The bill also allows for both in- and out-of-state winery self-distribution and tasting rooms, two issues that New Jersey was compelled to address due to a 2010 lawsuit (Freeman v. Corzine) that ruled the state was acting unconstitutionally by allowing in-state wineries to sell wine through distribution methods unavailable to out-of-state wineries.

Direct Shipping Details:
Once S3172 is signed by the Governor, New Jersey, a state that has prohibited direct wine shipments, will join 38 other states in allowing limited amounts of wine to be shipped to its residents. The bill gives licensed Farm and Plenary wineries the ability to ship, and allows out-of-state wineries producing less than 250,000 gallons per year to apply for an “Out-of-State Winery License”. The fee for the Out-of-State Winery License is one of the most expensive direct shipping licenses in the country at $938 per year (the same annual fee paid by in-state wineries). All licensed wineries may ship up to twelve nine-liter cases to a New Jersey consumer per year. Sales and excise taxes must be paid.

Self-Distribution Details:
For an additional fee, New Jersey Farm, Plenary, and Out-of-State Winery licensees may self-distribute (sell wine directly to New Jersey retailers). After recent amendments to the bill, however, wineries are restricted from shipping to retailers via common carrier. It is yet unclear what this means for the self-distribution privilege, specifically for wineries that are not in close proximity to the state. The additional fee for self-distribution ranges from $100 to $1000 per year, depending on the production volume of the winery.

Tasting Room Details:
S3172 will allow out-of-state wineries to operate tasting rooms within New Jersey. Out-of-state wineries may operate up to 16 tasting rooms, while in-state wineries may operate up to 15 tasting rooms in addition to their licensed premise; Farm, Plenary, and Out-of-State Winery licensees must pay a $250 fee for each tasting room location. New Jersey wineries are currently able to operate tasting rooms and joint tasting rooms. The bill, however, removes the ability for wineries to operate joint tasting rooms, which is a disadvantage for out-of-state wineries.

The opening of New Jersey to direct wine shipments is a major accomplishment and will open up one of the last significant marketplaces that prohibit direct shipment of wine. Both New Jersey and out-of-state wineries are expected to benefit from the change in the law, as well as New Jersey wine consumers. If signed by the Governor, the law would go into effect on the first day of the fourth month following enactment (May 1, if enacted in January). When specific regulations concerning license applications and reporting are issued, ShipCompliant will notify its clients and the industry.

The past year demonstrated the continuation of certain trends and the emergence of another that we believe will carry forward in 2012. The trend of more states opening their borders to the direct shipment of wine from other states continued steadily. Maryland and New Mexico both opened their borders to permit-based direct-to-consumer shipping in 2011, a continuation of a movement toward regulated consumer access to wine that began in 2005 with the Granholm v. Heald Supreme Court decision. Tennessee also saw a change in their law in 2011 that made the entire state “wet” for direct shipments from wineries.

The past 12 months also saw an increase in new “Third Party Providers” that help wineries market their products to a broader collection of consumers. Either as flash sites, wine product advertisements, or multi-offer marketplaces, these new entries into the wine market were helped along by a new California Department of Alcoholic Beverage Control (ABC) Advisory that set down specific rules as to how suppliers and non-licensed Third Party Providers can work together compliantly.

Finally, 2011 demonstrated that various forms of privatization of the sale and distribution of wine and spirits in control states are an important trend to watch. The passage of Initiative 1183 in Washington State that took the sale and distribution of spirits out of the hands of the Washington Liquor Control Board was the most tangible example of the privatization trend.

What To Expect in 2012

Direct-To-Consumer Shipping
Winery-to-Consumer shipping laws will continue to be modernized in those now few states that continue to prohibit interstate shipping. We expect New Jersey, the most important wine consuming state currently outlawing interstate shipments, to pass legislation allowing some form of direct shipments to consumers. Currently, a bill working its way through the legislature would allow all wineries making up to 250,000 gallons annually to obtain a direct shipment permit. The capacity cap of 250,000 gallons will be a point of concern, but wineries should expect passage and should be prepared to ship to New Jersy consumers in 212. The bill, which has passed the senate, is expected to be voted on in the assembly before the close of session tomorrow, January 10th.

Massachusetts too has seen a number of direct shipment bills introduced over the past couple of years, but none have found their way to the Governor’s desk. Recently, however, Governor Deval Patrick put a spotlight back on the issue by saying in a radio interview that he would sign legislation that permitted direct-to-consumer wine shipments. 2012 may be the year that Massachusetts finally opens to direct-to-consumer shipping.

