July 02, 2019
Last week, the Supreme Court issued its opinion in Tennessee Wine and Spirits Retailers Association v. Thomas, No. 18-96 (“Tennessee Retailers”). The full opinion can be read here, and our introduction to the case and issues can be found here. To recap, at issue in this case is the interplay between the Dormant Commerce Clause and the 21st Amendment. The Dormant Commerce Clause prohibits states from discriminating against interstate commerce, while the 21st Amendment grants to each state the authority to regulate alcohol within its borders. In Tennessee Retailers, the Court considered to what extent the 21st Amendment allows states to pass laws regulating the alcohol industry that would otherwise be prohibited by the Dormant Commerce Clause.
The Court last addressed this question in 2005, when the Court held in Granholm v. Heald that the 21st Amendment “does not immunize all [state alcohol] laws from Commerce Clause challenge.” In that case, the Court invalidated laws that favored in-state wineries over out-of-state wineries with respect to direct sales and shipments to consumers. Last week’s ruling in Tennessee Retailers confirmed a broad reading of the prior ruling in Granholm, as applied to a Tennessee law requiring applicants for retail liquor store licenses to live in the state for two years before being eligible for the license. The Court held that Tennessee’s discrimination against out-of-state individuals in the granting of retail licenses violates the Dormant Commerce Clause, and is not saved by the 21st Amendment. The Court ruled that the 21st Amendment “allows each State leeway to enact the measures that its citizens believe are appropriate to address the public health and safety effects of alcohol use and to serve other legitimate interests,” but that it does not “license the States to adopt protectionist measures with no demonstrable connection to those interests” in violation of the Dormant Commerce Clause. The Court also clarified that the prior ruling in Granholm was not limited to prohibiting discrimination against out-of-state products and producers, and that states are prohibited from discriminating against any out-of-state interests, including out-of-state individuals or retailers.
Much of the news coverage and discussion of this case has focused on the impact of the case on state laws that allow in-state retailers to ship alcohol directly to consumers, but prohibit out-of-state retailers from doing the same. Some coverage implied that such laws were automatically invalidated by the Court’s ruling, but the retailer direct shipping issue was not in front of the Court. While the ruling in Tennessee Retailers does confirm that the principles in Granholm apply to all out-of-state interests, rather than just out-of-state producers, the ruling does not categorically prohibit all state alcohol laws that do not treat in-state and out-of-state businesses equally. The ruling is instead a continuation of the Granholm conversation. The ruling confirms that states “‘remain free to pursue’ their legitimate interests in the health and safety risks posed by the alcohol trade,” and that the 21st Amendment does confer additional regulatory authority to the states. However, when a discriminatory state law is “purely protectionist” and cannot be “justified as a public health or safety measure” or on some other “legitimate non-protectionist ground,” then the law will be found unconstitutional. Thus, state laws that allow in-state retailers to ship alcohol directly to consumers, but prohibit out-of-state retailers from doing so, are not definitively unconstitutional following the ruling in Tennessee Retailers. These laws are only unconstitutional if the state cannot establish that the laws are necessary to advance a legitimate local purpose, such as protecting public health and safety, and that there are no reasonable nondiscriminatory alternatives that can adequately further that purpose.
So, what does this ruling really mean? First, the ruling is a victory for out-of-state individuals and entities that desire to apply for a retail liquor store license in Tennessee. Second, other states with burdensome retail residency requirements, such as Massachusetts and Maryland, are likely evaluating the legality of their laws in light of the ruling in Tennessee Retailers. Such states may opt to eliminate such requirements, or may decide to leave the residency requirements in place until challenged. Given the language in Tennessee Retailers analyzing the lack of connection between Tennessee’s residency requirements and advancing public health and safety interests, leaving burdensome residency requirements in place may be risky. But, the State of Tennessee did not attempt to defend its laws, and the public health and safety arguments put forth by the Tennessee Wine and Spirits Retailers Association were cursory, and thus other states may believe that they can do a better job defending their laws. If any states decide to leave retail residency requirements in place, it is likely that litigation will follow. Third, states with residency requirements for wholesaler licenses, such as Missouri, are also likely weighing whether to revise such laws or to leave the residency requirements in place until challenged. Missouri’s wholesaler residency requirements were upheld as constitutional by the 8th Circuit in 2013. However, the 8th Circuit ruling was based on a narrow reading of Granholm, and that interpretation was directly refuted by the Court in Tennessee Retailers. Accordingly, it would not be surprising to see litigation on this issue in the very near future, if such states do not remove wholesaler residency requirements. Finally, even less-burdensome residency requirements, such as requirements for licensees to have a resident manager, may be vulnerable to challenge.
