers of intent to direct ship” any brands that are also sold to Nebraska wholesalers. Both wineries and retailers would be subject to a status of nexus (likely requiring payment of corporate income taxes) and monthly excise tax reports (currently an annual filing). As of March 15, this bill is in Committee. Wine Institute is opposing LB 230.
SB 15 in Indiana was intended to help wineries that direct ship into the state, but fails to address all of the existing direct to consumer limitations. The bill would remove the “previous visit” requirement by consumers before direct shippers can send wine shipments. However, a new requirement to obtain a faxed or scanned copy of the consumers identification would be required. Also, wineries with a wholesale relationship are still not eligible for the direct shipping license in this bill. For these reasons, Wine Institute is opposing the bill at this time. Currently in Senate Committee.
6. Product Registration Updates
In Arkansas, HB 1480 would become active on July 1, 2013 if implemented, and would require all wineries to register their brand labels and label extensions at a fee of $15 per label per container size. Additionally, wineries producing over 250,000 gallons annually would have to register as a supplier and submit an annual permit fee of $50. This bill is currently out of committee and in the House with a recommendation of “do pass”.
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Maryland may still be working out some kinks in the sales tax collection component of their direct wine shippers program. Some wineries may have incorrectly received a notice that their sales tax payments should be made monthly rather than making the quarterly payments required under the DTC shipping law.
It seems that some vendors are being automatically switched to monthly payments in the state’s automated collection system. If you receive a Maryland Sales & Use delinquency/penalty letter telling you to file monthly reports, do not follow their instructions and change from quarterly payments. Instead, contact Patricia Anthony in the Licensing & Registration Division at (410) 260-7532. And do NOT contact the Sales & Use Division as the letter might suggest.
Terri Cofer Beirne, Eastern Counsel, Wine Institute
Since 2005 when the Granholm v. Heald Supreme Court decision opened the floodgates for direct wine shipping legislation, questions about whether direct shipping would harm local businesses, would hurt tax revenue and would lead to a significant increase in minors accessing alcohol have been posed. It has been rare that these and other questions are answered with official studies and reports.
Now we have one and the conclusions are very good for direct shippers, local businesses, the state and consumers.
A recently issued report by the Maryland Comptroller’s office that studied the first year of direct shipping in that state since passage of a law that opened Maryland for winery-to-consumer shipping reveals that direct shipping has not only been a success, but it has been beneficial to consumers, to wineries, to state tax coffers and has had no negative impact on local businesses.
We expect this new report will play a key role in the coming debate to open up other states for direct shipping, particularly Massachusetts and Pennsylvania.
Entitled “Study on the Impact of Direct Wine Shipment” and required under the legislation that legalized winery-to-consumer shipping in 2010, the Maryland Comptroller’s report covers 6 Issues:
- Permits issued
- Volume of wine shipped
- Impact on in-state sales
- Revenue from taxes and fees
- Administration costs
- Availability of wine to Maryland consumers
The report showed that by the end of fiscal year 2012, 629 direct shipping permits had been issued to wineries. Just over 20,756 cases of wine had been shipped to Maryland addresses according to the Comptrollers report. Taken together, the permit fees along with Sales and Use tax paid on the wine shipped accounted for $693,000 in state revenue.
By contrast, the Comptroller’s report estimates that at most $138,000 was incurred by the state to administer the direct shipping program and the Comptroller estimates that going forward the costs to administer the direct shipping program will decrease.
Another concern that came up during the direct shipping debate in 2010 was that wines shipped into Maryland would negatively impact local businesses. These concerns did not come to pass. According to the Comptroller’s report, wholesalers in Maryland actually increased the amount of wine sold in the state during the report’s period by 3.61% over the previous 12-month period.
The report also examined of the issue of wine availability in the wake of the direct shipping legislation and determined there was “a positive impact on product availability and consumer choice.”
