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.
LB 230 passed Nebraska’s unicameral legislature and was signed by the Governor on April 24, 2013. The new law will go into effect on September 6, 2013. Nebraska is currently open to direct shipping from wineries and retailers (although there was some debate recently as to whether retailers should qualify under the current law), with easy-to-navigate regulations. The new law introduces several new restrictions that Nebraska direct shippers should be aware of before the new law goes into effect.
Though the bill’s statement of intent indicated that only manufacturers (wineries) would be able to obtain a license, after amendments to the bill, retailers were added back in and will be eligible for the Nebraska direct shipping license. So, at the end of the day (following a confusing set of hearings and deliberations) currently licensed wineries and retailers will both be able to continue to ship to Nebraska consumers, but with added complexity and requirements.
Direct shippers will see several marked changes to rules and licensing processes. Here’s a quick breakdown of these and other requirements in the new law – additional descriptions follow below:
||In addition to requiring sales tax payments (common for direct shipping law), the potential to trigger additional tax obligations exists
||Retailers and manufacturers may "only ship the brands of alcoholic liquor identified on the application”
||Manufacturers (but not retailers) must notify Nebraska distributors carrying the identified brands, of the manufacturer’s intent to apply for a direct shipping license.
||Notification of any violations
||“…the applicant agrees to notify the commission of any violations in the state in which he or she is domiciled and any violations of the direct shipping laws of any other states…”
||Required. Shippers may “…not ship any alcoholic liquor products that the manufacturers or wholesalers licensed in Nebraska have voluntarily agreed not to bring into Nebraska at the request of the commission;”
||Common carrier approval
Under current regulations, it was somewhat unclear whether or not direct shippers were required to register to pay sales taxes, though most direct shippers did. The establishment of nexus under the new law could also mean that, in addition to requiring sales tax registration (common for direct shipping law), there is a potential to trigger additional tax obligations. Brand listings will be required as part of the licensing process, and wineries (but not retailers) must notify their Nebraska distributors carrying the listed brands of the manufacturer’s intent to apply for a direct shipping license. If a Nebraska manufacturer or wholesaler volunteers not to sell certain products within Nebraska’s borders, direct shippers would also not be allowed to sell those products under the new law. Furthermore, direct shipper applicants will have to notify the Nebraska Liquor Control Commission of any violations of direct shipping laws of any other states and any violations in the state in which the shipper is domiciled.
Many of the new laws will require clarification as to how currently licensed direct shippers should proceed in order to remain licensed and compliant – for example, will existing licensees have to notify distributors of their existing direct shipping license on Sept 6, or will this new requirement take effect once their current license expires in April? As we get closer to the September effective date, we will notify our clients and readers of any published guidelines or additional information.
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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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.
It has come to my attention that information concerning Nebraska’s direct-to-consumer shipping regulations on the Wine Institute website was misleading. The “Direct Shipping License Required” Rule was not listed as a requirement for on-site shipments to Nebraska consumers. The website has been updated to show that a direct shipping license is required for on-site and off-site shipments to NE consumers. There are no exceptions to the license required rule. The direct shipper permit application and reporting forms for NE are available on the Wine Institute website.
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.