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.
Since the 2005 Granholm v. Heald Supreme Court decision addressing the interstate direct shipment of wine, the number of states allowing out-of-state wineries to ship directly to consumers has increased from 31 states to 40. The experience for licensed wine retailers (for example: brick and mortar wine shops, California Type 85 or 20 licensees and auction houses) however, has been somewhat different. The number of states previously available to retailers since 2005 has declined from 18 to 14 states and the District of Columbia.
What Retailers Need to Know
To help retailers navigate the market, we’ve created a quick reference guide, including basic information on regulations in the states available for retailer-to-consumer wine shipping. This guide includes links to license applications, statutes, state websites, and volume limits (if applicable). Note that four states on this list are “reciprocal” states. Reciprocity means generally that if state X’s retailers are allowed to ship into state Y, then state Y’s retailers may ship into state X without the need to obtain a direct shipper license or permit in the destination state. These states are: Idaho, Missouri, New Mexico, and California. General requirements that apply to interstate retail shipments also include but are not limited to:
- Customer volume limits (all regions but Alaska)
- Direct shipping permits (Louisiana, Nebraska, Nevada, New Hampshire, North Dakota, Oregon, Virginia, West Virginia and Wyoming)
- Producer consent (Virginia)
- Label registration (Virginia, West Virginia)
- Third party marketing restrictions (Virginia)
- Direct shipment to dry areas prohibited (Alaska, New Hampshire, West Virginia)
Download the Retailer Wine Shipping Guide
All states available to retailers are also available to wineries, and in many cases the regulations for the two shippers are similar. Indeed, permit-required states like North Dakota and New Hampshire allow for retailers and wineries to use the same application process and abide by the same rules in order to direct ship wine to that state. With this observation in mind, it would stand to reason that there is the potential for retailers to be welcomed to the same direct shipping states as wineries; actual practice, however, gives wineries access to three times the amount of the US market share.
The Missouri Division of Alcohol & Tobacco Control is being extremely thorough in enforcing accurate reporting and excise tax payments. We’ve heard from a number of wineries that filed the Wine Direct Shipper Annual Report and Tax Computation report with the associated Sales to Missouri Residents by Wine Direct Shipper (form 40) schedule on time, but had the report rejected by the ATC for errors or omissions.
Missouri moved from a reciprocal state (with no reporting) to a permit state on August 28th, 2007. Wineries that now have a permit to ship to consumers in Missouri must file the annual report and schedule. Because the permit requirement went into effect in August 2007, only shipments made between August 28th and December 31st needed to be reported on the 2007 annual report.
As do most state ABCs, the Missouri ATC receives reports from the common carriers (FedEx and UPS) that detail all of the wine shipments that are delivered directly to Missouri residents. They use this data from the carriers to reconcile the data on the reports that are submitted by the licensed wine direct shippers. On the Missouri annual report, wineries are required to list the name and address of the purchaser, the name and address of the recipient, the date of shipment, the invoice number, the name of the direct shipper (FedEx and UPS are the only licensed carriers), the direct shipper’s Missouri license number (170979 for UPS, 168093 for Federal Express, and 168217 for FedEx Ground), and the FedEx or UPS tracking number for all shipments. The Missouri ATC literally took out a yellow highlighter and highlighted any errors or omissions on the report including a missing Form 40, any failure to calculate or pay the $.12 per gallon tax, a missing or invalid shipper name, or an incorrect or missing tracking number. All shippers that received this notification are required to file an amended return by mail or fax to the Missouri ATC by February 15th.
Just a reminder… Effective today, August 28, 2007, Missouri is requiring all wineries to have an approved direct shipping permit. There is no fee and the application is only 1 page! Wineries must have the application notarized and provide copies of its current state alcoholic beverage license and a copy of its winery license from the Alcohol and Tobacco Tax and Trade Bureau. Excise taxes must be paid annually. The excise tax report and taxes are due by January 31 of each year and should report the total amount of wine shipped into the state during the preceding year. The excise tax reporting form will be posted on the Wine Institute website once it becomes available. In addition the direct shipping volume limit has increased. Wineries may now ship up to 2 cases to a consumer each month.
From Jeremy Benson at Free the Grapes! :
Free the Grapes! Media Update
Now that we’re at the end of most state legislative sessions, we thought it timely to provide an update on direct-to-consumer (DTC) wine direct shipping as of month-end July 2007. Here are some highlights, followed by a more detailed description.
o DTC legislation was considered in 23 states;
o Two states transitioned from reciprocal to a DTC permit system (MO, WV) with additional states pending (OR, IL).
o The legal direct shipping states for wineries represent 78% of wine consumption in the U.S., although retailers can reach far fewer states.
