Winery Distribution Rules Glossary
What is a Wine?
Seems like a silly question, right? But different products can have different licenses or different taxes, and some may not even be allowed for sale. We’ve listed the definitions as found in each state’s law code. Most states find that “wine” is any fermented non-malt agricultural product, with grapes being the main agricultural product used. But there are variations, such as ABV/ABW thresholds that direct when and how a wine can be sold; or distinct rules for fortified wines; or suddenly saké is a wine. So this is a good place to start, because depending on what you’re selling, you may need a different license than you originally thought.
We’re all well-versed in the three-tier system — suppliers sell to distributors, who sell to retailers, who sell to consumers. But some states allow certain sellers to skip the step of selling to distributors. These exemptions are fairly common for in-state wineries. Here we note the states that also allow out-of-state wineries to distribute their products straight to retailers.
The Direct-to-Consumer market for wine has exploded in the past years to become a $3 billion and growing industry on its own. Most states now permit DtC shipping from all wineries, and impose specific rules on those shipments. This really is a bread-and-butter area for ShipCompliant; so much so, in fact, that we developed an entire series of pages on each states’ DtC shipping rules. While we just say whether DtC shipping is permitted on this page, click the links to find that state’s DtC rules.
You have a Winery Basic Permit from the TTB, a Wine Manufacturer’s license from the local ABC…what other license is required? Well, that depends on where you’re selling. Almost every state has some kind of additional requirement — such as vendors’, importers’ or manufacturers’ licenses — for out-of-state wineries making distributions. Be sure to look into variances by production level, as some states have less expensive versions for smaller producers.
Bonds are not a common requirement for out-of-state wineries. They serve as financial guarantees to the state to ensure you submit future payables, like excise taxes, which generally out-of-state wineries are not required to pay themselves. However, there are a handful of states that will withhold a large sum of cash when you are in the process of obtaining or renewing a license. We indicate where a bond is required and how much it can drop.
You’re almost all set to begin selling products in a state! But who is actually talking to distributors, providing samples and showcasing your great brand? Some states need to know this information. They may require you to register your local representatives or at least have them get licenses. Some states will even require you to have at least one local party engaged as a sales representative. We let you know where having a licensed representative is required.
The state now knows who is selling the wine, but it also wants to know exactly what wine is going to be sold. We indicate which states requires this registration and which product levels have to be registered. Be aware of this product level information: States vary in their definitions, though we try to keep things standard. When we refer to a “brand,” we mean the general name used for a product line — such as “Doe’s Hurdle” produced by the California Wine Consortium, which has a pinot, a chardonnay and a zinfandel line. When the state instead wants you to separately register each of those pintos, chards, and zins, with their unique COLA, we indicate that with the “COLA” label.
Some states have rules prohibiting price discrimination. To track this, they require you to notify them of your prices. We let you know if that step — which is usually coordinated with product registration — is required.
Distributor Agreements are made between you, the wine supplier, and your partner distributors, who indicate the brands and products they will support. When registering these brands and products for sale, you will occasionally be asked to provide a record of these agreements to the state. This enables the state to enforce regulations it may have limiting your ability to change your distribution plans (see Franchise Rules). We indicate where you should include a copy of your Distributor Agreements with your registration packet. This is not necessarily your full contract with your distributor, which is itself a vital step in establishing your business and should be drafted carefully with proper input from legal counsel to ensure your rights and requirements are accounted for.
Similarly to Distributor Agreements, some states dictate you can only assign one distributor for a given territory. These states also enforce these agreements, and ensure distributors don’t overextend their range. In these states, you will need to include your designation of territories with your product registrations.
No one wants to sell an inferior product. It’s often critical to show potential retailers that your wine will be a positive addition to their shelves. However, there are restrictions on who, what, where, and when a retailer can try out a new product. We indicate here if samples are permitted, and if so, who can provide them and what they can provide. Often, only licensed sales representatives — see above — or wholesalers are allowed do so.
One of the most complicated aspects of selling wine is complying with a state’s Franchise Rules. These rules establish baseline standards and procedures for how a supplier and its distributor will conduct business. In particular, the rules act to limit how they can proceed when one side seeks to change the conditions.
Many, though by no means all, states have some sort of Franchise Rules. Still, it is extremely important to be aware of where they exist — and how they will affect your business — when establishing a distributor agreement. For instance, the state may say, “cancellation of an agreement is only permitted with a showing of good cause.” Your agreement should then have some discussion of what good cause means in your particular case, of course within any bounds set out within the Franchise Rule.
Because these rules are particularly complicated and long we cannot include a lot of information here, and instead merely indicate that they are present and should be noted. Always consult a legal counsel when dealing with Franchise Rules.
Being the “Primary American Source” means being a wine’s initial owner. Many states have regulations stating only the Primary Source can sell a wine to distributors, while some extend that ability to authorized providers who have received permission to sell in that state from the appropriate party. Typically, being the Primary Source means being the winemaker. For foreign wines, though, it means being an authorized importer. In practice, this often dictates those who are permitted to register a wine for sale in a state and have exclusive rights to provide it to distributors. Though ultimately more of a restriction on distributors — on who they can receive a wine from — we’ve included this to provide valuable context for winemakers.
At Rest Laws
Where they exist, “At Rest” laws impose some sort of burden on wine distribution from you, the supplier, to your distributor. At best, these merely require the distributor to take possession of the wine before it is transported to the retailer. However, At Rest laws can be more restrictive, requiring the wine to actually be unloaded at the distributor’s warehouse and remain at the warehouse for up to a few days. These rules can affect your distribution plans and the go-to-market process. We indicate here what kind of restrictions you can expect.
Excise Tax Rates
The beverage alcohol market is riddled with excise taxes. States impose these product-specific levies to generate revenue and control regulated products like wine. Paying excise taxes to the federal government is a requirement under your Basic Permit and your local Manufacturer’s License. When you sell into a different state, that state will also levy a tax on the amount sold. We indicate here what these rates are for your reference when determining prices. Note where a state has different rates for sparkling wines, or higher-ABV wines.
Out-of-State Supplier Pays Excise Tax
Generally, the distributor, as the first party to take ownership of a wine in the state, is responsible for remitting the state’s excise tax, but several states instead require you, as the out-of-state supplier, to collect and remit sales tax. We indicate those states here so you can keep track of these additional requirements.
In their regulatory capacity, states want to know what happens within their borders. This is necessary for ensuring that sales take place properly and that all due tax is being collected. To help track this, almost every state requires some kind of periodic reporting from you, the supplier. These are typically monthly reports, but can be required less frequently. Some require specific forms to be filled out and copies of every invoice, while others simply ask for a notice that wine was — or wasn’t — shipped. We indicate the frequency of reporting and what specific form you should submit.