July 1, 2018 was a rather busy day for alcohol beverage regulations in the state of Virginia. Over a dozen different provisions were set to come into effect for the second half of 2018. Of these new and amended rules, several affect beer, wine, and spirits suppliers directly, such as:
- An increase in the initial fee for an application from $65 to $195; along with an increase in the annual fee for Direct Wine and Beer Shippers from $95 to $230.
- A requirement that all beer and wine being delivered to instate retailers for sale to consumers must now first come to rest at a Virginia wholesaler’s location for no less than four hours.
- A new limit on breweries selling beer for on-premises consumption; going forward, no less than 20% of such sales in a year must come from beer produced on the licensed premises. (This rule doesn’t come into effect until January 1, 2019.)
Among these bills, one really stood out for its relative novelty, though it remains to be seen how much impact the rule change will really have. This new law was Senate Bill 695, which creates a new type of license for Virginia, an Internet Beer Retailer. Under the rules of SB 695 (now entered as Section 4.1-208(10) of the Virginia Code), licensed Internet Beer Retailers may now ship beer products directly to Virginia consumers.
This begs the question, though: What is an Internet Beer Retailer?
Thankfully, SB 695 included a new definition for this licensee, which is someone who maintains a place of business (1) that has adequate storage space, (2) where they can receive orders and payment by internet or phone, and (3) that is “not a retail store open to the public.” Essentially, this is only available to people who operate warehouses from which beer can be shipped from, which are not otherwise open to the general public.
What Makes the Internet Beer Retailer License Different?
It might help to have a little background to understand the novelty of this license. Despite the great strides that have created the modern eCommerce world, the realm of direct to consumer (DtC) sales of alcohol is still rather limited by regulatory restrictions. (For context, by “DtC” we mean when a customer is able to directly order alcohol for personal use from a seller, either while on the seller’s premises or remotely, which the seller is permitted to have delivered to the customer’s residence or place of business by a common carrier.)
Currently, six states outright prohibit or severely restrict DtC sales (Alabama, Delaware, Kentucky, Oklahoma, Mississippi, and Utah; though Oklahoma will open up in October 2018). Of the remaining states, most only permit wine manufacturers to ship wine. Ten states will license retailers, both in-state and out-of-state, to make DtC orders to their customers, though mostly only for wine. Only seven states (and D.C.) permit DtC sales of beer, and only three of those permit DtC sales of spirits (Nebraska, North Dakota, and New Hampshire — Kentucky enacted its own attempt to expand DtC sales of spirits earlier this year, but its effect is, as yet, limited).
Virginia is already ahead of most other states in that it permits both retailers and breweries to engage in the DtC market. The Internet Beer Retailer license takes this a step further to enable businesses that are essentially only operating in the eCommerce market.
Now, this type of license is not without precedent. The Internet Beer Retail license follows closely in the steps of an existing Virginia license, the Internet Wine Retail license, which has been available for nearly a decade. And Virginia is not alone in having such licenses (it is still a lonely crowd of states). The California Type 85 “Limited Off-Site Wine Retail” license grants essentially the same permissions, though it only applies to sales of wine and is only available to businesses with a location in California.
Where the Internet Beer Retail license does seem to be forging new grounds, is in granting such permission to sales of beer. It also, helpfully, follows the Virginia Internet Wine Retail license by extending such permission to out-of-state entities, avoiding potential legal challenges under Granholm that the Type 85 license might be open to.
But extending permission to out-of-state entities does present an interesting question: how will they operate in their home state? Presumably, an Internet Beer Retailer operating from outside of Virginia would need some sort of license from their home state, something that would enable them to legally purchase alcohol from suppliers or wholesalers for resale without also requiring the holder to have a storefront open to the public — which is expressly forbidden by the rules of the Internet Beer Retailer license. Few states seem to have licenses that enable the holders to operate purely as remote retailers.
These limitations may inhibit the popularity of the Internet Beer Retailer license. Indeed, the Internet Wine Retail license may hint at a moderately tepid future market for the license: on the Virginia ABC’s license search tool, there are only around twenty active Internet Wine Retail licensees, all of them in-state (two out-of-state licenses are “pending”). This compares to over 1,100 active Wine Shipper licenses (the more standard DtC license available in Virginia).
Nevertheless, the Internet Beer Retail license is now available. It brings the potential for Virginia residents to purchase beer from more varied sources, and to seek out brands that may not be offered by their local brick-and-mortar beer retailers. Expanding the ability for consumers to engage in the wider alcohol market and have a greater availability of brands is a positive, which should make the entire industry stronger.
What to Know About Staying Compliant as an Internet Beer Retailer
Anyone looking to become licensed as an Internet Beer Retailer should be aware of the compliance requirements that this entails:
- First and foremost, you must get licensed. The appropriate license, now available, is the Internet Beer Retailer, which costs $150 annually, plus the initial application fee of $195.
- All applicants for Shipper permits must indicate at the time of application all brands that they intend to sell DtC — if the applicant does not own or have the rights to control the distribution of such brands, they must also file expressed written consent from the brand owner or other party who does control the distribution rights authorizing the applicant to sell those brands DtC.
- Direct shippers may ship no more than 2 cases (288 ounces) of beer to an individual resident in Virginia per month.
- Direct shippers must pay all applicable state taxes on their shipments to Virginia. These include both state and local sales taxes, as well as the state’s excise tax of $0.2565 per gallon. Accepting a sales tax obligation in Virginia is a requirement for getting licensed, even for out-of-state applicants.
- Direct shippers must file a monthly report to the ABC summarizing each order made, including information on the recipient and purchaser, and the contents of the package shipped.
- All packages containing alcohol must be labeled to indicate that they contain alcohol. Every delivery must be made to someone over the age of 21, who is available to sign for the package at the time of delivery. (It is important here to use qualified delivery partners who will ensure that this requirement is met.)