While residency requirements will be most directly in the line of fire following Tennessee Retailers, the ruling has the potential to impact many other aspects of state alcohol regulation. Unlike Granholm, the Tennessee Retailers Court declined to describe the three-tier system as “unquestioningly legitimate.” The Court clarified that while the basic three-tier model may be sound, the 21st Amendment does not sanction “every discriminatory feature that a State may incorporate into its three-tiered scheme.” It is unclear to what extent Tennessee Retailers will spur states to act on their own to revise discriminatory aspects of the state’s alcohol regulatory scheme. We may see states make changes independently, but it may be that significant change will only be achieved through litigation. As the Court noted, “each variation [of three-tiered alcohol regulatory schemes] must be judged on its own features.” Because discriminatory alcohol laws are only unconstitutional if they are not reasonably necessary to advance a legitimate local purpose, states may leave discriminatory laws on the books in the hopes that they can justify those laws if challenged. Accordingly, the most direct outcome of Tennessee Retailers will likely be a considerable amount of litigation.
Which laws are the most likely targets of litigation? Any state alcohol laws that discriminate against “out-of-state economic interests” are vulnerable to challenge under Granholm and Tennessee Retailers. So, litigation could focus on laws that authorize only in-state retailers to deliver or ship to consumers, or it could target laws such as physical presence requirements, tied-house exceptions that allow only in-state producers to operate retail locations, laws that require retailers to purchase from in-state sources, laws that authorize only in-state suppliers to self-distribute products to retailers, at-rest laws, or franchise law exemptions that apply only to in-state suppliers. The recent ruling in Tennessee Retailers may also inspire further litigation and move the needle in the related area of alcohol laws that are facially neutral but potentially discriminatory in effect. For example, states such as New Jersey or Ohio with laws that have special privileges for certain “small” producers, where the definition of “small” may be designed to encompass most or all in-state producers while excluding many out-of-state producers.
While we noted above that some news coverage has overstated the immediate impact of Tennessee Retailers on out-of-state retailer direct to consumer shipping or delivery, the ruling will undoubtedly lead to more litigation regarding these laws. Some of that litigation may be successful in invalidating laws that allow in-state retailers to ship or deliver alcohol directly to consumers, but prohibit out-of-state retailers from doing so. However, each case will depend upon the specifics of the state’s regulatory scheme and the state’s public health and safety justifications for that scheme. While the justifications for Tennessee’s residency requirements were weak, states may have stronger public health and safety justifications for laws regulating delivery and direct shipping, such as preventing underage drinking or delivery of alcohol to intoxicated persons. Note, however, that this argument was held in Granholm to be insufficient justification for treating in-state and out-of-state wineries differently with respect to the shipment of wine to consumers. But, the strength of public health and safety justifications will likely be different in states that allow retailer hand delivery but not shipment by common carrier of alcohol, and these justifications may also be different with respect to beer or spirits as opposed to wine. Furthermore, states may have additional public health and safety justifications based on preventing counterfeit alcohol. An out-of-state retailer would not obtain its products from the same distribution system as an in-state retailer, and the state’s public health and safety justifications for its distribution system and requirements for alcohol sourcing may be persuasive. However, a state making this argument would likely also need to assert that there are no reasonable nondiscriminatory alternatives to accomplishing the goal of preventing counterfeit alcohol.
There are at least two cases already pending that challenge state laws with respect to alcohol shipping and delivery. In Missouri, Sarasota Wine Market v. Schmitt is on appeal to the 8th Circuit. The lower court held that Missouri’s laws permitting in-state retailers to ship wine directly to consumers, but prohibiting out-of-state retailers from doing the same, are valid under the 21st Amendment. However, this ruling was based on the 8th Circuit precedent mentioned above, which relied on a narrow interpretation of Granholm that was contradicted by the Court in Tennessee Retailers. Further, Lebamoff Enterprises v. Snyder, challenging Michigan’s wine shipping laws that treat in-state and out-of-state retailers differently, is pending before the 6th Circuit. In that case, the lower court held that Michigan’s laws are unconstitutional, as they impermissibly discriminate against out-of-state interests without sufficient justification in violation of the Dormant Commerce Clause. This ruling and appeal were stayed pending the outcome in Tennessee Retailers. These two cases will likely provide the earliest insight into how courts will apply the recent Supreme Court ruling.
Even if the outcome of these cases is that state laws are found invalid, it will not necessarily mean that these states will allow out-of-state retailer direct shipments. Upon a court ruling that a state’s laws are discriminatory and unconstitutional, the state could decide to rectify the issue by “leveling down” to prohibit all retailer alcohol shipments to consumers, from both in-state and out-of-state retailers. As such, the law would apply equally to all retailers regardless of location, so it would not be discriminatory. “Leveling down” to remove all retailer alcohol shipping privileges would likely be unpopular with consumers, but it may find support from some segments of the alcohol industry. Thus, this outcome remains a possibility even if litigation challenging laws prohibiting out-of-state retailer shipping is successful.
