Wine Ruling Uncorks State Response

Veteran Washington state vintner Mike Januik received a glut of requests for his Columbia Valley wines in the days following a U.S. Supreme Court ruling on Internet sales of wine.

But he isn’t popping the cork yet – the decision only threw the issue of direct shipping back to state legislatures. “Until every state decides what they’re going to do, it’s hard to tell what effect this’ll have on me,” he said.

The May 16 ruling found that Michigan and New York’s wine shipping laws violated the commerce clause of the Constitution because they let in-state wineries ship directly to consumers while denying that privilege to out-of-state wineries. Now, Michigan, New York and states with similar laws must choose to allow both intra and interstate online wine sales or ban it entirely.

New York’s legislature has opted to allow both, and Michigan’s is leaning towards restricting both.

Lower court rulings prompted changes to North Carolina, Texas and New Jersey laws last year. Legislatures in North Carolina and Texas have since allowed out-of-state shipping while New Jersey ended in-state shipping.

States currently operate under a patchwork of laws regarding online wine sales. Twenty-eight states and the District of Columbia allow direct shipping in some form; of these, 13 have “reciprocity” agreements that allow out-of-state shipping only to states that follow a similar policy. Twenty-two others ban direct shipments out of state, but some of those prohibit in-state direct shipping as well and are therefore unaffected by the ruling.

Legislative action often pits consumer advocates and wineries against wholesale distributors of wine and beer, who currently ship as much as 99 percent of wine in the United States and stand to have their middleman status undercut

Small wineries are less likely to be carried by wholesalers, which simply aren’t interested in the higher costs associated with marketing and selling niche wines. Consequently, small wineries fear going under if in-state shipping bans pass.

“There’s just no way I’ll stay in business if I have to sell through a wholesaler who doesn’t even want my business,” said Mike Beck, president of Uncle John’s Fruit House Winery in St. Johns, Mich.

Robert Epstein, the Indiana lawyer who led the charge to end out-of-state direct shipping bans in 12 states including the two Michigan cases that reached the Supreme Court, said that a ban on in-state shipping, while legal, would violate the spirit of the court’s decision.

Donald Coe, president of Wine Michigan, said that bills to restrict all in-state shipping privileges are likely to prevail in his state because the Michigan Beer and Wine Wholesalers Association has a very active lobby – in the last election cycle, the organization was the third largest PAC. The MBWWA, which did not return calls, argues for more restrictive shipping laws to protect against the loss of Michigan distributors jobs and underage drinking.

But underage drinking is a nonstarter for David Sloane, the president of Washington, D.C.-based WineAmerica, the national association of wineries. “Show us the convictions,” he said. Sloane cited a 2003 report by the Federal Trade Commission that found no abuse of shipping as a means for minors to obtain alcohol.

Louisiana, which has passed a bill awaiting Gov. Kathleen Blanco’s (D) signature, would revoke the wholesaler status afforded to the state’s seven native wineries. Joe Cazedessus, president of the Louisiana Winery Association, said he will go out of business if the bill becomes law.

But George Brown, the president of the Beer Industry League of Louisiana, which lobbied for the provision, argues that allowing more out-of-state wineries to ship into Louisiana would be even more harmful to the native wineries. “The press says that we’re drying up native wineries, and that’s not true. They’ll be the first to go if we get an onslaught of sales from California and Washington,” he said.

Last month, Connecticut and New York passed bills to allow out-of-state shipping, the first states to do so since the ruling. In both states, the laws follow the model direct shipping bill, which was recommended by the National Conference of State Legislatures’ Task Force on the Wine Industry in 1997. The bill’s provisions require an out-of-state winery to purchase a direct shipping license from the state, to pay both excise and sales taxes, limit shipments, mark boxes and to consent to the jurisdiction of the state issuing the license.

New York State Sen. George Winner (R), who represents New York’s wine-rich Finger Lakes region and sponsored New York’s direct shipping bill, said that May’s court decision gave the Legislature added urgency because an injunction from the Second Circuit Court could have eliminated in-state shipping as well.

Other states may face challenges to their direct shipping laws over the coming year:

• Epstein said he will push ahead with lawsuits in Indiana, Kentucky, Arkansas, Massachusetts and Pennsylvania to end discriminatory laws.
• Rhode Island and Massachusetts legislatures are considering legislation to repeal in-state shipping privileges for native wineries.
• Wineries in Florida, which restricts out-of-state shipping, have a “tough fight” ahead, said Tracy Genesen, legal director for the Coalition for Free Trade, because the state serves as the headquarters for Southern Wine and Spirits, the nation’s largest wholesale distributor.
• California, which produces 85 percent of the nation’s wine, may repeal its reciprocity status for wineries, allowing vintners to sell to any state that allows direct shipping. Under its current law, California wineries can only sell directly to consumers in other states with reciprocity agreements.

Larry Satek, the president of the Indiana Winegrowers Guild, said he was “quite flabbergasted” when he received a letter from the state’s Alcohol and Tobacco Commission four days after the court ruling informing him that in-state shipping was not legal under Indiana law.

“This is something we’ve been doing for 30 years. There’s $2 million of wine shipped within Indiana each year,” said Satek, who runs Satek Winery in northeast Indiana. While the state has no law that specifically prohibits in-state shipping of alcohol, David Heath, the chairman of the commission, defended the memo: “Indiana’s position hasn’t changed.”