Back in August, we reported that Texas was planning to audit Out-of-State Winery Direct Shipper permit holders starting in September.
This plan represents one of the biggest efforts ever by state regulators to audit the direct-to-consumer (DtC) wine shipping market within their borders. Now that we are a month into the auditing period, we have more information on what the state is looking into.
What Is the Scope of the Audits?
The first notable thing about these audits is their apparent scope. While we first expected the state to focus on a select group of DtC wine shippers, it now appears that Texas plans to review all of the roughly 1,600 license holders permitted to ship wine to Texas customers. This makes it clear that everyone who has shipped wine to Texas consumers this last year should prepare to be contacted by the Texas Alcoholic Beverage Commission (TABC)—though this is no guarantee that any one licensee will actually receive an audit notice.
At this time, the TABC is largely focusing on shipments made between January 1, 2019 and August 31, 2019, which helpfully is a narrower range of time.
From what we have learned to date, the TABC has been asking for data regarding shipments made in these months, particularly the background data used by DtC wine shippers to produce their regular Texas Excise Tax returns. This includes copies of invoices for sales made during the summer months, and copies of invoices from throughout the year for sales made to a DtC wine shipper’s biggest Texas customers.
In addition to these order data and invoices, the TABC is requesting information regarding licensees’ business structures, including copies of their state and federal permits, and lists of corporate officers and directors. Contracts or other agreements that licensees have made with fulfillment houses and similar service providers are also being asked for.
The TABC is also looking into the wines that Winery Direct Shipper permit holders have sold to Texas consumers. Texas’s DtC statutes prohibit licensees from selling wines that the licensee does not personally produce or bottle. As such, the TABC is asking for copies of federal Certificates of Label Approvals (COLAs) and production records for wines shipped to Texas consumers during the summer months.
This list of requested information is just an early example of what the TABC has asked for in audits, and may not reflect the specifics of any communication any particular Winery Direct Shipper permit holder has received from the TABC. Further, as the audits continue, the number or type of information the TABC requests may change.
What Support for these Audit Can I Receive?
If you happen to receive an audit notice from the TABC, you should make sure to comply with what is requested in your individual notice. You should work with any internal or external legal counsel you may have to both understand your rights during the audit process and to produce the information the state is requesting.
ShipCompliant users are able to pull much of this information directly from their accounts. As the leading provider of compliance software for the DtC wine shipping market, ShipCompliant can be a critical tool during an audit. Along with accessing the regularly required Texas Excise Tax returns, ShipCompliant users can download a broad range of data associated with those returns, including per-order purchaser information, amounts shipped, value of the shipment, tax remitted, and shipping data. Users can also download invoices for their shipments to Texas over this period, and through our direct connection with the Trade & Tax Bureau, users can readily download copies of all of their COLAs.
If you have received an audit notice from the TABC, are a ShipCompliant user, and have questions on how to pull the requested information from your account, please contact email@example.com for assistance.
Of course, not all of the information requested from the TABC is available in ShipCompliant accounts. Corporate structure information and bottling reports are not processed through ShipCompliant, and so they must be produced from other sources. And the TABC may request additional information not discussed here, which may not be available in a ShipCompliant account.
Nevertheless with the order and customer information, and copies of invoices and COLAs available in ShipCompliant accounts, users can streamline their information gathering during the auditing process.