Overall, we will have to wait and see what the ruling in Tennessee Retailers will mean for the alcohol industry. But, if you have any questions regarding this ruling or how current laws affect your alcohol business, contact one of the attorneys at Strike & Techel.
July 01, 2019
Direct to consumer (“DTC”) wine shipping is a reoccurring topic on the Alcohol.law Digest. (Our most recent post on winery and retailer DTC shipping is located here.) This particular post addresses recent legislation in Connecticut, Senate Bill 647. Effective today, that legislation creates a new permit allowing out-of-state retailers to sell and ship wine directly to Connecticut consumers. The Connecticut Liquor Control Division has posted the application for this new permit, the Out-of-State Retailer Shipper’s Permit, as well as application instructions and guidance, here.
The compliance requirements for the new permit mirror the existing requirements for wineries to ship directly to Connecticut consumers. For example, out-of-state retailer shipper permittees must ensure that wine containers are conspicuously labeled: “CONTAINS ALCOHOL—SIGNATURE OF A PERSON AGE 21 OR OLDER REQUIRED FOR DELIVERY.” Further, the wine recipient must sign for the delivery and provide valid proof that he or she is at least twenty-one years of age. There are registration, reporting, and tax obligations. An out-of-state retailer shipper permittee may not ship more than five gallons of wine to the same Connecticut consumer in any two-month period. Additionally, there is also a new requirement, applicable to out-of-state retailer shipper permittees as well as out-of-state winery shipper permittees, that prohibits the sale of wine below cost. Finally, the Connecticut LCD guidance indicates that all wine brands that will be shipped to Connecticut consumers must be registered with the state.
If you have any questions about direct to consumer shipments of alcohol, contact one of the attorneys at Strike & Techel.
May 28, 2019
Since the repeal of Prohibition in 1933, U.S. Supreme Court cases addressing the way alcohol is sold in the United States are not common. Most recently, the Court’s 2005 decision in Granholm v. Heald held that a state could not permit in-state wineries to sell and ship wine directly to consumers if the state precluded out-of-state wineries from enjoying the same right. In light of the ruling, many states revised their laws to allow direct-to-consumer sales and shipments from out-of-state wineries as well as in-state wineries. Retailers on the other hand, were more or less unaffected by the Granholm ruling and remain subject to various state prohibitions against out-of-state retailers shipping alcohol directly to in-state consumers.
In January, the Supreme Court heard oral argument on a new alcohol law case that will further delineate the states’ powers to regulate alcohol. Tennessee Wine and Spirits Retailers Association v. Blair, No. 18-96, (“Tennessee Retailers”) asks whether the 21st Amendment, which gives states broad discretion to govern alcohol, empowers Tennessee to regulate the sale of alcohol through strict residency requirements for alcohol retail license applicants. Or, whether the imposition of those residency requirements and the effect on out-of-state license applicants violates the Dormant Commerce Clause, which prohibits states from discriminating against interstate commerce. The Petitioner in Tennessee Retailers, Tennessee Wine and Spirits Retailers Association (“TWSRA”), contends that the 21st Amendment permits states to regulate the sale of alcohol within their own borders, so Tennessee may require alcohol retail license applicants to reside in the state for two years before a retail license may be granted. The Respondents, Total Wine and Doug and Mary Ketchum, claim that Tennessee’s residency requirements violate the Dormant Commerce Clause because they discriminate against non-residents. The case originated when the Tennessee Alcoholic Beverage Commission (“TABC “) asked a court to determine the legality of the subject restrictions. The district court and the Sixth Circuit held that Tennessee’s residency requirement is unconstitutional, as the law is facially discriminatory and there was no evidence that alternative non-discriminatory regulations could not achieve the same purpose of protecting the health and safety of Tennessee residents. TWSRA appealed the Sixth Circuit decision to the Supreme Court. The case is now fully-briefed, oral argument is over (the transcript from oral argument can be found here), and the parties await the Court’s opinion.
The Supreme Court has previously ruled that the Dormant Commerce Clause applies to prohibit states from discriminating against out-of-state alcohol products or producers, despite the 21st Amendment. The Tennessee Retailers case asks the Court to weigh the balance of the 21st Amendment and the Dormant Commerce Clause in the context of laws governing the issuance of in-state retail alcohol licenses. Advocates of retailer direct-to-consumer alcohol shipping hope that the Court will issue a broad ruling that holds that the Dormant Commerce Clause applies to limit states’ 21st Amendment powers to regulate alcohol retailers generally. The hope is that a broad ruling that applies the non-discrimination requirements of the Dormant Commerce Clause to alcohol retailers would require states to treat in-state and out-of-state retailers equally with respect to direct-to-consumer shipping privileges. However, even if the Court finds that the Dormant Commerce Clause limitsstates’ powers under the 21st Amendment with respect to the regulation of alcohol retailers, that would not automatically open up out-of-state retailer direct-to-consumer shipping. Under the Dormant Commerce Clause, a state is still permitted to enact discriminatory laws if the law advances a legitimate state purpose that cannot be adequately served by other reasonable nondiscriminatory alternatives. The Supreme Court has previously held that the three-tier system is “unquestionably legitimate,” and thus a state could still pass discriminatory laws that support the three-tier system, unless there are other reasonable nondiscriminatory alternatives.
