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.
The St. Paul Pioneer press on Monday reported a series of underage stings that the newspaper “Watchdog” group set up in the state of Minnesota. As you recall, Minnesota recently lifted their ban on Internet wine sales. The details of what exactly happened in the five different stings are a little vague in this article, but I’ll attempt to summarize.
This was not a sting in the true sense as police were not involved. Beer, wine, and vodka were ordered online from both retailers and a winery, and violations were found in four cases out of five. In two cases, alcohol was delivered to minors. In the first case, the package was properly labeled as containing alcohol but UPS delivered the package to the teenager anyway. In the second case, the online retailer did not properly label the package as containing alcohol and UPS had “no way of telling the contents from looking at the box”. The only shipment that originated from a winery did not end up in the hands of a minor. FedEx denied the minor access to the wine package that was properly labeled. The two other shipments were violations in that beer and spirits are prohibited from being shipped into Minnesota from out of state.
So, what do we learn from all of this? First of all, the article sums it up well when they say:
Getting the alcohol into the right hands is a dual responsibility: The shipper must put stickers on the box declaring that there’s alcohol inside and that the person who signs for the box must be 21 or older; the delivery company can hand over the package only to customers who can prove they’re at least 21.
Second, there are a number of groups that are trying to raise awareness of the dangers of buying wine online. The visibility of offsite wine purchasing is already high and events like this will do nothing but increase that visibility. States have put safeguards in place to prevent this from happening, but in some states these laws are not yet well enforced.
Michigan recently set a new precedent by requiring that wineries perform age verification at the time of transaction on top of requiring the common carriers to make sure that the recipient is 21 upon delivery. The age verification at the time of transaction can be done by either checking the driver’s license and taking a photocopy as proof or by using an approved electronic age verification vendor. Although Michigan has not yet finalized the details of how they will enforce these new laws, they will likely set a new bar for states that want to better enforce age verification.
Read the full story here.
Minnesota has lifted their ban on internet wine sales and advertisements. A Consent Order was entered on April 3, 2006, in the case of Kimberly Crockett, et al vs. Michael Campion, Commissioner of Minnesota Department of Public Safety, et al, wherein it was declared that the plaintiff and other wineries have the right under the First and Fourteenth Amendment to the U.S. Constitution to engage in truthful, non-misleading advertising and solicitation of direct sales and shipments of wine to Minnesota consumers, as well as to freely initiate and/or accept on-line orders for sales and shipment of wine placed by Minnesota consumers via the internet. Therefore, wineries may advertise and accept internet orders from consumers in Minnesota. A copy of the Order is available at www.wineinstitute.org/shipwine under current events. Finally, one state got a little less complicated!
We’ve seen a lot of activity over the past two weeks in the court room that will have some big impacts on the direct shipping landscape. We’re going to take a look at recent activity in Washington, Texas, Minnesota, and Maryland in the next few days.
A lawsuit by the Institute for Justice, a libertarian public-interest group, seeks to overturn the ban on direct Internet sales in Minnesota. Currently, Minnesota allows direct to consumer sales for onsite orders as well as offsite orders that are taken via telephone, mail, or fax only.