Direct-to-Consumer Shipping: Where is Retailer DtC Still Permitted?

In August, Missouri repealed rules that previously permitted limited direct to consumer (DtC) sales of wine by licensed retailers. This rule change highlighted the complexities surrounding retailer DtC sales. This is the second installation of a three-part blog series to remove some of the confusion these complexities can cause. Today, we discuss where retailer DtC is still permitted, as well as the compliance requirements imposed on retailers making these sales.

 

Basic Retailer DtC Rules

As of this publication,13 states and the District of Columbia permit out-of-state retailers to sell directly to their residents, and fulfill those orders through a common carrier. Ten of these states require the retailer to receive a license, and comply with the rules of that license; the other three operate under a “reciprocal” process, described below. Except for selling to residents of these 13 states and D.C., it is illegal for a retailer to deliver beverage alcohol into any state in which it does not have a licensed retail operation.

 

Licensed Retailer DtC States

If they receive a license and comply with the rules under that license, out-of-state retailers may sell directly to customers in Alaska, Oregon, Nevada, Wyoming, Nebraska, North Dakota, Louisiana, West Virginia, Virginia, New Hampshire, Florida, Connecticut and the District of Columbia. However, there are some quirks:

  • Neither Alaska nor D.C. have an actual DtC license, but standard DtC compliance rules – such as packaging rules and not selling to dry communities – apply.
  • In Nevada, retailers can receive a certificate of compliance if they send in an affidavit in lieu of a Federal Basic Permit, indicating that they are in good standing with their local alcohol board.

For these states, the licenses are generally the same as those required for manufacturers to ship DtC – though the price may vary, as is the case in Louisiana. The same restrictions imposed on suppliers will also apply to retailers. Without this license, retailers cannot legally sell to and make deliveries to residents of these states.

Nevada, Wyoming, Louisiana, Alaska, and West Virginia permit the sale of wine only. Nebraska, North Dakota, D.C., and New Hampshire permit the sale of all types of beverage alcohol. Virginia permits the sale of beer as well as wine, as does Oregon. However, Oregon only allows beer to come from states that also permit Oregon breweries to deliver to their residents. For more on DtC beer sales, head here.

Retailers must also follow specific tax rules. Each of these states, except for Alaska and D.C, require seller (i.e. the retailer) to collect and remit both excise taxes and state sales taxes. Neither Oregon nor New Hampshire have state sales taxes, but New Hampshire levies a special liquor tax that will apply. These states also require a regular report from the retailer detailing the DtC sales they have made – though in some states, this may be coupled with a tax return.

When the product is being delivered, it must be shipped in a properly labeled package indicating it contains alcohol and an adult’s signature is required for delivery to be made. Carriers experienced with the DtC market (primarily FedEx and UPS — USPS does not accept packages containing alcohol) are aware of these rules, and will collect signatures. These carriers will also ensure retailers have valid DtC licenses before agreeing to ship their packages.

There are also some individual state rules to note. Alaska, West Virginia, and New Hampshire have “dry” communities where it is illegal to sell alcohol in any manner, including by a DtC delivery. West Virginia and Virginia will require a DtC seller to indicate to the alcohol control boards which labels will be sold DtC. Virginia requires a retailer to post that they have permission from the manufacturer to resell their products through DtC, and also prohibits DtC sellers from using third-party marketing to advertise their DtC market.

These may seem like a long list of onerous rules that unfairly restrict retailers from participating in the DtC market. However, these are the same type of rules that wineries, the bulwark of the DtC market, have successfully complied with for years.

It may also seem unfair that the list of states that permit retailer DtC is so small. This, however, is a local political consideration. Each state is empowered to establish its own alcohol beverage rules, and many states have determined that it is not in their interests to permit out-of-state retailers to sell directly to their residents. Residents — and retailers — who oppose those restrictions can petition their state legislators to amend the rules.

