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.
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.
We’ve received many questions about what West Virginia requires as far as reporting is concerned, so we contacted the ABCA to clear all confusion of the matter. On the West Virginia Direct Shipper’s Report it says, “Prepare this report in duplicate, mail the original and payment of taxes to the WV State Tax Department… and a copy to Alcohol Beverage Control Administration…” We found that, statutorily, the Direct Shipper also needs to submit invoices along with the report to both West Virginia entities, even though it is not explicitly stated on the report. Additionally, the copy that needs to be sent to the ABCA should include A) a copy of the return B) a copy of the invoices; and C) a copy of payment to the Tax Department (to submit a copy of payment, just photocopy the check that you send to the Tax Department before you send it out). These requirements can be time consuming and require a lot of paper, but are necessary to comply with the ABCA’s regulations.
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.
There have been questions from wineries about the application process in West Virginia. Hopefully, this post will help clarify the process.
All wineries must apply for a Direct Shipper’s Permit and pay the $150 annual registration fee to the West Virginia Alcohol Beverage Control Administration. In addition all wineries must register with the Department of Tax and Revenue and pay excise, state and municipal taxes. Excise taxes are due on or before the 15th of the following month. The due date for state and municipal sales tax varies according to a winery’s total sales. The state sales tax for WV is 6% and the municipal tax is 5%.
Wineries that are Corporations or Limited Liability Companies (LLCs) have additional requirements. Only LLCs and Corporations are required to obtain a Certificate of Authority from the WV Secretary of State.
Wineries that are LLCs are required to have a Certificate of Authority from the West Virginia Secretary of State before they can receive a Direct Shipper’s Permit. LLCs can obtain a Certificate of Authority by completing Form LLF-1 and paying the necessary fees. An LLC is required to pay a registration of $150 annually and a $25 Attorney in-fact fee annually. The total an LLC would pay annually is $175. The attorney in-fact fee is prorated based on the month the application will be received.
Wineries that are Corporations must also register with the Secretary of State. Corporations must complete Form CF-1 in order to obtain a Certificate of Authority and pay 3 separate fees. A for profit corporation would pay 1) License tax for full year beginning in July of $250, 2) Registration fee of $100 and 3) Attorney in-fact fee $30 The annual fees for a corporation would total $380. The license tax and attorney in-fact fees are prorated based on the month the application will be received.
More information about the application process and links to the forms can be found on the Wine Institute website.
West Virginia passed legislation to change from a reciprocal state to a permit state. All wineries will have to obtain a direct shipping permit and pay taxes. Corporations will also have to register with the West Virginia Secretary of State.
The West Virginia Direct Shipper Application, instructions and tax forms are now available on the Wine Institute website. Effective July 1, 2007 wineries are required to have a Direct Shipper’s License to ship wine to a resident of West Virginia. Wineries must complete the Direct Wine Shipper Application and pay a license fee of $150 to ship wines with an alcohol content of 14% or less. The license fee is $250 to ship wines with an alcohol content of more than 14%. The Direct Shipper’s Application requires applicants to request a Letter of Good Standing from their state of domicile and provide a list of brands that are to be shipped to WV. A licensed winery may ship no more than 2 cases of wine per month to a consumer. Shipments to dry areas are prohibited.
All wineries must register with the Department of Tax and Revenue and obtain a Tax ID number by completing form WV/ BUS-APP. Wineries, since they are involved in the business of agriculture, are exempt from the $30 registration fee. Applicants should allow 4-5 weeks for their applications to be processed; applications may be faxed to 304-558-8754 to expedite the process. Wineries are required to submit monthly reports and pay sales, municipal and excise tax. The sales tax rate is 6% and the municipal tax rate is 5%.
Corporations are required to register with the Secretary of State and obtain a Certificate of Authority. The Secretary of State requires corporations to pay the following annual fees:
1) License tax for full year beginning in July of $250
2) Registration fee of $100 and
3) Attorney in-fact fee $25. The licensee fee and attorney in-fact fee are prorated for parts of years on a calendar basis.
West Virginia will allow wineries who have applied for a Direct Shipper’s License to continue to ship to consumers while their application is being processed if the winery attaches copies of their Business Registration form and application for a Certificate of Authority (if required) to their Direct Shipper’s Application.