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.
The latest version of “Notes on Wine Distribution”, by R. Corbin Houchins, is now available. Release 32 includes updates on legislation, litigation and general discussions on available distribution channels for wine. This release includes substantial changes, including new sections on age and identity, facial neutrality, and logistical support services, as well as updates to state summaries in Arizona, Delaware, Kansas, Kentucky, Maine, Maryland, Massachusetts, Montana, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Tennessee, Texas, Virginia, Washington, and Wisconsin. Read about these and other updates that affect the way wine is sold and shipped within the United States.
If you are at all interested in the shipping and distribution of wine, this is an excellent resource that is well worth reading. You can view the most recent version of the document anytime by visiting the ShipCompliant Blog and clicking the link located under “Compliance Resources”, or by visiting CorbinCounsel.com and clicking on the home page link, “Notes on Wine Distribution.”
On November 19, Terri Beirne, Wine Institute’s Eastern Counsel, met with the Virginia ABC Board, their Director, and representatives of Wine America and the Virginia wineries to continue discussions about the July Circular Letter 09-05 prohibiting direct shippers from using any third party service providers. Despite earlier indications, the Board has no plans to issue additional circulars on this issue. They suggested that a statutory change is essential to reinstate use of pick and pack/fulfillment warehouse and other third party service providers by Virginia licensees. They also offered to work with industry to craft legislation for the 2010 Virginia General Assembly Session which starts on 1/13/10 and concludes on 3/13/10.
However, the VA ABC offered two interim solutions for Wine Institute members until the law can be changed. Nothing in Virginia law currently prevents direct shipper licensees from obtaining two (2) direct shipper licenses with two different addresses, even though a second location is not owned or controlled by the licensee. Therefore, if a winery sends wine from BOTH their tasting room and a fulfillment warehouse, it can keep a current direct shipper license intact and secure a second one with the address of their fulfillment facility, from where wine can also be shipped. The Virginia direct shipper license application fee is $65 and the annual license fee is $65. Separate tax payments and reports associated with each licenses would have to be filed.
Additionally, if the winery sends ALL wine shipments into Virginia from a pick and pack warehouse with NO shipments originating in their tasting room, the winery’s Virginia direct shippers license could be changed to list the address of the warehouse from which ALL wine will be shipped. Wineries may make such an amendment to a current license by sending a letter on winery letterhead explaining the reason for the change and including the old and new addresses to Dallas “Burnie” Gaskill, VA ABC Licensing Technician at P.O. Box 1597, Spotsylvania, VA 22553-1597. Burnie can be reached by phone at (540) 538-7838 or e-mail at firstname.lastname@example.org with questions. Such letter MUST include a copy of the state license issued to the warehouse making shipments on the winery’s behalf. The letter must also contain an e-mail address for the winery, where the amended license will be sent in an electronic format.
Wine Institute and other industry representatives met with the Virginia ABC this week concerning their July 22, 2009 circular No. 09-05 governing use of third party service providers in direct shipments. The ABC staff was well aware of the concerns nationwide that their recent opinion has generated, but remained firm in their position that such entities cannot participate in direct shipments into the Commonwealth under current Virginia law. They rely primarily on the portions below of Va. Code sections 4.1-209.1 and at 4.1-203.
§ 4.1-209.1. Direct shipment of wine and beer; shipper’s license.
Any winery or farm winery located within or outside the Commonwealth may apply to the Board for issuance of a wine shipper’s license that shall authorize the shipment of brands of wine and farm wine identified in such application…..Any person located within or outside the Commonwealth who is authorized to sell wine or beer at retail in their state of domicile and who is not a winery, farm winery, or brewery may nevertheless apply for a wine or beer shipper’s license, or both, if such person satisfies the requirements of this section.
§ 4.1-203. Separate license for each place of business; transfer or amendment; posting; expiration; carriers.
A. Each license granted by the Board shall designate the place where the business of the licensee will be carried on. ….a separate license shall be required for each separate place of business……
In summary, the position of the Virginia ABC is that ONLY wineries and retailers licensed by their home states are eligible to receive a Virginia direct shippers’ license which permits the conduct of business (aka the shipment of wine into Virginia) ONLY at and from the business address listed on their license.
