The Illinois Liquor Control Commission (ILCC) announced at their board meeting last week that they had sent over 100 cease and desist letters to retailers, wineries, and fulfillment houses. The letters state that the ILCC “has evidence that your business is transferring alcoholic liquor into Illinois from a point outside of Illinois without a license.” This action appears to be completely separate from the tax on shipping issues in Illinois.
Recipients of the letter have five business days following receipt to respond if they believe they’ve received the letter in error or if they would like to apply for a license to ship to consumers to bring them into compliance with Illinois law. Notably, the letter explains that the agency will notify the common carrier making the shipment, resulting in a violation of the carrier agreement and potentially putting shipments to all states at risk for that seller.
The Liquor Control Act authorizes this Commission to take all necessary steps to prevent unlicensed alcoholic liquor sales and shipments into Illinois including notifying law enforcement authorities and other interested parties of State law violations. If a violation is found to have occurred, your actions may result in serious criminal and tax related penalties. In addition, if you are transferring alcoholic liquor without a license, or on behalf of an entity that is unlicensed, we will notify your common carrier that your shipments are not compliant with State law which would violate the compliance agreements you have signed with the common carriers.
Analysis: It seems like the ILCC is targeting out of state business that do not hold licenses in Illinois. There are many out of state retailers that have Illinois on their list of supported destination states. They’ll have to stop shipping there now unless they want to invest heavily in a physical presence and license in Illinois.
It’s unclear at this point what the ILCC will ask of fulfillment houses that are shipping on behalf of licensed wineries. State agencies use the common carrier reports from UPS and FedEx that list the origin address as well as the address of the recipient for each package to reconcile with license lists, volume limit calculations, and tax reports. But, if the fulfillment house is listed as the shipper, the reports do not usually show the licensee that is accepting the order. Agencies will often ask for and accept supplemental information directly from fulfillment houses to provide visibility into the licensees that are making shipments.
Iowa Also Continues Cracking Down
We’re not sure exactly how many letters were sent by the Iowa Alcoholic Beverages Division (IABD), but the IABD also sent (friendlier) letters to multiple shippers last week. “The ABD respectfully requests that you voluntarily implement corrective measures to resolve the violation(s) explained above”.
Analysis: This is likely a continuation of the ABD’s monitoring of the carrier reports to identify and halt shipments coming from business that do not hold licenses in Iowa.
Is Michigan Next?
There’s good reason to believe that Michigan may be the next state to increase enforcement activities. We’ve heard from several people that have indicated that coordinated buys and investigations may be coming in Michigan soon.
Analysis: This seems different than what we’re seeing in Illinois and Iowa. Whereas the ILCC and IABD are monitoring the carrier reports, we have yet to see sting operations from those agencies. If you ship to Michigan, now would be a great time to review your program and make sure your license is up to date and that you’re filing your tax reports on time. Also remember that Michigan is one of about 5 states that require age verification on the purchaser of each direct shipping order.
Remember — Retailers Don’t Have the Same Rights As Wineries
With the passage of South Dakota’s new shipping law, wineries will have access to 43 states for direct shipping effective January 1st. According to the ShipCompliant / Wines & Vines 2015 Direct Shipping Report, Illinois is the 5th largest destination state for wineries in terms of volume, with 10.9% growth last year. Michigan is the 11th largest with 8.9% growth, and Iowa is the 24th, with 13% growth in 2014.
Wine retailers, on the other hand, can only legally ship to 14 of those states across state lines. Retailers located in New York or New Jersey, for example, can not ship to Illinois, Iowa, or Michigan consumers using common carriers.
If you are a winery or retailer that received one of these letters and want to learn more about how to comply with state rules, attend one of our ShipCompliant Direct demos. These demos cover how to get compliant, stay compliant, and manage your direct shipping program. Our team also spends some time in these demos discussing how you can automagically file your reports with AutoFile.