Finally, Pennsylvania, traditionally one of the states where alcohol sales and distribution is most tightly controlled, may see a move to allow direct-to-consumer shipping. As talk continues in that state to privatize wine sale and distribution, there has also been much talk and the introduction of bills to “modernize” the PLCB, including allowing direct-to-consumer shipping, opening up a state with big consumer potential for wineries.

Modernized Marketing
Digital marketing in the wine industry has been behind the curve due primarily to the massive amount of regulations that govern the industry on a federal and state level. It’s unlikely that the wine industry will see significant deregulation. However, it appears that some clarity is coming to the issues that have historically deterred modern marketing methods.

Late in 2011 the California ABC issued an “Advisory” that spelled out the conditions under which non-licensed Third Party Providers (TPPs) and suppliers must arrange their relationships in order to work together. In a nutshell, the California ABC made clear that wineries and other licensed suppliers must always be in control of the transaction from approving each transaction to controlling the flow of funds. (Read our blog post that explains these new rules). While adhering to the new California ABC rules can be a complex task and require very specific actions and programming on the part of licensed suppliers and non-licensed TPPs such as flash sites and community buying sites, we believe this new clarity represents an important development for suppliers and marketers that will yield interesting developments in 2012

We expect to see a rise in the number of TPPs. In addition, we expect other states to follow California’s lead in issuing rules and regulations for how licensees and non-licensed marketers can work together to help market wine to consumers in innovative ways.

Privatization
With Washington State paving the way in the realm of privatization of sales and distribution with the passage of Initiative 1183 in November, we predict the privatization trend to regain momentum in 2012. Most eyes are on Pennsylvania where serious discussions are underway concerning the privatization of the sale and distribution of wine in that highly controlled state. Virginia too has seen discussions in the past years concerning the merits of reforming its alcohol control system. Meanwhile, in Michigan a task force has been empowered to look at updating its alcohol beverage laws.

This slow moving trend toward privatization, if it continues and gains more momentum, could lead to significant changes in the area of wine sales and distribution and the compliance measures that suppliers must undertake.

Federal Action on Wine Sales and Distribution
In early 2011, with the introduction of H.R. 1161 (read our series on the CARE Act here) in the House of Representatives, it looked like supporters of federal legislation that would give states greater control over how they can regulate alcohol and overcome judicial rulings that have put limits on state powers, would push hard to see this bill passed. Yet, H.R. 1161 garnered fewer supporters in the House than a similar bill, H.R. 5034, gained in 2010. Furthermore, no hearing was held in the House Judiciary Committee on H.R. 1161 and no Senate sponsor was introduced.

This bill, opposed by all supplier organizations and by retailers, has another year to gain more support and move through the legislative process. Most in the industry are taking a wait and see attitude on H.R. 1161 to determine its fate, but it seems unlikely that the bill will move on to President Obama’s desk in 2012.

Finally, federal legislation is moving forward concerning the United States Postal Services, and it could have long-term effects on the wine industry. The new bill moving forward is the 21st Century Postal Service Act 2011. If enacted as currently written it would allow the United States Postal Service to deliver wine to consumers and compete with Federal Express and United Parcel Service.

As always, ShipCompliant will continue to watch the political and regulatory landscape throughout the coming year and will work to keep you up-to-date on important changes that impact your ability to market and sell wine.

- The ShipCompliant Crew (from left to right): Timothy Clayton, Mike Liedtke, Sarah Werner, Andy Grauch, Jim Agger, Robb Dye, Eddie Ermoian, David Dango, Kent Nowlin, Chris Kalmbach, Patrick Barratt, Pawel Smolarkiewicz, Jamie Jimenez, Lisa Bookwalter, Alex Umbhau, Jeff Carroll, Betsy Hansen, Mike Taylor, Luke Eckenroth, Mark Hayes, April Capil, Colin Neilson, Barclay Bates, Mackenzie Latham, Sam Sexson, Michelle Few, Emily Sheehan, Michael Pritchard, Jason Eckenroth

IMPORTANTLY, the Comptroller’s office has pushed back the deadline for direct shippers to submit their 3rd Quarter Report to November 1. The Report had been due on October 10th. However, because the Comptroller’s Office released the new form so late, they have extended the deadline to November 1. This extension of the deadline only applies to the Quarter 3, 2011 report. All subsequent reports will be due on the 10th of the month following the period. For example, the Quarter 4, 2011 report will be due on January 10th.