Because of widespread industry concerns, however, the Virginia ABC staff is willing to consider drafting a clarifying circular. While they are not expected to change their interpretation of current law, as part of this clarifying circular, they are willing to consider delaying the effective date of this ruling until April 1, 2010. By this time, the Virginia Legislature will have had an opportunity to change the law to resolve this problem for wine shippers nationwide. The Virginia ABC has suggested they will support the legislative change necessary to enable certain, but not all, third party providers to participate in the direct shipments of retailers and wineries to Virginia consumers.
Update: We will keep you posted as we continue to work with the Virginia ABC on this matter. Please consider their current circular in effect until another one is issued.
Terri Cofer Beirne, Eastern Counsel, Wine Institute
If you are licensed to ship wine into the Commonwealth of Virginia, you likely received the following letter last week from the Virginia ABC.
TO: All Virginia Licensed Shippers FROM: Francis J. Monahan, Director, Bureau of Law Enforcement SUBJECT: UNAUTHORIZED PRACTICES DATE: July 22nd, 2009
In state and out of state Virginia shipper licensees may only sell and ship authorized alcoholic beverages from their licensed address through approved common carriers. Licensees may not contract with third parties such as fulfillment warehouses, marketing companies, or other businesses to receive or ship orders for them.
All orders must be received directly by the licensed shipper, at their licensed location, by their employees. Orders must be shipped through approved common carriers from their licensed location, by their employees.
Any licensee in violation is subject to being fined and/or having their license suspended or revoked.
If you have any questions you may direct them to: Enforcement@abc.virginia.gov.
Common practice for wineries in many states is to contract with third party shippers that are also known as "fulfillment houses" and "third party logistics" (3PL) providers. This memo has caused a minor panic in the industry because many wineries, especially in California, use fulfillment houses to pack and ship wine based on orders that winery employees receive. The circular would suggest that such practice is in violation of Virginia law even if orders are taken legitimately by employees of licensees, at their licensed location, and shipped through approved common carriers.
The circular also recommends that licensees not contract with “marketing companies, or other businesses to receive or ship orders for them”. According to the memo, “all orders must be received directly by the licensed shipper, at their licensed location”.
Wine industry representatives are working with the Virginia ABC to get further clarification on the recent circular. Please stay tuned, and we will update you as we learn more.
The Shipper’s application is titled “Retail License Application Parts I and II” (rev. 06/2007).
Please follow the steps below to ensure your application can be processed and approved in a timely manner. Applicants must have already completed the VA Sales Tax Application and received a VA sales tax number.
RETAIL LICENSE APPLICATION – PART I
Specify type of license applied for as “Wine Shipper Out-of-State” (question 8 )
Select “Shipper” as Type of Business (question 15)
RETAIL LICENSE APPLICATION – PART II
Specify type of license applied for as “Wine Shipper “Out-of-State” (question 2)
Questions 4-5 and 7-9 are not applicable
Question 6 requires a “general statement” only
Only 2 parts of question 10 apply. Attach a copy of the FEIN certificate and a copy of your VA sales tax certificate.
Question 18 is not applicable
Posting and Publishing and ABC Notice Sections are not applicable (pages 9-11)
Attach the following documents to your application:
Charter for your corporation or LLC
Articles of Incorporation for your corporation, or Articles of Organization for your LLC
Alcoholic beverage license from your state, if applicable
Copy of Federal alcohol basic permit
The completed personal data sheet, as found in the application, for each officer, director, or shareholder owning 10% or more of the stock. Although a criminal history is not required, the completed sheets for all of the above persons are necessary to complete the process
Brand names of product for shipment
If shipping products from other than your winery, letter giving approval for shipment from brand owner
If your product is already sold in Virginia, letter to Virginia wholesaler(s) currently distributing your product informing them of your application for a license
Federal COLA (Certificate of Label Approval) for each brand you intend to ship, if not already a brand being sold in Virginia
The license tax per year is $65.00, which is in addition to the application fee of $65.00.