Michigan

Direct shipping permits for Michigan are renewable on May 1. The annual renewal cost for the Michigan Permit is $100; the same as the initial permit fee. For those wineries that do not have a direct shipping permit for MI now is good time to consider applying. Licenses are valid from May 1 – April 30 and the $100 fee is not prorated.  The permit allows wineries to ship up to 1,500 9-liter cases to Michigan consumers.  Brand registration is required. This can be completed through the MLCC’s online label registration program for no fee. Sales tax and excise tax must be paid and reports must be filed.

New Hampshire

New Hampshire has updated its direct shipping permit application. The updated application is now available on Wine Institute’s website along with the instructions. Please be sure to complete the application in its entirety and attach all required documents. Incomplete applications will be returned.  Applicants will be happy to note that there is no permit fee. Approved shippers are allowed to ship up to 60 containers of not more than 1 liter each to each consumer during a calendar year. Monthly reports and tax payments are required.

Tennessee

The Tennessee Alcohol Beverage Commission has updated their ”Direct Shipper Application Requirements – ABC” document posted on the TN ABC and Wine Institute websites. The original version of the document did not include the “Wholesale Gallonage Letter” requirement. The Wholesale Gallonage letter is one of 2 documents issued by the TN Department of Revenue that wineries must submit with their application. The second document is the “Certificate of Registration for Sales and Use Tax.”  While the application on the TN Department of Revenue website says a bond is required, a bond is not required for wineries. For the TN DOR wholesale gallonage and sales and use tax application form, go to:  http://www.state.tn.us/revenue/forms/general/f13005_1.pdf.   Licenses are valid 1 year from the date issued and the annual license fee is $150.00. There is also a 1 time non-refundable application fee of $300.  Additional information about the application process is available on the Wine Institute website. Wineries may also contact Sharon Loveall at the TN Alcoholic Beverage Commission with any questions about winery direct shipping permits at 615.741.1602, ext. 141

By Annie Bones, State Relations – Wine Institute

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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.

Bonds

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.

Label Registration

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.

Application Fees

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.

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Many questions have resulted from a new law prohibiting wine retailers from shipping to consumers in Michigan that recently went into effect. The new law specifically bans common carriers (FedEx and UPS) from delivering retailer wine shipments to Michigan consumers. This law does not affect the existing regulations for wineries shipping to consumers under the permit structure. Wineries with an approved Direct Shipping License may continue to ship to Michigan consumers via FedEx and UPS. Information about how to obtain Michigan Direct Shipping License can be found on the Wine Institute website http://www.wineinstitute.org/initiatives/stateshippinglaws.

Annie Bones, State Relations – Wine Institute

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In just five legislative days, Michigan House Bill 6644 was introduced, edited, voted upon, and enrolled. In a disappointing turn of events, the Michigan Senate passed HB 6644, with substitutions, by a count of 36 Yeas and just 2 Nays on December 18, 2008. The bill then returned to the House for a final vote on concurrence, the result of which was 98 Yeas and 4 Nays, subsequently, HB 6644 was ordered enrolled. Governor Granholm approved the bill on January 9, 2009, now called Public Act 474′08 2008 Addenda.

While the original bill would have banned all retail to consumer direct shipping, the Senate made substitutions that provide a very small opening for retailer direct shipments. This comes after Michigan retailers, who count catering as a significant source of income, raised concerns over the potential loss of revenue. In the bill that was approved by the Senate, House, and signed by Governor Granholm last Friday, retailers are allowed to deliver to consumers if they adhere to these restrictive criteria:

• obtain a specially designated merchant license issued by Michigan, or another state’s equivalent for out-of-state retailers;
• only deliver its products through the hands of their own employees and NOT by an agent or a third party delivery service while also verifying the age of the recipient, (the only situation in which retailers may use a third-party service is if the municipality is surrounded by water and does not have road access);
• have the employees who deliver their products receive alcohol server training through a Michigan Liquor Control Commission approved server training program.

These substitutions provide relief for those lucky Michigan retailers who do not have state-wide wine shipping aspirations. Caterers who obtain the specially designated merchant license (and their own means of transportation) should find the bill satisfactory. But for those retailers who hoped to serve consumers across the state of Michigan, this bill is a blow to their direct shipping business. Although the Senate prevented the outright ban of retail-to-consumer direct shipments, there is little for retailers to smile about because they still face an indirect ban: the restriction on the use of third-party delivery services. Tom Wark, Executive Director of the Specialty Wine Retailers had this to say on the matter.