- Florida: the third largest state for wine enjoyment, remains a legal state for winery shipments after a fierce defense of the court order that allowed shipping;
- Hawaii: a concerted effort to reduce quantity limits failed;
- Missouri: transitioned from reciprocal to permit status (no fee);
- North Dakota: increased shipping quantity limits;
- Virginia: now allows Internet retailers without a physical presence to direct ship;
- West Virginia: replaced reciprocal status with permit bill.
- Arkansas: DTC permit bill failed in committee;
- New Mexico: reciprocal transition bill failed due largely to opposition by wholesalers and the beer lobby;
- Georgia: effort to replace cumbersome law with permit bill failed;
- Texas: passed a law limiting DTC shipping from in-state retailers outside their particular county;
- Ohio: passed potentially unworkable permit system for DTC shipments, including capacity cap of 150,000 gallons;
- Legal rulings supported the on-site sale requirement in ME, and opposed a challenge to TN’s shipping prohibition.
Wine Institute provided significant input to the following summary of state activity this year.
States with Legislation Under Consideration
Wisconsin – For 20 years, Wisconsin has been a reciprocal state, allowing its consumers to purchase wine directly from wineries as well as in-state wine retailers. But consumers will lose these privileges if the Budget Bill passes as it is currently written. Anti-consumer provisions were slipped into the Senate version of the 384-page, $66 billion, two-year Budget Bill in mid-July. The conference committee will now reconcile differences in the Senate and Assembly versions of the budget bill.
Illinois – House Bill 429 passed both House and Senate and is before the governor for signature. It creates a winery-only DTC shipping permit that replaces the existing reciprocity law. The Specialty Wine Retailers Association was unsuccessful in securing an amendment continuing shipments from out-of-state retailers, although in-state retailers were successful at maintaining their in-state shipping privilege.
Alaska –House Bill 34 (Ledoux) would specifically allow in-state wineries to make DTC shipments to AK consumers, with a 5-gallon per shipment limit. Status: passed House and Senate, and was signed by the Governor on 5/31/07.
Arkansas – Senate Bill 592 (Whitaker), a positive bill that would have created a DTC shippers permit for wineries, died in House Rules Committee March 30.
Connecticut — Senate Bill 1204 was passed into law and changes the time period specified in the DTC shipping statute from 60 days to 2 months for the 5 gallon limit.
Florida – Shipping into FL is continues to be legal after competing bills—with and without discriminatory capacity caps—were considered but ultimately died in committees.
Georgia – House Bill 159 (Willard) and its companion Senate Bill 56 (Untermann) would have replaced the state’s convoluted shipping law with a DTC shipping license for all wineries (and retailers in SB56). The bills died in committee. Wholesaler-supported House Bill 393 (Stephens) sought to create new “domestic farm winery” and national “farm winery” categories with discriminatory capacity caps. The bill died in committee.
Hawaii – House Bill 1093 (Say) and Senate Bill 1019 (Taniguchi) sought to reduce consumer choice by limiting shipments under the existing DTC shipping permit from six cases per winery per consumer per year, to six cases per household per year. Both bills died in committee.
Idaho – House Bill 11 would have modified the permit legislation passed in 2006 to allow wholesalers and retailers in Idaho and other states to ship wine directly to consumers. Bill died in committee.
Maine – Senate Bill 54 (Bromley) would have created a DTC shippers permit for wine & beer. The bill passed the Senate on 6/12/07, but was killed in the house later that week.
Missouri — The Governor of Missouri signed SB 299 transitioning Missouri from a reciprocal state to a permit state effective August 28, 2007. The new permit law requires all wineries to obtain a direct shipping permit (no fee), limit shipments to two cases per consumer per month, submit an annual report by January 31, and pay excise taxes. The direct shipping permit application and instructions are available on the Wine Institute website at www.wineinstitute.org/programs/shipwine.
Nebraska – L441 (Mcdonald) will allocate funds raised by the existing $500 DTC shipper license fee paid by all wineries to be deposited to the NE Winery and Grape Producers Promotional Fund. The bill was signed by the Governor on May 30, 2007.
New Mexico – House Bill 1018 (Silva) passed the House, but was killed in the Senate after intense pressure from wholesalers and the beer lobby. It would have replaced reciprocity with a DTC shipping permit for wineries and retailers.
North Dakota – Senate Bill 2135 was signed into law and makes favorable changes to existing DTC shipping provisions, including: increased quantity limit from one to three cases per month, removed “reciprocal” provision passed in 2005 but never implemented, and removed vague language.