We will have to wait to see whether the Court will rule broadly or narrowly. Regardless of how the Court rules, the case will have an impact on the regulation of alcohol by individual states. The Court could issue its opinion soon, and Strike & Techel will update the Alcohol.law Digest with further information when that happens.
April 23, 2018
Earlier this month, Florida House Bill 667 was passed and signed into law (effective July 1, 2018), which clarifies and expands delivery and third party provider rules for Florida retailers (known as “vendors” under Florida law). The bill amends Florida Statute § 561.57 to clarify that vendors can take orders online, and delivery can be made by a vendor in its own vehicle “or in a third-party vehicle pursuant to a contract with a third party with whom the vendor has contracted to make deliveries, including, but not limited to, common carriers.”.
This amendment clarifies prior ambiguity over whether third party providers can deliver alcoholic beverages on behalf of vendors. The new law thus should provide comfort to both vendors and third party providers that third party providers can deliver in their own vehicles if they have an agreement with the vendor that makes the sale. Delivery vehicles are subject to search by law enforcement or employees of the Division of Alcoholic Beverages and Tobacco without a warrant to ensure compliance with the law.
The new law makes a couple of additional changes relating to delivery. It expressly prohibits brewpubs (i.e., a Florida manufacturer with a vendor license under Florida Statute § 561.221(2)) from delivering alcoholic beverages. And, a new section was added to § 561.57 which requires that proof of identification must be produced by the customer and checked by the delivery person upon delivery.
If you have any questions about delivery or third party providers, contact one of the attorneys at Strike & Techel for guidance.
January 29, 2018
In 2016, we blogged about a new Illinois law that created a requirement for licensed winery shippers to disclose to the Illinois Liquor Control Commission (“ILCC”) all third party providers (“TPPs”) authorized to ship the licensee’s wine into Illinois, excluding common carriers. That law also imposes a new annual reporting requirement for all TPPs appointed to ship wine into Illinois on behalf of winery shipper licensees. The first report for TPPs shipping wine into Illinois is due on February 1, 2018. The report must provide details regarding each shipment made in 2017 to an Illinois resident on behalf of a winery shipper licensee. The ILCC has not drafted a form for this report, but the Wine Institute explains that the following specifics must be included in the TPP report to the ILCC:
If you have any questions about direct winery shipping or third party providers, contact one of the attorneys at Strike & Techel for guidance.
January 08, 2018
Previously, we blogged about the 2017 changes to the landscape of interstate retailer direct to consumer (“DTC”) wine shipments. This past year did not see any changes with respect to the permissibility of interstate winery DTC shipments, but there is one change on the horizon in 2018. Currently, winery DTC shipments are permissible and available in 43 states (including Washington, DC). The following eight states have laws prohibiting interstate winery DTC shipments, or have laws or other circumstances that effectively prevent interstate winery DTC shipments in most situations (such as laws limiting winery DTC shipments to on-site sales, or common carriers not servicing the state, etc.):
In 2018, the list above will be narrowed to seven states and winery DTC shipments will be permissible and available in 44 states, as Oklahoma opens up to direct winery shipments. As part of Oklahoma’s sweeping alcohol reform that was passed in 2016, a Direct Wine Shipper’s Permit was created (effective October 1, 2018), which will allow shipments by out-of-state wineries to Oklahoma consumers.
Contact one of the attorneys at Strike & Techel if you have questions about your winery’s operations or direct to consumer wine shipments.
December 18, 2017
This year brought changes to the landscape of interstate retailer direct to consumer (“DTC”) wine shipments. In August 2017, Missouri repealed Mo. Rev. Stat. § 311.462, which allowed out-of-state retailers to ship wine to Missouri consumers, provided the retailer was located in a state that allowed Missouri retailers to ship into the state (“reciprocal states”). Thus, the list of states that allow out-of-state retailer DTC shipping is now as follows:
Bear in mind that California, Idaho, and New Mexico are reciprocal states, and only allow shipments from out-of-state retailers located in one of states listed above. Furthermore, in order for a retailer to ship wine to consumers in the following states, the retailer must obtain a license: Louisiana, Nebraska, Nevada, New Hampshire, North Dakota, Oregon, Virginia, West Virginia, and Wyoming. Many of the states with a DTC license requirement for retailers also require retailers to report shipments into the state and pay taxes.
