In August, Missouri repealed rules that previously permitted limited direct to consumer (DtC) sales of wine by licensed retailers.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, 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.