Is the Marketplace Fairness Act Fair for Wineries?


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.

7 Tips for Getting Better at Age Verification for Wine Shipments in 2013

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.

  1. Require the common carriers (FedEx, UPS, GSO, etc.) obtain an adult signature upon delivery
  2. Add an age affirmation gate on your website/store/mobile app
  3. Collect the date of birth of the purchaser
  4. Collect the date of birth of the recipient for gift shipments
  5. Use an online age verification provider to verify the age of the purchaser in Georgia, Kansas, Ohio, and Michigan
  6. Use an online age verification provider to verify the age of the purchase for orders to all states
  7. 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.

Example: www.chandon.com


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.

Ohio: State Summary

Ohio

Permit Required

  Producers Retailers
Onsite
Offsite

Complexity: Hard

Summary Direct shipping and self-distribution are open to wineries that produce less than 250,000 gallons per year. Customer volume limits, sales tax and excise taxes apply for direct-to-consumer sales. Electronic filing is mandatory for sales tax as of 2009. Labels must be registered for all direct shipments.
Approved & Active Carriers FedEx and UPS are both approved carriers for this state.
Shipping Rules Tax:  Both sales and excise taxes are required for on-site and off-site shipments. Direct shippers must pay the state tax of 5.5%, and local tax, which ranges from 0.5% to 2.25%. An excise tax rate of $0.02 per gallon is also required.
  Permit:  Direct shipping to Ohio consumers is permitted for licensed wineries that produce less than 250,000 gallons per year. The Direct Shipper must make a “bona fide” effort to ensure that the customer is over 21 years old.
  Customer Volume Limit:  Family households may receive up to 24 cases of wine per year from an aggregate of permitted wineries. If the limit of 24 cases is exceeded, the consumer is responsible for any penalties unless more than 24 cases were shipped from one winery; in such a case the winery will be held responsible by the state for exceeding the case limit.
License Requirements An S Permit is required to ship direct to consumers. A license is required for both off-site and on-site sales. Wineries that produce less than 250,000 gallons are also eligible to register for a B-2a Permit, which allows wineries to sell wine directly to retailers. The cost for both the S and B-2A permits is $25.00, and they expire October 1st of every year. To access applications for either permit, visit Ohio’s Direct Shipping Information page. In addition to either of these permits, out-of-state suppliers must also submit a Supplier (S-5) Application, and include an application fee of $100. Producers must register all labels being shipped within the state. The cost is $50.00 per label; once a label is registered it does not need to be renewed. Background checks and copies of applicants’ *fingerprints are required for all liquor permits.

*UPDATE: fingerprinting is not required for applicants located out-of-state
History In 1933, Ohio repealed the prohibition amendment in the Ohio Constitution and became a control state in order to fund government programs. In the 1990’s the state-while maintaining control over liquor- relinquished its ownership over liquor stores and began commissioning private contractors to make the actual sales. In 2005, producers were temporarily given unrestricted freedom to ship into the state due to a court ordered injunction. In October, 2007, the enactment of a new permit system introduced shipping restrictions, including a 150,000 gallons per year production capacity cap. In 2008, SB 150 was enacted, finalizing the regulations that we are familiar with today (see “Shipping Rules”), including increasing the gallonage cap to the current 250,000 gallon limit.
Litigation / Legislation N/A
 

Editors note: This is the first in a series of posts we will have focused on highlighting states’ direct shipping rules and regulations.

Hidden Costs of Direct Shipping Licensing

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.

Bonds

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.

Label Registration

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.

Application Fees

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.

New Requirements for S Permit Applications and Renewals in Ohio

For eligible wineries, SB 150 has created quite a bit of change to the existing direct shipping law. Since the dawn of Ohio’s direct shipping regulations, in order to be eligible for the “S Permit”, which allows wine manufacturers to ship wine directly to Ohio consumers, the wine manufacturer must produce less than a certain number of gallons per year. As was reported in June, SB 150 increased the maximum production requirement from 150,000 gallons to 250,000 gallons (the maximum production requirement described for S permit holders is also true for wine manufacturer’s that hold a “B-2a permit”, allowing for shipments of wine directly to retailers, a.k.a. self-distribution). SB 150 also lowered the excise tax rate for direct shippers and added a costly label registration requirement, which may further deter wine manufacturers from shipping into Ohio.

First the good news.

There are now only two types of excise taxes that must be paid by B2a and S permit holders, instead of three: taxes levied by a county for sports facilities (e.g. Cuyahoga County tax); and a $.02/gallon tax on wine and sparkling wine, levied by the state of Ohio to encourage Ohio grape industries. These taxes are not due until the end of the year; updated tax forms are not yet available.

Now, the not so good news.

Effective Monday, September 1st, label registration of all wine products sold in Ohio is required from all direct shippers. The registration fee is $50 per new label. Direct shippers should submit registrations for all products shipped into Ohio via the Application for Label Registration with a copy of the TTB COLA. If the direct shipper already sells products through an Ohio distributor, they only need to register additional products that have not already been registered. S permit holders should submit the applications for label registration form prior to the October 1, 2008 permit renewal deadline. B-2a permit holders should submit applications for label registration as soon as possible, as this requirement goes into effect September 1st, 2008.

As of September 1st, S permit holders must also register as “S-5″ wine suppliers. This is a new requirement, however if the S permit holder also ships to Ohio distributors, this registration will have already taken place. For those that have not already registered as a wine supplier in Ohio, the initial processing fee for this registration is $100. In addition to the processing fee, the Supplier Registration costs $300, however the $300 fee is waived for wineries that only hold an S permit and do not have a distributor relationship in Ohio. The Supplier Registration form requires notarization.

Half-Year Hullabaloo: New Laws Take Effect in Three States Today

Just a quick reminder of the legislative changes that take effect today, July 1st, 2008.

  • Georgia’s new permit system takes effect. All wineries can now apply for a permit, regardless of distributor representation. Click here to see how to apply for a direct shipping permit.
  • Ohio is increasing their capacity cap, making it possible for wineries that produce under 250,000 gallons annually to apply for a direct shipping permit.
  • Washington is implementing a destination-based sales tax for all in-state entities.