Top Questions (and Answers) From “Getting Real About DTC Shipping: Issues Wineries Need to Consider” Webinar

Alex Heckathorn and Dyana Nedra from Compliance Services of America (CSA) joined me for our recent webinar, “Getting Real About DTC Shipping.”  We discussed some of the issues wineries should consider before they launch in the Direct-to-Consumer market, including changing state regulations and the licensing process. We received some great questions from the audience and have put together some answers here. If you missed the webinar, you can watch it on-demand here

Q:  We’ve had recent trouble with orders shipped from our warehouse being flagged as non-compliant by states. How can I prevent this and ensure that my orders are compliant when they’re being fulfilled from a location that’s not indicated on my license?

A: There are a number of reasons the states will flag a shipment as being non-compliant, but based on your question we assume it was because the shipping address did not match the address on your license. Some states, like Virginia, Wisconsin and North Dakota require that the fulfillment warehouses be licensed as well as the winery, so this could be your problem if your fulfillment service is not licensed.

Other states, like South Dakota, audit common carriers’ incoming shipments of wine and try to match the names of the senders to their list of licensees. When the sender is an unlicensed warehouse, they can’t confirm the shipment is covered by the proper license. They have recently instituted a system using tracking numbers on winery shipping reports to allow them to match up licensees with shipments coming from unlicensed fulfillment houses. We suggest reaching out to the states that are flagging your shipments to see why they are non-compliant.

Q:  What options are there for importers and other non-wine producers to get engage in the DTC market? As an importer or other non-producer, can I work with wineries to market and sell wine DtC?

A: For importers, there are limited options to engage in DTC shipping. Normally, the state license held by an importer does not include the privilege of selling directly to consumers. However, a few states — California, Massachusetts and District of Columbia — allow importers to also hold a retail license, allowing sales to consumers within importers’ home states. Fourteen states allow out-of-state retailers to sell and ship direct to consumers. This privilege would include imported wine sold by the retailer.

There are a few states that allow importers to receive a DTC license, regardless of their home state retail privileges. However, these are limited to only a few, relatively small states, such as West Virginia, New Hampshire and Wyoming. But we would remind importers they are not normally allowed to make retail sales or ship DTC.

Working with a winery that holds DTC permits to sell your imported wines would not be compliant. This is because most states permit only wines produced by the licensed winery to be sold.

Some states specifically prohibit imported wines to be sold DTC by the winery, even if the winery owns the brand and imported the wine itself. If a winery holds a retail license, they could work with you to sell your imports in the fourteen states that allow retailer shipping, but attempting to reach the other states that issue winery-only permits is problematic.

Q: What rules are there regarding for non-sale direct shipments of wine? For example, if a winery wants to send gift packages for Christmas, does it need a license or need to comply with other standard DTC rules like tax payments and reporting?

A: Unfortunately, there aren’t any specific rules allowing this, so there is no clear-cut answer and no easy solution. For years, wineries shipped wines as gifts, trade samples, samples to wine reviewers, and for lab analysis. There was no sale involved and the states simply ignored these shipments.

With the maturing of the DTC market and the collection of taxes on DTC shipments, the states are now monitoring all alcohol shipments and getting information from the carriers to ensure reporting and tax payment. Non-sale shipments are being caught in these audits, and when they come from unlicensed wineries, the carriers could be implicated for accepting illegal shipments. Understandably, the carriers are now balking at carrying these types of shipments.

If the winery already has DTC licenses, it can ship non-sale wines under its permit and report them as complimentary shipments. The states may still want to collect excise taxes on such shipments but the winery should be free of sales taxes since no sale was made. If the winery does not have licenses, it is increasingly difficult — because the carriers are being audited — to convince the carriers these types of shipments do not require a DTC license because they are not “sales” to consumers.

Q: When there’s a change in the ownership structure of a winery, does that winery need all new DTC licenses, or can it continue to sell under the existing licenses? What if there’s a merger or acquisition of the winery?

A: The answer depends on the nature and size of the changes. If the same company or entity that holds the TTB Permit and license remains in control after the changes, in many cases the DTC permits will remain in good standing and the winery can continue to ship under its existing DTC licenses — although some states require the changes in ownership to be reported.

If the change in ownership is actually a sale of winery’s assets to a new company and the new owner must get a new TTB Permit and state license, the new entity owning the winery must obtain new DTC permits. In such cases the seller and buyer often work out an interim services agreement to allow for continued shipping under the existing permits. This is an area where good legal and compliance advice is necessary. Mergers and conversions of entities require an analysis of the specific situation to determine what is possible.

Q: Can a consumer purchase wine at a winery and personally ship it home to herself? Or would she need to have the winery ship it to her, under their DTC license?

A: This type of sale is called an “on-site sale” and rules are slightly different. Generally, either the consumer can ship the wine or have the winery ship it to them. There are volume limits on the amount of wine that can be shipped when it is purchased onsite at the winery. For more specific information see the Wine Institute’s State Shipping Laws for Wineries Portal and under each state you will find the “On-site Rules.”

While most states do allow for personal imports of beverage alcohol carried across state borders, it’s not clear how legal this practice is since most states’ laws don’t explicitly allow the use of common carriers.

As common carriers face increased scrutiny from states, they are less and less willing to accept such shipments. We’ve heard anecdotes of shipping stores in California being required by UPS to provide the license number associated with any package said to contain wine.

Whenever a consumer brings in wine to ship home, they can’t provide a license number, meaning the shipping store has to reject that package. So the best advice would be to have the winery ship any wine purchased on-site for the consumer.

 

Learn more about DtC licensing, watch our webinar on demand

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