The Comptroller compared used the 2011 Wine Spectator Top 100 wines as a measure of consumer access to wine. It found that of the 56 Top 100 wines that could be available to consumers (44 imported wines on the Top 100 list are not eligible to be shipped by domestic wineries) 53 were available, 13 of which would not have been available had direct shipping been prohibited.
The Comptroller ends his report with very good news:
There have been no incidents of access to underage persons reported to the Office of the Comptroller. Additionally, there have been no significant complaints specific to the law or its implementation from the industry, permit holders, or consumers in the 17 months since the law took effect which may be an indicator of its effectiveness.
This is the first major report issued by a state agency measuring the impact of a new direct shipment law and the results are both encouraging and a reminder of the positive impact that direct shipment can have not only for consumers, but also for the state and for businesses. We believe the Maryland Comptroller’s report on direct wine shipping will be widely shared and read, particularly in the upcoming Pennsylvania and Massachusetts legislative sessions.
In looking forward to what 2012 might bring the world of wine compliance and regulation, it is instructive to first look back at 2011. One thing we’ve learned after eight years in the world of wine compliance is that once movements gain momentum, it’s hard to slow them down.
The past year demonstrated the continuation of certain trends and the emergence of another that we believe will carry forward in 2012. The trend of more states opening their borders to the direct shipment of wine from other states continued steadily. Maryland and New Mexico both opened their borders to permit-based direct-to-consumer shipping in 2011, a continuation of a movement toward regulated consumer access to wine that began in 2005 with the Granholm v. Heald Supreme Court decision. Tennessee also saw a change in their law in 2011 that made the entire state “wet” for direct shipments from wineries.
The past 12 months also saw an increase in new “Third Party Providers” that help wineries market their products to a broader collection of consumers. Either as flash sites, wine product advertisements, or multi-offer marketplaces, these new entries into the wine market were helped along by a new California Department of Alcoholic Beverage Control (ABC) Advisory that set down specific rules as to how suppliers and non-licensed Third Party Providers can work together compliantly.
Finally, 2011 demonstrated that various forms of privatization of the sale and distribution of wine and spirits in control states are an important trend to watch. The passage of Initiative 1183 in Washington State that took the sale and distribution of spirits out of the hands of the Washington Liquor Control Board was the most tangible example of the privatization trend.
What To Expect in 2012
Winery-to-Consumer shipping laws will continue to be modernized in those now few states that continue to prohibit interstate shipping. We expect New Jersey, the most important wine consuming state currently outlawing interstate shipments, to pass legislation allowing some form of direct shipments to consumers. Currently, a bill working its way through the legislature would allow all wineries making up to 250,000 gallons annually to obtain a direct shipment permit. The capacity cap of 250,000 gallons will be a point of concern, but wineries should expect passage and should be prepared to ship to New Jersy consumers in 212. The bill, which has passed the senate, is expected to be voted on in the assembly before the close of session tomorrow, January 10th.
Massachusetts too has seen a number of direct shipment bills introduced over the past couple of years, but none have found their way to the Governor’s desk. Recently, however, Governor Deval Patrick put a spotlight back on the issue by saying in a radio interview that he would sign legislation that permitted direct-to-consumer wine shipments. 2012 may be the year that Massachusetts finally opens to direct-to-consumer shipping.
Finally, Pennsylvania, traditionally one of the states where alcohol sales and distribution is most tightly controlled, may see a move to allow direct-to-consumer shipping. As talk continues in that state to privatize wine sale and distribution, there has also been much talk and the introduction of bills to “modernize” the PLCB, including allowing direct-to-consumer shipping, opening up a state with big consumer potential for wineries.
Digital marketing in the wine industry has been behind the curve due primarily to the massive amount of regulations that govern the industry on a federal and state level. It’s unlikely that the wine industry will see significant deregulation. However, it appears that some clarity is coming to the issues that have historically deterred modern marketing methods.