If you have any questions about direct to consumer shipments of alcohol, contact one of the attorneys at Strike & Techel.
September 01, 2016
On Friday, August 26, 2016, Illinois Governor Bruce Rauner signed Senate Bill 2989 (“SB 2989”) into law. SB 2989 amends various sections of the Illinois Liquor Control Act that affect direct wine shipping into Illinois as well as use of third party providers (“TPPs”). This post summarizes the changes made by SB 2989, which take effect on January 1, 2017. The higher license fees, described below, take effect immediately.
Harsher Penalties for Direct Wine Shipping Violations
SB 2989 imposes tougher penalties on direct wine shipping violations. Any person, including wineries, importers, and retailers, who distributes or sells 108 liters or more of wine (144 bottles of wine), 45 liters or more of spirits (5 12/750 cases), or 118 liters or more of beer (more than 28 12-packs of beer) without a license is guilty of a Class 4 felony for each offense, which has a minimum sentence of 1 year. Prior to SB 2989, the first offense was a business offense with a fine of not more than $1,000, and any subsequent offense was a Class 4 felony. For illegal shipments of less than 108 liters of wine, less than 45 liters of spirits, or less than 118 liters of beer, the penalty for the first offense is still classified as a business offense with a fine of not more than $1,000, and the penalty for subsequent offenses remains a Class 4 felony. Furthermore, any person who has already been issued a cease and desist notice from the State Commission could face the same felony charges.
New Disclosure Requirements for Winery Shipper’s Licensees and Reporting Requirements for TPPs
For new and renewing applicants of an Illinois winery shipper’s license, SB 2989 requires disclosure of all third parties authorized to ship the licensee’s wine, excluding common carriers, to the Illinois Liquor Control Commission (“ILCC”). Licensees must submit each third party’s name and address and file a copy of the written appointment of the TPP with the ILCC. SB 2989 provides that a TPP, other than a common carrier, shipping wine on behalf of a winery shipper’s licensee is the agent of the licensee, and that the licensee is responsible for the acts and omissions of the TPP. In turn, SB 2989 requires that each TPP consent to the jurisdiction of Illinois and the ILCC. Furthermore, SB 2989 imposes a new audit requirement on any appointed TPP, which will be required to file with the ILCC, by February 1 of each calendar year, a statement detailing each shipment made to an Illinois resident. The ILCC also has the power to deny any third party appointment if the TPP previously violated the Liquor Control Act.
Higher License Fees
Across the board, SB 2989 increases license fees for manufacturers, wholesalers, and retailers. The fees for a winery shipper’s license for a winery producing under 250,000 gallons annually have been increased from $150 to $350 for the initial application and $200 for an online renewal. The fees for a winery shipper’s license for a winery producing over 250,000 gallons, but under 500,000 gallons annually have been increased from $500 to $1,000 for the initial application and $750 for an online renewal. The fees for a winery shipper’s license for a winery producing 500,000 gallons or more annually have been increased from $1,000 to $1,500 for the initial application and $1,200 for an online renewal.
For more information about the changes to the Illinois direct shipping laws, contact an attorney at Strike & Techel.
March 05, 2014
Almost three years ago now, as reported on Imbiblog here, the TTB accepted its largest set of offers in compromise ever, for trade practices violations. Some of the biggest names in the business agreed to pay hundreds of thousands of dollars to the TTB even though they denied violating any laws or regulations. The allegations of trade practice violations came from participation by the companies in the 2008-2009 Harrah’s Nationwide Beverage Program. Unlike notable earlier trade practice investigations by the TTB, where there was state participation and a parallel investigation, there were no allegations made against retailers involved in the program, and no fines or penalties assessed against retailers (see for example the 2004-2009 joint investigation by Illinois and TTB into payments made by suppliers and wholesalers to Sam’s Wine & Spirits, Inc., then the largest wine retailer in the country, and its captive third party marketing organization Skyline Marketing, Inc.). The 2011 settlement by TTB was acknowledged to result from a retailer-initiated promotional program. Given that the TTB has extremely limited jurisdiction over alcohol retailers, however, the agency was unable to enforce any allegations against Harrah’s for the promotion. Had the State of Nevada participated in the investigation, it is more likely that charges could have been brought.
