Currently there are only a handful of states that offer DTC beer shipments in the country. New York could be next up to bat with a bill that, among other things, would allow beer shipments to cross state lines into the hands of consumers. New York is the 4th largest consumer of beer products in the country, and may become the largest consumer of beer of any state that allows interstate direct shipping of beer if this bill passes as written. Laws that allow DTC beer and cider shipments in states with higher consumption will create an interesting opportunity for breweries around the country. With 2 weeks left in the session, it will be interesting to see if beer shipments will make it in the final bill.
Other changes proposed in the current version of the bill include:
- The removal of the existing wine direct shipping reciprocal customer shipping volume limit
- A new common carrier license
- Wineries and farm wineries would be able to ship not only their own wines, but wines from neighboring wineries. (See page 47 of the bill)
Keep an eye on our blog and our twitter feed (@shipcompliant) for updates as we follow the story.
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.
Verifying the age of online wine purchasers and shipping recipients is perhaps the most important and responsible task any online wine seller can engage in. Age verification not only protects your own licenses, but it supports the entire industry as being responsible and it protects against minors obtaining alcohol illicitly. As the new year approaches, direct wine sellers should make every effort to improve by incorporating one or more additional age verification tools into their direct selling protocols. What follows is a 7-point list that offers a variety of ways you can use age verification in the coming year to protect yourself, the industry and minors.
As you’re making the new years resolutions for your business, think about adding age verification to the list. I’d like to challenge each of you to do a better job at age verification in 2013. It will be easy, and we’ll help you through it. Please pick at least one item from the list below that you are not doing currently, and add it to your direct shipping program starting January 1st.
- Require the common carriers (FedEx, UPS, GSO, etc.) obtain an adult signature upon delivery
- Add an age affirmation gate on your website/store/mobile app
- Collect the date of birth of the purchaser
- Collect the date of birth of the recipient for gift shipments
- Use an online age verification provider to verify the age of the purchaser in Georgia, Kansas, Ohio, and Michigan
- Use an online age verification provider to verify the age of the purchase for orders to all states
- Use an online age verification provider to verify the age of the recipient for all gift orders
Require the common carriers (FedEx, UPS, GSO, etc.) obtain an adult signature upon delivery
This is a requirement for all wine shipments. No ifs, ands or buts about it. Work with your carrier to understand how to make sure your packages properly labeled for alcohol and ensure they’ll check ID and get an adult signature upon delivery.
Add an age affirmation gate on your website/store/mobile app
This is a pretty simple tool that will go a long way. Add a feature to your site that forces the visitor to affirm that they are of legal drinking age by checking a box prior to entering your website, shopping cart, or mobile application. Last time I mentioned this at a seminar, I got a few calls from some eCommerce companies saying that would damage the search engine optimization (SEO) for the products in the store. My response: you’re smart, figure it out! There’s got to be a slick way of enabling the age gate while also preserving the SEO of your site.
Collect the date of birth of the purchaser
If you’re going to add an age affirmation tool to your website/store/mobile app, why not take it one step further and collect the date of birth of the purchaser at that point? Alternatively, ask for the date of birth when the purchaser adds wine products to their cart. You’re going to need it at a minimum to include on the direct shipping reports due in Wisconsin, Michigan, and the four counties of Hawaii. You’ll also need it for audit purposes in New York and most of the states that you are shipping into, and it will also make for a much stronger match rate on your age verification checks when using an online provider (see below for details). States will typically require that you keep your records for two years for audit purposes, so we often recommend that you hold onto your data for at least 3-4 years just to be sure. Remember that dates of birth are very sensitive from a privacy perspective, so be sure to store them securely in your files.
Collect the date of birth of the recipient for gift shipments
For gift shipments, you’ll also want to collect the date of birth of the recipient. You’ll need this on the shipping reports due in Wisconsin and the four counties of Hawaii, and it will also result in a much stronger match if you decide to do age verification on the recipient. One thing to note here is that the purchaser will often not know the date of birth of the recipient. So, you don’t necessarily have to collect this at the time of transaction, but make sure you have your processes designed such that you can follow up and get the DOB of the recipient prior to shipping.
Use an online age verification provider to verify the age of the purchaser in Georgia, Kansas, Ohio, and Michigan
The states of Georgia, Kansas, Ohio and Michigan all have some kind of requirement for verifying the age of the purchaser. The easiest way to meet these requirements is to use an online age verification provider. ShipCompliant integrates with both Lexis Nexis (formerly ChoicePoint) and also IDology, both of which have been approved by the Michigan Liquor Control Commission. These services run about $.50 per check (per customer), and do not need to be repeated for subsequent purchases from an individual that has already been confirmed to be of legal drinking age. When running an online age verification check, you’ll need the purchaser’s name, address, and optionally date of birth. As mentioned above, if you include the date of birth you’ll get a much stronger likelihood of matching the individual in the age check provider’s database.
Use an online age verification provider to verify the age of the purchase for orders to all states
Wine Institute and Free the Grapes! both have codes that establish that (from Free the Grapes!’ code for direct shipping) “licensees must verify the purchaser’s age at the point of online purchase before completing any transaction.” Most of the bigger wine companies are therefore choosing not just to run an online age verification check in the four states that require it by statute, but to run online checks on the purchaser in all states that they ship to.
Use an online age verification provider to verify the age of the recipient for all gift orders
For gift shipments, you can also consider running an online age verification check on the recipient. Even though the common carrier will ask for identification and a signature for the person that actually signs for the package upon delivery, some wineries take a conservative approach and choose to run an age check on the recipient as well for gift shipments, especially on gift orders that originate from third party marketers.
Idaho and New York wine direct shipper licensees can anticipate a simpler licensing process as the new year approaches. These improvements are expected to alleviate some of the burden that accompanies the amount of paperwork attributed to the licensing process. Details on these updates are outlined below.
Previously an applicant had to submit two applications containing the same information: the Beer and Wine Tax Permit Application (BWA) for a wine tax permit, and the Idaho Business Registration (IBR1) for the sales tax permit. The Idaho State Tax Commission updated form BWA to accommodate for both the sales tax and wine tax permits to be applied for on one application by direct shipper applicants. Once the Tax Commission reviews and issues both the sales and wine tax permits, the application is forwarded on to the Idaho State Police’s Alcohol Beverage Control Bureau (ABC) for review and issuance of the direct shippers license. This new process therefore alleviates direct shipper applicants from completing the IBR1 and only requires one application-the BWA-to be completed.
Furthermore, the Idaho Tax Commission has made it easier for direct wine shipper licensees to wave the need for a bond. With the newly designed Wine Direct Shipper Bond Waiver Request Form, applicants can submit a waiver request during the application process. The decision to allow for a bond waiver by direct shippers comes after the Tax Commission reviewed historical data and determined the majority of wine direct shipper licensees typically have returns with a small amount due and therefore a bond is not needed.
For more information on this new process, you may review the Idaho Wine Direct Shipping Requirements.
Beginning January 1, 2013, out-of-state direct wine shipper licenses need to be renewed every 3 years. The idea behind lengthening the license lifespan stems from the New York State Liquor Authority desiring to lessen the burden of renewing every year. Applicants should be aware, however, that the fee is increased to $375-three times more than the current price of $125, to match the new lifespan of the license.
Also to note, in-state winery and farm winery licensees, wine wholesale licenses and wine store and satellite store licensees are also upped to a 3 year limit with subsequent adjusted license fees. Licenses to sell wine at retail for on site consumption will only go to 2 years at twice the current annual fee.
For more information on these changes, you may refer to the advisory available on the New York SLA website.
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.
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.
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.
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.