Is "wine by mail" just a dream?
The absence of "wine by mail" promotions fostersa great deal of controversy and confusion. The regulatory environment for wineries is, at best, commercially oppressive, while competition, at its worst, tends to disregard regulation. Unless you're pathologically obsessive, wineries compare competing in a compliance environment with salmon swimming upstream. In the same way that the salmon knows he can get there if the darn river woule let him, wineries know they could sell more wine to more people if there weren't so many obstacles to direct wine shipments. Inconsistent regulation can sometimes frustrate competition. Such is the case with the issue of direct interstate shipments of wine to consumers. Knowing that business people can develop the most intricae and complex reasons for why wine isn't being sold, we would like to add our own theories to those that already exist out there, and hopefully make some sense of the here and now of direct wine shipments.
We use the term "direct wine shipments" rather loosely. In this article, we mean shipments from one state to another where the recipient is not a licensee. We include not only shipments from friend to friend or from winery to consumer, but also the transportation of one's personal wine collection when one is relocating from California to another state. In many cases. even moving your wine cellar into another state is unlawful.
Prohibition. Along the long road of U.S. commerce, all licensed beverages were forced into government-sanctioned obliteration during prohibition. Singled out for special boycott and discrimination, this country's desire for "alcohol cleansing" not only brought about the industry's prohibition, but at its departure with Repeal came the Constitutional aberration that the individual states, rather than the federal government, have the last word on wine and other licensed beverages crossing into their borders. That is why articles such as pesticides, weapons, knives, and (even) cable television broadcasts are alloed to cross state lines without substantial state inteference and why wine cannot.
In many state preambles to licensed beverages control laws, you will commonly find declarations of why states are interested in licensed beverage distribution. States want to protect their citizens from the negative influences that brought about prohiBITION by establishing an orderly, crime-free, bullet-proof and conrollable system of licensed beverage distribution. A less pronounced but more obvious reason for the orderly distribution of licensed beverages is revenue control. Licensed beverage excise taxes raise money for state services. Excise taxes delivers the message that if you must be intemperate. then you ought to pay for it. Every state in the union has some kind of excise tax.
Likewise, every state regulates the distribution of licensed beverages so pervasively on the producer/wholesaler level that without the 21st amendment such controls would be antitrust defective. Forty of the 50 states have some kind of franchise protection law that governs business conduct between an out-of-state winery and instate wholesaler. For the most part, these laws have no parallel outside the licensed beverage industry and would not survive judicial scrutiny.
Still, a drive through wine country will reveal many winery tasting rooms and retail stores that convey the promise, i.e., signs that proudly claim: "We Ship Wine Anywhere!" We get calls from time to time from clients who ask: "how can my competitor do this?" Short of bold acusations of illegal conduct, we respond by asking another question: "When was the last time you drove 55 mph on the freeway?" Because competition, like traffic, will usually fail to abide by the posted speed limit, but rather by the limits set by competition itself. Because in the trenches, where the hard business is being done, where profit margins and inventoryu and sales and marketing come together, there is often less emphasis on compliance and more attention on keeping up with your competitor. Depending on the destination, the promise is not so much a legal issue where there is a law that authorizes shipments, but one of enforcement and risk assessment, where there is a law that might make the shipment illegal, but hopefully won't be enforced.
Shipment and transportation laws vary considerably from state to state. Some states allow an out-of-state winery to ship limited quantities of wine to a consumer in another state, but in many states the laws on wine shipment do not specifically address direct wine shipments, or at the very least the provisions are so vague or so unenforced as to be meaningless.
The origins of reciprocity: during the Christmas selling season of 1985, a prominent common carrier (Ed.-UPS) notified wineries in the North Coast that, due to changes in the transportation laws, it could now ship wine directly to consumers in 13 states. The market reacted as if by reflex to the news. During the next few months, many wineries came to rely on the service, and many small businesses based on direct sales/marketing/shipping were borne. But no sooner had the service been announced that a few months later it was rescinded. Uprooted as quickly as they sprouted, the retail businesses based on direct interstate sales became extinct.
Many wineries were critical of the Wine Institute for not doing more to "support" direct shipments of wine. But after a brief period of catharsis, wineries began looking for practical solutions. In meetings of various Wine Institute committees and among winery representatives, there was a constant brainstorming. What were the reasons for why wineries couldn't legally ship wine to wine writers in New York, or to consign shipments to a consumers home address? Unrealistic answers (e.g., repealing the 21st Amendment of amending the Federal Alcohol Administration Act) gave way to more constructive suggestions.