Now, the Office of the Attorney-General in Nevada has come out with an open letter to retailers, wholesalers and suppliers of liquor in Nevada in what appears to signal an intention to focus more attention on trade practice issues in the State. The advice contained in the letter is phrased as a “reminder” to the industry of prohibited and restricted activities. It covers the following issues:
- No loans from wholesalers to retailers of money or other thing of value, no investments by a wholesaler in a retailer, no complimentary furnishing of premises or equipment, and no joint operation of a retail business;
- Adherence to strict payment terms, with no preference accorded by wholesalers to certain retailers, and with a cessation of sales and monthly service charges in case of delinquency;
- No substitution of brands without consent, and no delivery of unwanted or unnecessary inventory;
- No required boycotts of other suppliers;
- No price fixing down the supply chain by suppliers imposing resale prices on wholesalers, and no profit splitting with the supplier getting a specified portion of the wholesaler’s profit margin;
- No excessive marketing contributions being required by suppliers of their wholesalers, for promotions outside the wholesaler’s market or beyond the terms agreed by the parties;
- Strict adherence to the quoted price from suppliers to wholesalers;
- No discrimination by suppliers among wholesalers (note that Nevada has a franchise law meaning that this refers to discrimination between wholesalers in different parts of the state as only one wholesaler can be appointed in any given market); and,
- No deceptive trade practices.
The letter refers to concerns with illegal terms or incentives by industry members looking for a competitive edge in the market. It notes that the Attorney General has jurisdiction over these issues and is required by law to take appropriate legal action to enforce the provisions of law setting forth the restrictions above. The Attorney General’s office recognizes in the letter its duty to investigate and prosecute deceptive trade practices in Nevada. Should the type of circumstances in the TTB’s investigation in 2011 arise again, it will be very interesting to see what action is taken by the state in light of this clear signal that it is unlikely to sit by if unlawful trade practices occur in Nevada.
If you have any questions about trade practice issues, in Nevada or elsewhere, contact one of the attorneys at Strike & Techel.
Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2014 · All Rights Reserved ·
August 14, 2013
With the passage of Senate Bill 13 (“SB 13”), effective June 25, 2013, Kentucky modernized its alcoholic beverage laws in an effort to make them more effective and efficient for manufacturers, distributors and retailers alike. This modernization included consolidating licenses, simplifying the licensing process, and most importantly for out of state wine and spirits suppliers, it created an out of state shipper permit. Prior to the revisions, beer suppliers were required to hold a license to ship to Kentucky distributors but suppliers of distilled spirits and wine were not.
The new Out-of-State Distilled Spirits/Wine Producers/Supplier license application is available here: http://abc.ky.gov/License%20Applications%202013/outofstate.pdf
Three classes of the new Out-of-State Distilled Spirits/Wine Producers/Supplier license are available:
- Out of State Producer/Supplier for 50,000 gallons or more ($1,550 a year/$3,100 for 2 years);
- Limited Producer/Supplier for 2,001 to 49,999 gallons ($260 a year/$520 for 2 years); and
- Micro-Producer/Supplier for 2,000 gallons or less ($10 a year/$20 for 2 years).
Below are some of the other key changes ushered in by the passage of SB 13:
- Consolidates 88 different license types into 44, changing the names of the licenses and fees associated with each, but keeping unchanged the privileges afforded to the licensees. A few examples: A “Vintner” license is now a “Winery” license, a “Blender’s” license was eliminated and its privileges consolidated into the “Rectifier’s” license.
- Allows a two-year license term renewal for manufacturers and wholesalers, in addition to a one-year license option.
- Bundles together several non-quota retail-drink licenses.
- Creates a Transporter license, consolidating six former transportation-related licenses into one.
- Eliminates bond requirements for many license types
- Changes the licensing structure for microbreweries.
For more information on the changes to Kentucky’s alcohol beverage laws, visit the Kentucky Liquor Control’s information page at http://www.klc.org/UserFiles/files/KACOinfosheet.pdf
And of course, you can always call one of the attorneys at Strike & Techel if you have any questions about any of the changes to Kentucky’s alcohol beverage laws, or if you have any general questions about shipping to distributors in any state.
Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2013 · All Rights Reserved ·
June 23, 2013
The Texas Alcoholic Beverage Commission (“TABC”) just released Marketing Practices Advisory MPA056, available here, which addresses the use of third party advertisers and payment processors by out-of-state wineries that hold permits to ship direct to Texas consumers (“Direct Shippers”). The Advisory provides similar guidelines to those provided by the California ABC in its 2011 Industry Advisory, which we commented on here. The use of third party providers by wineries has been a hot topic since the release of the California advisory, but few states have provided guidance on the issue. Now that Texas has weighed in, it will be interesting to see if other states follow suit.
The TABC’s Advisory allows Direct Shippers to use third party service providers provided that certain conditions are met. As in California, the TABC’s touchstone is that the Direct Shippers remain in control. Key points include:
- Direct Shippers are always responsible for compliance with the TABC code and regulations, payment of taxes, and must remain “in control of the product and every stage of the transaction.”
- A third party provider may advertise wines and prices for a Direct Shipper.
- A third party provider may process an order for wine placed by a Texas consumer by redirecting the order to a Direct Shipper. The Direct Shipper may then accept or reject the order.