Late in 2011 the California ABC issued an “Advisory” that spelled out the conditions under which non-licensed Third Party Providers (TPPs) and suppliers must arrange their relationships in order to work together. In a nutshell, the California ABC made clear that wineries and other licensed suppliers must always be in control of the transaction from approving each transaction to controlling the flow of funds. (Read our blog post that explains these new rules). While adhering to the new California ABC rules can be a complex task and require very specific actions and programming on the part of licensed suppliers and non-licensed TPPs such as flash sites and community buying sites, we believe this new clarity represents an important development for suppliers and marketers that will yield interesting developments in 2012
We expect to see a rise in the number of TPPs. In addition, we expect other states to follow California’s lead in issuing rules and regulations for how licensees and non-licensed marketers can work together to help market wine to consumers in innovative ways.
With Washington State paving the way in the realm of privatization of sales and distribution with the passage of Initiative 1183 in November, we predict the privatization trend to regain momentum in 2012. Most eyes are on Pennsylvania where serious discussions are underway concerning the privatization of the sale and distribution of wine in that highly controlled state. Virginia too has seen discussions in the past years concerning the merits of reforming its alcohol control system. Meanwhile, in Michigan a task force has been empowered to look at updating its alcohol beverage laws.
This slow moving trend toward privatization, if it continues and gains more momentum, could lead to significant changes in the area of wine sales and distribution and the compliance measures that suppliers must undertake.
Federal Action on Wine Sales and Distribution
In early 2011, with the introduction of H.R. 1161 (read our series on the CARE Act here) in the House of Representatives, it looked like supporters of federal legislation that would give states greater control over how they can regulate alcohol and overcome judicial rulings that have put limits on state powers, would push hard to see this bill passed. Yet, H.R. 1161 garnered fewer supporters in the House than a similar bill, H.R. 5034, gained in 2010. Furthermore, no hearing was held in the House Judiciary Committee on H.R. 1161 and no Senate sponsor was introduced.
This bill, opposed by all supplier organizations and by retailers, has another year to gain more support and move through the legislative process. Most in the industry are taking a wait and see attitude on H.R. 1161 to determine its fate, but it seems unlikely that the bill will move on to President Obama’s desk in 2012.
Finally, federal legislation is moving forward concerning the United States Postal Services, and it could have long-term effects on the wine industry. The new bill moving forward is the 21st Century Postal Service Act 2011. If enacted as currently written it would allow the United States Postal Service to deliver wine to consumers and compete with Federal Express and United Parcel Service.
As always, ShipCompliant will continue to watch the political and regulatory landscape throughout the coming year and will work to keep you up-to-date on important changes that impact your ability to market and sell wine.
The Maryland Comptroller’s office released its Direct Shipper Excise Tax Return form Tuesday. This is the form that licensed direct shippers submit quarterly to pay their state excise taxes and report their shipments to consumers in the state.
IMPORTANTLY, the Comptroller’s office has pushed back the deadline for direct shippers to submit their 3rd Quarter Report to November 1. The Report had been due on October 10th. However, because the Comptroller’s Office released the new form so late, they have extended the deadline to November 1. This extension of the deadline only applies to the Quarter 3, 2011 report. All subsequent reports will be due on the 10th of the month following the period. For example, the Quarter 4, 2011 report will be due on January 10th.
The report can be downloaded HERE: http://compnet.comp.state.md.us/Motor_Fuel__Alcohol_and_Tobacco_Tax/Alcohol_and_Tobacco_Tax/Static_Files/Alcohol_Tax/Forms/DWS%20315.pdf
ShipCompliant Clients: If you have subscribed to the Maryland Direct Shipping Report, the new form — all filled out and ready to print and send to the Comptroller’s office — will appear in your “Open Reports” inbox later today.
Not a ShipCompliant Client?: If you are shipping to Maryland, let us produce this report for you at no charge to give you an idea of the simplicity and efficiency that comes with using ShipCompliant. Just send us a spreadsheet and we’ll do the rest for free..
The state of Maryland opened to winery-to-consumer direct shipping on July 1, 2011, after a multi-year effort by the industry and consumers to change the Maryland law.