The idea for reciprocity legislatin for wine shipments was not novel. The Wine Institute drafted initial legislation for Assemblyman Seastrand based on legislation drafted three years earlier by the Wine Institute to respond to issues concerning out-of-state wineries being able to conduct wine tastings in this state.
The California Business and Professions Code Section 23356.3 reads: "Notwithstanding any other provision of this division, an out-of-state winegrower, after notificatin to and approval by, the department, may furnish American wine which the winegrower produces and bottles for winetastings sponsored by a private nonprofit organization. This privilege shall be extended to winegrowers in those states which accord California winegrowers a substantially equal reciprocal wine tasting privilege. Certification by an appropriate state official of his or her state's reciprocal winetasting privilege shall be included with the required notification."
It took just months for the California legislature to pass Assembly Bill 2723 from when it was amended to contain the reciprocity provisions. Business & Professions Code Section 23661.2 in part reads:
"(b) Notwithstanding any other provision of law, an individual or licensee in a state which affords California licensees or individuals an equal reciprocal shipping privilege, may ship, for personal use and not for resale, not more than two cases of wine (no more than nine liters each case) per month to any adult resident in this state. Delivery of a shipment pursuant to this subdivision shall not be deemed to constitute a sale in this state."
The shipping container of any wine sent into or out of this state under this section shall be clearly labeled to indicate that the package cannot be delivered to a minor or to an intoxicated person.
Unlike other licensed beverage laws, reciprocity requires the legislative cooperation of other states to recognize the shipment right. Passing the law in California was simply the beginning of a program of legislative advocacy to correct the past.
Selling reciprocity in other states: Sandy Obester of Obester Vineyards, a staunch advocate of reciprocity, chaired the Direct Shipment Subcommittee at the Wine Institute in 1986. She accepted the formidable task of convincing first the Institute membership that this was not another "large winery vs. small winery" issue, but could actually work to benefit the nation's wine industry. Convincing the larger wineries that reciprocity was good business the Wine Institute's trade barriers staff cautiously approached states to strategically acquire reciprocity in the Pacific Seaboard states. With nothing more than AB 2723 in hand, the Wine Institute sought to convince the nation of reciprocity, state by state.
The politics of temperance is complex. Elements of temperance include the express state interest in preserving the three-tier distribution system and the need for an orderly distribution pattern to protect the revenue received through excise taxes. Reciprocity clearly short-circuits the three--tier distribution system. Conceptually, we argue that temperance interests are not threatened by limited shipments of small quantities. Model reciprocity legislation allows for the shipment of no more than two cases per month per individual. But in practice, it has been easier to address state revenue loses than it as een to reconcile breaches in the three-tier system of distribution. Economically, reciprocity threatens wholesalers as well as retailers in the destination state. And such economic threats have led to the addition of provisions to accommodate their concerns. The result is a rather inconsistent set of laws that attempt to emulate the California reciprocity provisions, but yet fall short of being "mirror images".
Less than equal reciprocity? Reciprocity legislation is simply the codification of the "You Scratch My Back, I'll Scratch Yours" concept. Unfortunately, as reciprocity legislation unfolded in the various states, lobbyists for retail and wholesale concerns added provisions that can, at times, change the concept to something more akin to "You Scratch My Back, I'll Scratch Your Tummy." Ideally, reciprocity requires "mirror image" legislation. Anything short of that raises legal issues of whether the two states are "equally" reciprocal. Oregon, for example, requires registration by out-of-state wineries although California does not. In an extremely liberal interpretation of California's reciprocity law, the California ABC eventually ruled that Oregon's law was substantially reciprocal.
States that have enacted "Reciprocal Shipment" laws include: California, Colorado, Idaho, Illinois, Maine, Minnesota, Missouri, New Mexico, Oregon, Washington, West Virginia and Wisconsin.
More recently, however, the California ABC ruled that Washington's reciprocity law was so different from California's law as not to be reciprocal. On its face, the Washington State and Oregon reciprocity laws are extremely similar. From a legal perspective, it is difficult to distinguish both laws except with respect to permissible quantities (Washington permits two cases PER YEAR). The difference comes in the interpretation and application of these states respective reciprocity laws. Oregon's "license" provision, for example, is really a "registration requirement", whereas a Washington State license costs money.
