Some U.S. States Are Cracking Down On Interstate Direct-to-Consumer Wine Shipping

Forbes

By Thomas Pellechia , Contributor

August 29, 2017

According to ShipCompliant by Sovos, at over $2 billion in 2016 sales, the more than 5 million cases of wine shipped Direct-to-Consumer (DtC) is fast making it an important segment of the wine business . DtC has finally attracted larger wineries, whose shipments from 2015 to 2016 increased by 183 percent. The tax revenue for wine shipments is in the tens of millions of dollars for states, but shipping wine can still be fraught.

While U.S. trade representatives complain about unfair wine trade practices in neighboring Canada, it seems ironic that U.S. wineries and wine retailers need a compliance service to keep up with the ever-evolving legalities behind shipping beverage alcohol across state lines within their own country, but they do.

Thanks to the 21st Amendment to the U.S. Constitution—Repeal of Prohibition—out-of-state wineries could not ship wine direct to a consumer’s door because states were given the right to intervene in the sale of beverage alcohol and the overwhelming majority prohibited DtC. In a 2005 Supreme Court decision prohibiting DtC interstate wine shipping was ruled unconstitutional. The court said the only way a state could prohibit shipments from out-of-state wineries was to also prevent in-state wineries from shipping DtC. The decision was narrow; it gave out-of-state wineries the nod to ship but said nothing about alcohol retailers.

According to Alex Koral, Industry Outreach Advisor at ShipCompliant, “Forty-two states allow and require wineries to get a license to ship (Minnesota and Alaska don’t have a license, but allow them anyway); about seven states allow and require breweries to get a license; about three states allow and require distilleries to get a license; ten states allow and require out of state retailers to get a license (and three are reciprocal states for retailers – California, New Mexico, and Idaho.)”

States that allow shipping have gained added revenue by creating new licensing requirements and by tracking taxes that must be paid. Still, the states are wary that some illegalities may be taking place, and they are particularly focused on Internet shopping, which is a central market for DtC wine sales.

Koral says many states are cracking down on what they perceive as illegal alcohol shipping. New York, Michigan, and Illinois are at the top of the aggressive stance; Pennsylvania, South Dakota, and Arizona, new to allowing alcohol shipping, are looking closely to see what goes on.

Part of the states’ shipping crackdown comes from confusion over shipping reports. Koral says, “Many wineries will use third party fulfillment centers to facilitate their orders. When the common carrier files a report with the state, they’ll list the fulfillment center as the source of the shipment…the states won’t have a record of that location being connected to a licensee…it looks like it’s an illegal order, even though it was properly coming from a legal, licensed winery.” He says only North Dakota and Virginia license fulfillment centers.

Koral says states see, “Illegal orders online misreported as being sourced from a fulfillment center, and they begin to doubt the propriety of all orders. Because they see carriers as facilitators of these improper shipments, and because they have jurisdiction over those carriers, but not over the out-of-state party, they go after the carriers.”

When states go after carriers like UPS and Fedex, the carriers become nervous. Koral says carriers “are making sure that they are accepting packages only from licensed parties. Hence a recent program from UPS and others to show proof of license before they’ll agree to accept packages with alcohol in them.”

To address the confusion, some states require both carriers and wineries to provide tracking, so that the carrier’s report matches the licensed winery report. But what about alcohol retailers?

While most states allow DtC from out-of-state wineries, only a handful allow it from out-of-state wine retailers . Retailers trying to ship DtC in states that do not allow it may not be able to persuade a pressured carrier to accept the wine.

Koral reiterates, “…for online shopping of wine and wine clubs to continue to thrive, those who participate will need to get licensed and prove to their carriers that they have a license before those carriers will contract with them to accept their packages of wine.”

An idea: create a universal license for both fulfillment centers and carriers who want them and allow universal interstate wine shipping for both wineries and retailers. Problem solved!