The report can be downloaded HERE: http://compnet.comp.state.md.us/Motor_Fuel__Alcohol_and_Tobacco_Tax/Alcohol_and_Tobacco_Tax/Static_Files/Alcohol_Tax/Forms/DWS%20315.pdf

ShipCompliant Clients: If you have subscribed to the Maryland Direct Shipping Report, the new form — all filled out and ready to print and send to the Comptroller’s office — will appear in your “Open Reports” inbox later today.

Not a ShipCompliant Client?: If you are shipping to Maryland, let us produce this report for you at no charge to give you an idea of the simplicity and efficiency that comes with using ShipCompliant. Just send us a spreadsheet and we’ll do the rest for free..

The state of Maryland opened to winery-to-consumer direct shipping on July 1, 2011, after a multi-year effort by the industry and consumers to change the Maryland law.

Annie Bones, State Relations – Wine Institute

To register for a license, wineries must:

1) Register with the Taxation and Revenue Department Tax for Gross Receipts Tax.

• Registrations may be mailed in or submitted online.
• Attach confirmation of the approved Tax Registration (including the assigned “CRS #”), to the Direct Shipper Application.

2) Submit the 1-page Direct Wine Shipper Permit Application.

• Include a copy of home-state liquor license
• Include the $50 annual permit fee

New Mexico will not accept Direct Wine Shipping Applications until July 1, when the state’s new legislation officially goes into effect. However, wineries may begin the permitting process now by registering to pay Gross Receipts Tax with the Taxation and Revenue Department.

Once licensed, wineries will be responsible for payment of Gross Receipts and Liquor Excise taxes and reporting. Wineries may ship up to two cases per individual per month.

Please note that the new law allows wine retailers with reciprocal shipping privileges to continue to ship wine to New Mexico residents under reciprocal law. No Wine Shipper Permits will be issued to retailers.

Wineries: Start the application process today and continue to ship into New Mexico.  Save 10% on service fees for your entire order when you order a New Mexico license from Easy Wine Licensing before July 1. Enter coupon code: NM2011 upon checkout for the discount.

Two important factors paved the path to the passage of direct shipping legislation in Maryland. First, a local citizens organization, “Marylanders for Better Beer and Wine Laws”, kept pressure on the Maryland legislature year after year even though earlier direct shipping bills were defeated. Second, the Maryland Comptroller’s office released a Direct Wine Shipment Report late last year debunking many of the claims made by opponents of wine shipping concerning minor access to wine and harm that might come to local business as a result of wine shipments.

Though retailers were included in original versions of the direct shipping legislation, they were left out of the final language, perhaps in part, because the Comptroller’s Report did not advocate for retail-to-consumer shipping.

The new law takes effect July 1, 2011 and allows wineries to obtain a Direct Wine Shipper’s Permit for $200 (renew annually). Each licensed winery will be allowed to ship up to 18 cases of wine to a single delivery address each year and will be responsible for quarterly reporting and payment of excise and sales taxes on all shipments made into the state. Potential shippers now await permit application and instruction forms from the Maryland Comptroller, which could be made available any time. We will keep you updated as more information becomes available.

The annual fee for a Direct Shipper’s license is $50 and must be paid within 30 days of making the initial shipment. Wineries with an approved license may ship up to 3 nine liter cases each month to a consumer. All shipments must originate from the address listed on the licensee’s permit. Applications and reporting information are available on Wine Institute’s website under State Shipping Laws.

by Sally Jefferson, Regional Government Affairs Manager, Wine Institute

New Mexico will be the last state to change from reciprocity to permit status for winery shipping since it was the last state that had a reciprocity law still on the books for wineries. The move from reciprocity laws to state permit laws was instigated by the 2005 Granholm v. Heald Supreme Court decision. That landmark ruling not only held discriminatory shipping laws to be unconstitutional but also noted a constitutional problem with reciprocity agreements when Justice Anthony Kennedy, writing for the majority, proclaimed that “States should not be compelled to negotiate with each other regarding favored or disfavored status for their own citizens.”

It should be noted that in changing its wine shipping laws, New Mexico has left in place “reciprocity” arrangements for retailer-to-consumer shipping.

The New Mexico Wine Shipping Permit goes into effect on July 1, 2011. It’s provisions include:

Cost of Permit: $50 per year
Bond requirements: None
Limits on Amount of Wine Shipped: 2 cases per individual per year month
Taxes: Sales and Gross Receipts tax must be paid by the direct wine shipping permit holder
Reporting: Due annually