Our view of Michigan’s HB 6644 is that it is equally unconstitutional as the law that was just overturned in the District Court. However, this doesn’t surprise us as the goal of this legislation was always to do whatever was necessary to prevent Michigan consumers from legally accessing the wines they want and to protect in-state wholesalers. HB 6644 may appear to be facially neutral, but the law is unquestionably discriminatory in its effect and in its intent.

When Judge Hood’s September 30th, 2008 ruling on Siesta Village Market LLC v. Granholm effectively ordered Michigan to allow out-of-state retailers to direct ship wine to Michigan consumers, hopes were high. It was thought that the case would establish a precedent for future retail direct shipping litigation. But in November, with the prospect of having to comply with Judge Hood’s ruling–to allow out-of-state retailers to direct ship to Michigan consumers–looming, Michigan wine wholesalers and the state Liquor Commission organized to introduce HB 6644 in the most discrete manner. The organized efforts of Michigan wholesalers enabled this legislation to pass with surprising speed and support and without public discussion, tactics that prevented retailers and consumers from organizing in protest.

In the strange world of Michigan wine legislation, it is possible to allow one licensed wine vendor to direct ship, while preventing another licensed wine vendor from doing the same, while restricting the needs of wine enthusiasts and consumers. An appeal inSiesta Village Market is still possible, but for now retailers are out of luck in Michigan.

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Michigan House Bill 6644 passed with 97 Yeas and 9 Nays on December 4, 2008. If passed by the Senate, HB 6644 would ban all retailers, in-state and out-of-state, from direct shipping wine to Michigan residents. In the last days of Michigan’s current legislative session, expected to adjourn soon, the failure or passage of this bill will either give new life to or end Michigan retail direct shipping.

Less than three months ago, Michigan Federal District Court Judge Denise Hood ruled unconstitutional a Michigan law that allowed in-state retailers to direct ship to consumers while denying out-of-state retailers the same right. However, before out-of-state retailers could even fancy direct shipping wine, Governor Granholm, the Michigan Beer and Wine Wholesalers Association (BWWA), and the Michigan Liquor Control Commission (LCC) filed an appeal, effectively suspending all attempts to open up the Michigan wine market in conformity with Judge Hood’s ruling. In the two short months following the stay from the appeal, Representatives Barbara Farrah and Chris Ward introduced HB 6644 to stop all retailers from competing with wholesalers.

The bill sponsors did little to hide their true objective in expediting the bill through Michigan’s Legislature. In its Legislative Analysis, the Committee on Regulatory Reform, which recommended the bill, repeatedly declares the need to protect the three-tier distribution system, citing how well it has served Michigan businesses and residents for 75 years. Among the other arguments in favor of the bill, the committee points to the supposed “untold amounts of revenue” that would be lost due to the lack of a “legal framework to license these out-of-state retail liquor establishments and to collect the same excise taxes and sales and use taxes levied on Michigan retailers and suppliers.” This argument assumes that the Michigan LCC is incapable of establishing new administrative procedures in the face of change, a reflection of an antiquated administration and not the feasibility of implementing new regulations. The bill sponsors, arguing arduously for the protection of the three-tier system, seem to overlook the very functional winery direct to consumer shipping market in Michigan which has had a regulatory system in place since April 2006. The SWRA proposes that the same rules and paperwork with which the Michigan LCC regulates direct shipping wineries can realistically be applied to retailers, thus increasing tax revenue, a straightforward process that the Michigan LCC and BWWA fail to acknowledge.

As expected, the Michigan LCC and the Michigan BWWA support the bill while the Michigan Restaurant Association (MRA) opposes it. The MRA recognizes that if the bill were to pass, members who hold retail beer and wine licenses would also be banned from serving those beverages at catered events, an important part of their business services.

Despite the disheartening speed and overwhelming majority with which the Michigan House passed the bill—it took three legislative days to go from introduction to vote—there are indications that the same will not occur in the Senate. Retailers interested in shipping wine to Michigan residents have ridden a roller coaster of legislation changes for several years; but the fate of retailer direct shipments could be set for the foreseeable future before the New Year rings in.

