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.
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.
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.
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.
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.
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!