- Fulfillment should be managed by the Direct Shipper, and single packages containing bottles from multiple Direct Shippers are not allowed. Note: the TABC disfavors models where a third party provider acts as both an advertiser or payment processor and a warehouseman.
- A third party provider may collect payment once an order is accepted by the Direct Shipper, but the Direct Shipper must maintain control over the funds.
- There should be a written agreement between all Direct Shippers and their third party providers in order to demonstrate that the Direct Shipper remains in control. The TABC will ask a Direct Shipper for a copy of its agreement in the event that it has reason to investigate an arrangement with a third party provider.
We’ll keep you posted on any further developments on third party providers in Texas and other states. Call one of the attorneys at Strike & Techel if you have any questions about direct shipping or the use of third party providers.
Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2013 · All Rights Reserved ·
May 24, 2012
As the U.S. government looks for ways to save the U.S. Postal Service, a recent bill passed the senate that includes provisions allowing the USPS to ship wine, beer, and spirits. Private carriers have been shipping wine for decades, but the USPS has been banned from doing so for over one hundred years. 18 U.S.C. § 1716(f), the 1909 law that prohibits the USPS from shipping “all spirituous, vinous, malted, fermented or other intoxicating liquors of any kind” remains on the books. That law pre-dates prohibition by ten years, and has never been repealed. That would change if Senate Bill 1789 becomes law. The bill was passed in the senate on April 25, 2012, and Section 405 provides that wine, beer, and distilled spirits are considered “mailable” by the USPS as long as a) it is consistent with the laws of the states where the shipment is initiated and where delivery is to be made, b) the addressee is at least 21 years of age, and c) the addressee provides a signature and a valid government-issued photo identification upon delivery.
In order to become law, Senate Bill 1789 still needs to pass through the House of Representatives. The bill was designed to address the moratorium on post office closures that expired on May 15, 2012, which had already been delayed from an original deadline of last December. Since no law was passed by the May 15 deadline, the USPS is moving forward with a modified plan for post office closures. 48 post offices are currently scheduled to close in August, 2012, 92 in 2013, and another 89 in 2014. The impending August closures put pressure on the House to pass a bill as soon as possible if they are going to save those post offices. We’ll keep you posted on their progress and whether permitting the USPS to ship alcohol remains a part of the proposed legislation.
May 07, 2012
At long last, as of May 1, 2012, applications for Out-of-State Winery licenses are being accepted in New Jersey, which will permit out-of-state wineries to ship wine directly to New Jersey consumers. As discussed in earlier posts, including here, New Jersey’s law was passed early in 2012, and makes New Jersey the 39th state to allow winery direct shipping. The law permits wineries producing no more than 250,000 gallons of wine per year to ship wine directly to consumers in the state. License holders may ship no more than 12 cases of wine each year per consumer for personal use. The license also includes limited privileges for holders to sell wine directly to retailers, and for tasting room privileges within New Jersey.
No regulations were promulgated to go along with the direct shipping statute, but earlier this week, the New Jersey Division of Alcoholic Beverage Control released instructions and application forms for Out-of-State Winery licenses that provide more information about direct shipping, and which can be found here. First, the Out-of-State Winery license will be the most expensive direct shipping license in the county, with tiered pricing depending on the amount of wine produced, but costing $938 annually for wineries producing between 50,000 and 250,000 each year. Additionally, the instructions clarify that wine shipped must be manufactured by the Out-of-State Winery license holder. Other details of interest to potential applicants include: a) all applicants must register with the Secretary of state; b) a bond is required; c) all applicants must register with the Division of Taxation; and d) all brands must be registered before they can be shipped into the state. Each of these requirements comes with additional fees, so wineries should make sure the anticipated sales volumes warrant the costs of getting set-up.
Please feel free to contact one of our attorneys if you are interested in more information about direct winery shipping in New Jersey.
January 11, 2012
Late Monday night, on the last day of New Jersey’s legislative session, the state Assembly voted 51-18-4 in favor of Bill A-4336, New Jersey’s wine direct shipping bill. The companion bill, S-3172, passed the New Jersey Senate last month, and now only the governor’s approval stands in the way of New Jersey becoming the 39th state to allow some form of direct shipping. Under the bill, New Jersey Farm Wineries, New Jersey Plenary Wineries that produce 250,000 gallons or less of wine a year, and out-of-state wineries that produce 250,000 gallons of wine or less each year and that obtain an out-of-state shipping license will be able to ship up to 12 cases of wine per year to any New Jersey consumer. If the bill is signed by New Jersey Governor Christie as expected, the law will go into effect in May, 2012. To see our earlier posts on this topic, check here and here.
Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2012 · All Rights Reserved ·
December 19, 2011
Updating our post of late last week, the New Jersey Senate last Thursday voted 23 to 13 in favor of Bill S-3172, permitting wineries to ship directly to New Jersey consumers. Now that it has passed the Senate, the New Jersey Assembly has to vote on the bill by January 9, 2012, the last day of the legislative session. Under the bill, New Jersey Farm Wineries, New Jersey Plenary Wineries that produce 250,000 gallons or less of wine a year, and out-of-state wineries that produce 250,000 gallons of wine or less each year and that obtain an out-of-state shipping license would be able to ship up to 12 cases of wine per year to any New Jersey consumer. If passed, New Jersey would become the 39th state to allow direct shipping. Check back in early 2012 for an update!
Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2011 · All Rights Reserved ·
December 14, 2011
The New Jersey Senate will vote on a direct shipping bill this Thursday, December 15, 2011, called S-3172 in its current form. If passed into law, New Jersey Farm Wineries, New Jersey Plenary Wineries that produce 250,000 gallons or less of wine a year, and out-of-state wineries that produce 250,000 gallons of wine or less each year and that obtain an out-of-state shipping license would be able to ship up to 12 cases of wine per year to any New Jersey consumer. With passage of the bill, New Jersey would join the 38 states that currently allow direct wine shipping to consumers in some form, including Maryland and New Mexico as of earlier this year. However, the “capacity cap” for out-of-state wineries of 250,000 gallons per year remains a point of contention, as that limit would preclude the majority of California wineries from shipping to New Jersey consumers. Stay tuned to find out how the New Jersey Senate votes!
Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2011 · All Rights Reserved ·
March 24, 2011
As mentioned earlier this week, there has been a lot of action on the alcoholic beverage industry legislative scene over the last few weeks without even considering the direct shipping related legislation that has been on the scene in Florida, Maryland, Massachusetts, and New Jersey (for a summary of such legislation see freethegrapes.org). Below is a look at some of the major pieces of state proposed legislation.
Georgia, SB 10 – On March 16, 2011, the Georgia Senate passed SB 10, which would allow for take-away sales of wine and beer on Sundays from 12:30 p.m. to 11:30 p.m. at eligible retailers. Connecticut, Indiana, and Georgia are the only three states that still have complete bans on all alcohol sales from off-premises retailers on Sundays. More frequently States ban sales of distilled spirits and/or wine on Sundays, if there is a ban at all. If the Bill passes, such alcohol sales would be determined on a local level rather than the state issued ban.
Washington, I-1157, SB 5111 – Privatization efforts are back in full swing in Washington State, which sells distilled spirits only through state run liquor stores. On March 18, 2011, Stefan Scharkansky filed Initiative 1157, the text of which is available here. The Initiative is extensive but overall, it would allow stores that currently sell beer and wine and have no record of safety violations to sell liquor as well. The bill’s author purports that Initiative 1157 is better than Initiatives 1100 (which Scharkansky helped author) and 1105, which were voted down last November, because it would require tighter control of liquor sales than the prior initiatives and also maintain tax revenues. Mr. Scharkansky is not the only one dipping his toes into the waters of Washington privatization. Tom Luce, a business consultant has floated the idea of a private-state partnership where a private company takes over the distribution piece of the liquor business and the state maintains the retail portion. All this action is on top of Senate Bill 5111, introduced by Senators Sheldon, Rockefeller, King, Hobbs, and Litzow, which we covered previously.
Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·
November 27, 2010
A petition for writ of certiorari was filed with the United States Supreme Court earlier this week asking the court to determine
“Whether, notwithstanding Granholm v. Heald, 544 U.S. 460 (2005), the Twenty-first Amendment overrides the Commerce Clause and allows States to discriminate against out-of-state businesses in the sale of alcoholic beverages.”
In the seminal Granholm case, the Supreme Court ruled that states cannot permit in-state wineries to ship direct to consumers within the state, while prohibiting out of state wineries from doing the same. The question of whether the same rationale applies to retailers remains unresolved. The current petition to the Supreme Court is based on a dispute in Texas as to whether out-of-state alcoholic beverage retailers should be allowed to ship to Texas consumers under the same rules applied to in-state alcoholic beverage retailers. The case was originally brought in 2006 by Siesta Village Market and several other retainers against the Texas Alcoholic Beverage Commission. Siesta Village has dropped its appeal but K& L Wine Merchants and other notable retailers remain. A couple of large Texas distributors (Glazer’s and Republic) joined as intervenors in order to protect their position in the three-tier distribution system. The case was appealed to the Fifth Circuit on various issues and has now worked its way through to the final appeal – the U.S. Supreme Court. The Supreme Court accepts very few cases for review – typically accepting only those cases involving a substantial federal interest or a conflict between two or more Circuit Courts of Appeals. Statistically, the case stands little chance of being accepted, but the scope of the Granholm decision and its applicability to retailers (as opposed to only wineries) may be ripe for further judicial instruction. The State has until December 22 to file its response. The Court will decide whether or not to hear the case within a few months.
Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010 · All Rights Reserved ·
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