Ohio – During closing stages of budget process an amendment was adopted that will create a potentially unworkable permit system for DTC shipments into Ohio. The law has a capacity cap of 150,000 gallons, along with “per family household” aggregate limit that may prevent wineries from being able to ship even if they qualify for the permit. The bill was signed by the Governor on June 30 and becomes effective October 1, 2007.
Oklahoma – Several bills in the House and Senate were introduced, including a voter referendum to allow OK consumers to receive DTC shipments from out-of-state wineries, but a permit system has not been outlined. All bills died in committee.
Oregon – House Bill 2171 (Minnis) would transition state from a reciprocal DTC to a permit system for wineries and retailers. Status: The bill passed the House & Senate, and was sent to the Governor for signature in June.
Pennsylvania – House Bill 255 (Godshall) and Senate Bill 293 (Ferlo) are positive DTC shipping permit bills with a $100 registration fee, two cases per month to any individual. Taxes collected. Status: Both bills remain in Committee.
Tennessee – House Bill 1850 (Todd) creates a DTC shipping permit for 2 cases annually. Provisions: $100 fee, annual reports, annual excise and sales tax payments (companion bill was SB 1977, Stanley). Both bills died in Committee.
Texas – Senate Bill 1229 (Gallegos) was signed by the governor May 5, and limits the ability of TX retailers to use common carriers for DTC delivery outside their particular county. The bill was aimed at pending litigation spearheaded by the Specialty Wine Retailers Association seeking statewide sales via common carrier.
Virginia – House Bill 1784 (Cosgrove) and Senate Bill 1289 (Watkins) augmented current direct shipper permit to clarify that those shipments are by common carrier only, and created separate allowance for any legal shipper to make deliveries of up to 4 cases of wine to a consumer in their own vehicle. Additionally, Senate Bill 984 (Edwards) also became law, creating an “internet wine retailer license” to allow sales by a retailer having no physical premise.
West Virginia – Senate Bill 712 (Kessler) was signed by the governor and, among many other provisions, replaced reciprocity with a DTC permit bill for wineries, wholesalers and retailers.
Maine – As previously reported elsewhere, on March 5, U.S. District Court Judge Carter adopted the magistrate’s report and recommendation issued three months ago in the Cherry Hill (Tanford/Epstein) suit. This ruling supports an on-site sale requirement for any sales to consumers, contrary to an opinion rendered in December 2006 in KY ruling that on-site provisions were unconstitutional.
Tennessee – As previously reported elsewhere, the U.S. District Court in Tennessee ruled in favor of the state regarding what most thought was an ill-advised lawsuit (Jelovsek v. Bresden). The plaintiffs alleged that consumers faced a greater burden in traveling to another state to purchase wine in person at a winery than they faced in buying wine directly from a TN winery tasting room. The judge was not convinced, and the wholesalers have promoted their “victory” to bolster arguments for the preeminence of the 3-tier system in all matters.
Texas – All summary judgment motions have been filed. Oral arguments are scheduled for September 21 in Dallas. Wholesalers claim that passage of Senate Bill 1229 moots this lawsuit (see Texas paragraph under legislation, above).
Massachusetts — Motions for summary judgment are expected this winter in the case that seeks to overturn the 30,000 gallon production cap in the DTC law. Family Winemakers of California is the lead plaintiff.
The Governor of Missouri has signed SB 299 transitioning Missouri from a reciprocal state to a permit state. As of August 28, 2007 wineries will be required to have a Direct Wine Shipper’s Permit issued by the Missouri Division of Alcohol and Tobacco Control (ATC) and pay excise taxes in order to ship to MO consumers. The permit applications and instructions are now available on the Wine Institute website.
The application must be notarized and applicants must attach a current copy of the alcohol beverage license issued by their state of residence and a copy of the winery license from the TTB. There is no application fee. The Direct Wine Shipper’s Permit allows wineries to ship up to two cases of wine each month to a consumer. Direct Wine Shippers must submit a report by January 31 of each year stating the total amount of wine shipped into the state the preceding year and pay excise taxes. The permit does not require wineries to pay sales tax.
Completed applications should be mailed to Liquor Control Division, P.O. Box 837, Jefferson City, MO 65102. The ATC expects to begin processing applications the week before the new law goes into effect. Approved permits will be mailed to the applicants. As of August 28, 2007 wineries should not ship to MO consumers until they have received their approved permit. Should you have any questions please contact Annie Bones at the Wine Institute at 415-356-7530.
Update: The Direct Wine Shipper’s Application posted on the Missouri Division of Alcohol and Tobacco and Wine Institute websites earlier this week is being revised. Wineries should disregard the application originally posted. Wineries will be notified as soon as the updated application becomes available.