Ohio

Permit Required

	Producers	Retailers
Onsite
Offsite

Complexity: Hard

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

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.

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.

• 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.

The 100,000 gallon increase results in benefits for wineries and consumers alike. Now wineries producing between 150,000 and 250,000 gallons annually will be able to get a direct shipper’s permit and have access to the state which, in turn, provides Ohio residents with a wider selection of wines from which to choose. However, the cap is still in place, and until Ohio joins the ranks of states which have no capacity caps, both wineries and consumers will suffer.

Wineries that produce between 150,000 gallons and 250,000 must apply for the B-2a and/or S permits with new application forms, however, as of June 23, 2008 Ohio has not yet updated their permit applications to reflect the increased capacity cap. To obtain general information on obtaining a B-2a and/or S permit, visit the Ohio Division of Liquor, and click on “Direct Shipping Information”. To check for updated applications, click on “Agency Operations Section (Liquor Agencies, Spirituous Liquor)”.

You can always view the most current version of Houchins’s Notes on Wine Distribution by visiting ShipCompliantBlog.com and clicking on the “Wine Distribution Notes” link under “Compliance Resources” on the right-hand side of the page.

Continuing the controversy, Ohio Representative Matthew J. Dolan is looking to increase the capacity cap for wineries from 150,000 to 250,000. Though the increase in production volume may be a “little step” in the right direction, it certainly seems like a very little step, allowing only 17 more California wine labels to be shipped to Ohio residents. According to The Plain Dealer, Dolan originally vowed to eliminate the cap altogether, but got a lot of pushback from the Ohio Department of Commerce and from Ohio Distributors (as Uncorked points out, “no surprise”).

Just next door, Indiana also prevents wineries producing over a certain amount of wine per year from shipping directly to its residents. Indiana’s original capacity cap was 500,000, but will increase on July 1, 2008 to 1,000,000 gallons since SB0107 was signed on March 13th by governor Daniels. Though this is the highest volume cap of the four states that have said restrictions,

Many will agree that any permit system that discriminates against a winery for the amount of wine produced is not an ideal permit system. Furthermore, the constitutionality of these caps is being challenged through litigation (see Family Winemakers of California vs. Jenkins). State legislators may adopt a capacity cap restriction for any number of reasons, but none of them seem very fair. The state may claim that it is trying to protect its own wineries by establishing the volume cap just above that of the highest producing in-state winery, but who else is being protected while the consumer’s interests fall by the wayside?

Update: In our original post, we mistakenly stated that that Indiana has a capacity cap that is similar to OH, KY, MA, and AZ. The 500,000 gallon “cap” in Indiana that will increase to 1,000,000 gallons on July 1st, 2008 only applies to wineries in that the applicant must not sell more than this amount of wine per year IN Indiana, excluding wine shipped to an out-of-state address.

Continuing the controversy, Ohio Representative Matthew J. Dolan is looking to increase the capacity cap for wineries from 150,000 to 250,000. Though the increase in production volume may be a “little step” in the right direction, it certainly seems like a very little step, allowing only 17 more California wine labels to be shipped to Ohio residents. According to The Plain Dealer, Dolan originally vowed to eliminate the cap altogether, but got a lot of pushback from the Ohio Department of Commerce and from Ohio Distributors (as Uncorked points out, “no surprise”).

Just next door, Indiana also prevents wineries producing over a certain amount of wine per year from shipping directly to its residents. Indiana’s original capacity cap was 500,000, but will increase on July 1, 2008 to 1,000,000 gallons since SB0107 was signed on March 13th by governor Daniels. Though this is the highest volume cap of the four states that have said restrictions,

Many will agree that any permit system that discriminates against a winery for the amount of wine produced is not an ideal permit system. Furthermore, the constitutionality of these caps is being challenged through litigation (see Family Winemakers of California vs. Jenkins). State legislators may adopt a capacity cap restriction for any number of reasons, but none of them seem very fair. The state may claim that it is trying to protect its own wineries by establishing the volume cap just above that of the highest producing in-state winery, but who else is being protected while the consumer’s interests fall by the wayside?

Update: In our original post, we mistakenly stated that that Indiana has a capacity cap that is similar to OH, KY, MA, and AZ. The 500,000 gallon “cap” in Indiana that will increase to 1,000,000 gallons on July 1st, 2008 only applies to wineries in that the applicant must not sell more than this amount of wine per year IN Indiana, excluding wine shipped to an out-of-state address.

Wineries applying for the S permit must pay a $25.00 fee and have the application notarized. The permit must be renewed by each year by October 1st. It is expected to take 3-4 weeks for the applications to be processed. Next are some tips to help you complete the permit application. Type of Applicant is determined by whether or not the winery has a relationship with an Ohio distributor. If the winery applying for a permit has a distributor in Ohio “out-of-state supplier” should be selected as type of applicant. Wineries that do not have a relationship with a distributor should select “unregistered in Ohio out of state wine manufacturer.” The first question on the application references a tax credit under 27 D.F.R. 24.278. This refers to a section of the “small producer’s tax credit” that all wineries producing less than 150,000 gallons annually are entitled to under federal law.

The Division of Liquor Control will notify the Department of Taxation, Excise Tax Division that you have applied for the S permit. Excise tax forms and instructions should arrive via U.S. Mail approximately 30 days after you have submitted your S permit application. Excise taxes are scheduled to be paid quarterly. Direct Shippers must register with the Ohio Department of Taxation, Sales & Use Tax Division. Registering your business by telephone is recommended. Call 1-888-405-4089 and press #1 after the message. There is also the option of registering with the Department of Taxation by submitting Form UT-1000. State and county sales tax must be paid. The state sales tax is 5.5% and the county tax ranges from.25%-1.5%.

S Permit holders are required to report annually to the Division of Liquor Control. The annual report must include a copy of each wine shipment invoice and a record of the name, address and quantity of wine purchased by each consumer. The reporting form is not yet available. It is likely that the annual reporting due date will coincide with the S permit renewal date of October 1. For more information visit the Wine Institute website.

Link to Form UT-1000
Link to S Permit Application
Small producers tax credit

A new law effective Monday, October 1 will prevent Ohio wine lovers from continuing to purchase wines directly from many popular mid-sized wineries, according to Free the Grapes!

During the closing stages of this year’s budget process, an amendment was slipped into the budget bill that prohibits medium and large wineries and wine companies whose total production exceeds 62,500 cases from shipping wine directly to Ohio consumers.

Additionally, the law creates a potentially unworkable system that may scare eligible wineries from shipping any wine to Ohio consumers. The bill sets a 24-case annual shipping limit per “family household,” rather than an annual limit per winery, per individual, as is common in most states.

Click here to read the full press release