This recent California ABC ruling is disturbing in that it gives the wholesaler lobby and state control authorities the ability to render even enacted reciprocity legislation ineffective by tacking on provisions in regulation that make the law either inconsistent on its face or inconsistent in application with California's reciprocity law. As stated earlier, reciprocity not only requires legislation, but a finding that the legislation offers the state an "equal reciprocal shipping privilege".
In addition to Washington State and California, 10 other states have enacted "reciprocity" legislation to provide consumers with the ability to receive small amounts of wine from another state. The states of Colorado, Idaho, Illinois, Maine, Minnesota, Missouri, New Mexico, Oregon, West Virginia and Wisconsin all provide, to various degrees, reciprocal shipment provisions.
What reciprocity isn't: Blessing a state with the "reciprocal" status should not be equated with open season for direct marketing campaigns. The more recent flavors of reciprocity laws DO NOT generally authorize direct mail solicitation and sales programs. In some reciprocity states, direct mail marketing is specifically prohibited.
Some states allow direct shipments of wine without being classified as "reciprocal states." Iowa, for example, currently interprets existing laws to permit direct shipments without any regard to establishing reciprocal privileges by legislation (such interpretation is always subject to change). Alabama permits shipments to consumers by first obtaining written approval.
Still other states, such as Hawaii and Vermont, seemingly allow direct shipments if the consumer in those states obtains a permit to receive such shipments and also pays the appropriate taxes. But such permits are obscure and therefore rarely requested or issued. No more than a handful are issued in those states annually. The mere requirement of acquiring a permit frustrates both consumers and legitimate direct shipment ventures.
Notwithstanding the astute and profound advice of counsel on matters of direct shipment, legally questionable shipments surprisingly occur from time to time. Shipping wine to consumers is not without risk. How much risk depends on who you are, where it's going, and who actually gets to. California wineries who are licensed in other states for sales to wholesalers may not want to forsake such a privilege for the one indiscreet and dubious direct shipment. On the other hand, retailers in California are in the business of selling wine to consumers and are not generally required to obtain out-of-state licenses. Their risk in engaging in interstate sales is not so much from the exposure to administrative remedies such as license revocations, but he less likely criminal or civil actions. Issues common for all are raised with delivery. How responsible should a winery, retailer, or anyone else be if a shipment ends up being delivered to a minor? The answer will depend on the state's dramshop and minors laws.
There are clearly forms of interstate sales activities that are high profile and widely advertised. They involve not just wine, but beer and distilled spirits as well. In many cases, these kinds of activities raise business and enforcement issues rather than legal ones. We do not expect readers to act on information presented here, but rather caution all who wish to engage in interstate sales activities to consumers to carefully review each state's laws and to seek legal advice based on detailed analysis of particular facts.
Costs for air freight can be prohibitive, but less expensive surface common carriers are familiar with the intricacies of direct licensed beverage shipments to consumers. In many cases, a carrier's reluctance to ship licensed beverages to a "reciprocity" state is based not on legal principles, but on business risks. A carrier's explanations for refusing shipment are usually very creative, sometimes persuasive, and often untrue. Check with your carrier before you promise delivery. The Wine Institute had a Federal Express program of significantly reduced. rates for its members. But whatever you do, DON'T send wine by U.S. mail. It's truly a federal offense. The United States criminal code provides that all licensed beverages, including wine and brandy, are non-mailable and imposes a fine or imprisonment or both for your violation (18 U.S.C. Section 1716).
Finally, if you're moving out of the state and want to bring along that wine collection that you've been building for the past few years of living in California, you might want to check with your destination state's laws to be sure that such transportation is permissible. Even in situations where someone is relocating, laws have been interpreted to prevent a person from bringing wine into the state.
The future of reciprocity will depend in large part on legislative and public awareness. The Wine Institute's goal is to give its members the ability not to simply ship wine in limited quantities to consumers in other states, but to market their products through advertisements and other media when possible. Even as the concept gains favor with out-of-state wineries and consumers, and as state legislators ponder the propriety of such legislation the Wine Institute's Trade Barriers staff continues to seek legislative and regulatory alternatives that will reconcile wholesale and retail concerns with the focused interest of a winery to make it upstream.
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|Title Annotation:||the recriprocity law in California|
|Publication:||Wines & Vines|
|Date:||Sep 1, 1993|
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