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On October 6th, 2008, the judgment in Siesta Village Markets LLC v. Granholm was stayed by agreement of the parties, to give the state time to appeal and, if the appeal is taken, to leave the current law in force for the duration of the appellate process. It seems almost certain the defendants will appeal.

That means the law in Michigan has not yet changed and, depending on the outcome on appeal, may not change as contemplated by the district court opinion. Reports that Wine.com will begin shipping in reliance on the original judgment appear premature.

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On September 30, 2008, a federal district court ordered Michigan to give out-of-state retailers access to Michigan consumers to whom local retailers could sell wine. The reasoning in Siesta Village Market LLC v. Granholm closely parallels that of the landmark Supreme Court decision, Granholm v. Heald, in effect rendering Governor Jennifer Granholm a serial violator of the dormant Commerce Clause.

Judge Hood found laws requiring differential treatment of local and interstate commerce to be discriminatory on their face, thereby assuring their invalidity in the absence of showing by the state that there was no less discriminatory way to pursue its legitimate regulatory objectives. She further found that, as in the original Granholm case, the state had not met its evidentiary burden.

The “Granholm II” order enjoins the governor and other state officials from prohibiting selling, delivering and shipping wine through interstate commerce directly to consumers by out-of-state wine retailers, but allows the state to collect taxes on wine sales and to require licenses and permits for direct interstate sales and deliveries, so long they do not discriminate against out-of-state wine retailers. The state and its wholesaler allies are expected to move for a stay pending appeal, though the forcefulness of the court’s opinion puts the result of a motion in doubt. However, the licensing and tax-collecting provisions of the injunction provide opportunities for delays in compliance without a formal stay.

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Hello and happy holidays from the ShipCompliant team! We’ve been a little quiet as we prepare to help all of our winery and retailer partners prepare for the big storm of reports that come due in January. Wineries that ship to all of the possible states for direct shipping can owe over 500 reports each year, depending on their filing frequencies with the state ABCs and Departments of Revenue. In January, all but one (for some reason, one of the New York reports is filed on a non-standard quarterly basis that starts on December 1st) of the reports come due. So, all other monthly, quarterly, semi-annual, and annual reports come due in January.

Tasting room, wine club, accounting, and compliance managers all get very busy just after the first of the year preparing their data for the annual reporting rush. A key to making this endeavor a success is to collect and maintain good, clean data from all of your direct to consumer order sources, including eCommerce, wine club, tasting room, and administrative orders. Many of the reports require copies of invoices or schedules of shipments that list order details. Also, remember that the three states that have abbreviations that end in the letter I (HI, MI, and WI) also require dates of birth on their reports.

Here’s to a happy new year and a successful reporting rush!

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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.

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Michigan�s direct shipping application process appears to be very straightforward (at least compared to other forms I have read through recently). Wineries who wish to ship wine directly to Michigan consumers must complete the Michigan Liquor Control Commission�s (MLCC) Direct Shipper Application, pay the $100 permit fee and register with the Michigan Department of Treasury. Wineries can register with the Department of Treasury by completing Sales/Use Tax Registration Form 518. All forms can be found by going to Wine Institute�s Direct Shipping web site at www.wineinstitute.org/shipwine/ and selecting Michigan under the State Shipping Laws section.

Michigan will begin issuing Direct Shipper Permits on April 1, 2006. Wineries who submit their applications after April 1 will have to wait about two weeks for their applications to be processed. Once a winery has received their approved Direct Shipper Permit it must register their brands. A password will be sent with the approved Direct Shipper Application that allows the winery to logon to the Michigan website www.michigan.gov/cis/ and register their brands. If registering online isn�t for you or your computer just exploded it is also possible to register brands by sending the information in via U.S. mail.

Okay, you have your license and registered the brands. It�s time to sell your wine, but make sure you only sell wines to consumers whose age has been verified as being 21 or older. Age can be verified by obtaining a copy of the consumer�s photo ID or by using an Age Verification Service, such as ChoicePoint.

Wineries must pay a 6% sales tax on all direct shipments. Sales Tax payments will be due either monthly, quarterly or annually. The payment schedule is determined by your estimated total sales. Wineries are also responsible for submitting the Michigan Wine Tax Report and payment of excise taxes quarterly. This is a little confusing because the Michigan Wine Tax Report has instructions to be filed monthly � ignore the instructions � the form has not been updated since the new law passed.

I hope the application process goes smoothly for you. I know there are a lot of Michigan consumers anxiously awaiting their shipments!

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