Reciprocal Retailer DtC States

Beyond the ten “license” states and D.C., there are currently three states that operate under what is known as “reciprocity” rules. These states are California, New Mexico, and Idaho, and they all permit shipments of wine only. Missouri used to be a reciprocity state, but with the rule change, it now prohibits all deliveries made by retailers both in-state and out-of-state.

Reciprocity is essentially an “I’ll scratch your back if you scratch my back” methodology. More technically, these three reciprocity states say they will allow out-of-state retailers to sell directly to their residents only if those out-of-state retailers are in a state that allows out-of-state retailers to sell directly to their residents without any licensing, tax, or other regulatory burdens. Put more simply, the rules in state B must be as free and open for retailer DtC sales as the rules in state A for a retailer shipping from state B to sell to a resident of state A. They may also require a specific letter of agreement between the two states, indicating that there are no license or tax requirements.

In effect, this rule limits residents of California, New Mexico, and Idaho to only receive shipments from retailers from California, New Mexico, and Idaho. Retailers in California, New Mexico, and Idaho can then freely sell to residents of those states – or, if they get licensed, sell to residents of the other ten states, plus D.C.

Because a lack of regulatory burdens is the crux of these reciprocity rules, from a compliance standpoint it can much easier for a retailer in one of these states to sell to residents of the others. However, obviously, their customer base will be limited.

Want to know everything about DtC shipping? Download our 2017 Direct-to-Consumer Wine Shipping Report, and be on the lookout for the 2018 version of the report, set to be released early next year.

 

10 Comments

  1. Robert L. Prosise

    Where do yo file for the DTC License ?

    Reply
    • Alex Koral - Industry Relations Advisor

      Hi Robert,

      Thanks for the question. In the states where a DTC license is available, you need to apply for it through that state’s beverage alcohol administration; these may be stand-alone departments of the state government, or branches of the state’s revenue agency. When applying, you’ll need to provide a copy of your home-state license, such as your wine production license (such as the California “Type 2”), or for the scenarios described in this post, your off-premises package store license.

      Reply
  2. P

    How can I supply a private label wine to a hotel directly in Michigan? I’ve been told that I need to go through a distributor. This is a large order so could one of the hotel owners apply for a distributor license?

    Reply
    • Alex Koral

      Hi Philip,

      Thanks for the question. The process of bringing a new wine into a state can be a long and complicated. There are a number of compliance issues that you will need to handle. These include licensing (not only finding a licensed distributor, but you will likely need your own license), label registrations, trade practice restrictions, and reporting. It is very likely that the hotel will not be able to get a distributor license, as there are prohibitions against the holder of one type of license (i.e. the hotel’s bar license) from getting another type of license (i.e. a distribution license). Finding a licensed Michigan distributor who is already set up to handle all the compliance issues involved will be more advantageous (and having a buyer already lined up could make it easier to attract a distributor). But there are lots of other trade practice rules that may affect your plans to sell into Michigan (for instance, you may not be able to legally limit your sales to this one hotel). It’s recommended that you reach out to an attorney or personal compliance party who understands Michigan’s rules well and can provide you with advice and guidance. It may seem expensive, but selling alcohol is a challenge, and every state is unique; it always help to have an expert to explain all the complications. If nothing else, you should reach out directly to the Michigan Liquor Control Commission and see if they are willing to explain more what are the conditions you’ll have to meet in order to sell your private labels in Michigan. Good luck!

      Reply
  3. James

    Thank you for the informative content!

    My question is regarding in-state retailers. What are the regulations/laws for in-state retailers selling online and delivering or shipping to in-state customers; for example, a Minnesota retailer fulfilling a booking from an address in Minnesota?

    Also, would in-state retail regulations be based on where the company is registered or whether or not they have a brick and mortar retail presence in the state? What is stopping national retailers from having a small brick and mortar shop in each state or creating a subsidiary in each state?

    Thanks in advance!

    Reply
    • Alex Koral

      Hi James,

      Thanks for the question. Yes, the rules that govern what a retailer can do depends on the rules of the state in which they are licensed; most states require a retail licensee to have a brick-and-mortar store, but a couple have moved recently to create a “remote” retail location, which we’ll have to see how they play out. Whether those retailers can deliver or ship again depends on the rules of the state. About a dozen currently allow retailers to ship alcohol, meaning they can use a carrier to bring it to consumers, and the principle should be that the state must allow out of state retailers the same rights; many other states instead allow retailers to deliver alcohol, meaning they have to do it personally with their own employees and vehicles. In theory, this right could be extended to out of state retailers, but those retailers would need to find a way to personally deliver into states other than where they operate. But many other states do require that consumers only receive alcohol at licensed brick and mortar locations. Many national retailers do operate in several states at once; however, a lot of states have rules limiting the number of licenses that a single entity can operate there, which inhibits some larger retailers–but with the recent Supreme Court ruling, states cannot prohibit out of state entities from applying for licenses to operate a local retail shop.

      Reply
  4. Elizabeth Gregg

    I have been told that the states of Florida and Georgia have changed their DTC laws recently. How do I confirm this?

    Reply
    • Alex Koral

      Hi Elizabeth,

      Thanks for the question. We have heard the claim that Florida’s laws have changed — however, the basis for that claim is a little bit shaky. It relies on a single-sentence interpretation of a 14-year-old law suit by the Florida Director of the ABT, and does not really set out the conditions or requirements for which Florida would permit retailers to ship DtC (essentially the position is that the state can’t prosecute a retailer who ships DtC, which is not really a ringing endorsement that it’s permitted — we are taking a conservative approach until more clear guidance is provided). As for Georgia, we have not heard of such a change — if you would send us any reference you have on that (feel free to send it to our Support team), we will look into it. However, Connecticut did pass a statute in June 2019 to extend DtC permission to retailers, which we are happy to enable for ShipCompliant users when it becomes effective in July 2019.

      Reply
  5. Sandeep

    Hi- a couple questions on DTC shipping to residents in NY
    – If I was looking to ship out of state direct to consumers in NY do I a) need to possess a “manufacturer/winery” license in another (reciprocal) state or can I possess a wholesaler license out of state to qualify to apply for out of state direct to consumer license
    – If I do not own the deemed acreage but have a contract in place or can prove to lease the land where the product is getting blended/bottled is that sufficient. IE what typically needs to be proven or is there a way to become a manufacturer if land is not owned.
    – Based on language above is it assumed that any ecommerce retailer not based in NY like Wine.com, Totalwine, Winelibrary.com etc are delivering using their own network to consumers in NYC vs a common carrier or have a local physical presence they are delivering from as they wouldn’t be allowed to use common carrier from out of state per state law?

    Reply
    • Alex Koral

      Hi Sandeep,

      Thanks for the question. In order to ship alcohol direct to New York residents, you will need a Direct Shipper License issued by the New York State Liquor Authority. Currently, New York only permits shipments of wine, and will only grant the Direct Shipper License to Wine Manufacturers — that doesn’t necessarily relate to acreage, but to the license that you have in your home state (for instance, in California it’s Type 02 license). In order to get a wine manufacturer license in your home state, you should already have (or be in the process) of getting a Wine Producer Basic Permit from the Federal Trade and Tax Bureau — that is really the first step in this process. If you have, or can get, a Wine Production license from the TTB, you should be enabled to get a license from New York to ship wine there; if you can’t, then you’re currently unable to get that New York license. As for retailers like wine.com, we are not really in a position to speak to their legal arrangements. It is perfectly possible that they have instate shipping resources, and it is also possible that they in fact do have a Wine Production issued by the TTB and other states, and so are deemed “Wine Manufacturers” for the purposes of DtC shipping licenses. Hope this helps, and good luck.

      Reply

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