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The Arguments Against Allowing Retailers to Ship Interstate

Posted on  | January 14, 2011   Bookmark and Share
Written by | Ian Griffith

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There are two different campaigns being fought that concern the interstate shipping of wine. Wineries have been largely successful in convincing the courts that they deserve the right to ship direct to consumers and will operate in compliance with state laws, whether favorable or not. To date their campaign has yielded 37 states and DC with the prospect of gaining 3 new states (NJ, MD and NM) in the coming legislative year.

On the other hand there is a campaign being waged by retailers that they should be afforded the same protection from discrimination as the wineries. Retailers want the 2005 Granholm decision to apply to them too, so that states which permit in-state retailers to make delivery must similarly allow delivery from out-of-state retailers. Retailers argue there is no difference between the retail transactions a winery or retailer conducts in shipping to a consumer. But retailers have access to only 13 states; they have been losing ground and will likely be excluded from shipping to the 3 states wineries expect to gain this year.

Initially the arguments against retailer shipping were the same that were made about winery shipping; that underage drinkers could order online, and that taxes would not be collected. However, new arguments appear to be gaining traction that need to be rebutted if retailers hope to win similar privileges as US wineries.

Unlike wineries, retailers are usually licensed to sell more than just wine and will sell spirits and in many states beer too. A retailer doesn’t discriminate against a customer in the store because she buys California Cabernet, the makings of Gin and Tonics, or a case of Bud Light. The store may offer delivery so customers can avoid lugging awkward boxes around as they finish their errands. But as soon as that customer’s commute involves crossing a state line a distinction is made between the types of alcohol purchased. If her state is one of the 13, then the wine can be legally shipped, but not spirits or beer. Retailers are in the business of servicing customers and it may be the same customer that orders wine one day, gin the next, and beer the next. As a result retailers have been known to push the envelope in an effort to service their customers. Spirits and beer are sometimes included in shipments despite FedEx and UPS contracts that permits only wine. Deliveries are also made to states that are not strictly legal but have minimal enforcement.

In a recent interview with Vintank, Craig Wolf of WSWA expressed the concerns of those opposed to retailer shipping that by allowing wine shipments it leads to spirits and beer being shipped too, and these are products more likely to be consumed by minors. They argue that the delivery system is very porous and that carriers cannot be relied on to check the age of a recipient. Further, that if a small state were to open its borders to wine shipments they would lack the resources to effectively police that border. The conclusion of this argument is that retailers cannot be trusted and the enforcement of interstate shipping is too costly; therefore the retail tier needs to be held under close control by the states where they are licensed.

The retailer lobby, Specialty Wine Retailers Association, is arguing that retailers can be trusted to pay taxes to the destination state and will comply with shipping regulations. They have petitioned the Supreme Court to review a Texas appeal and will argue that discrimination against retailers is unconstitutional. Even if SWRA is able to secure a Granholm-like decision on behalf of retailers, each state would then decide whether to level up and allow all retailers to ship or level down and block shipments by in-state retailers.

It may be time for retailers to challenge the argument that spirits and beer should not be shipped across state lines. According to Discus a diverse collection of established experts recognize that ‘alcohol is alcohol is alcohol‘ and that there is no scientific basis for treating distilled spirits differently from other beverage alcohol, shouldn’t alcohol equivalence extend to shipping alcohol too? Several states currently allow retailers to deliver spirits in-state and a Granholm-like decision would probably require the state to extend these privileges to out-of-state retailers. For an argument like this to survive scrutiny by the states the burden will fall on retailers to demonstrate that they, like wineries, can be held accountable across state lines. Until then the arguments against interstate shipping will result in access to fewer states for retailers.

Comments

4 Responses to “The Arguments Against Allowing Retailers to Ship Interstate”

  1. Tom Wark
    January 17th, 2011 @ 2:23 pm

    Retailers across the country have demonstrated their willingness and ability to adhere to state regulations and laws concerning the shipment of wine.

    Interestingly, I’ve rarely heard lawmakers issue a concern that retailers will ship beer or spirits if allowed to be licensed to ship direct.

    Most often lawmakers don’t have much of a discussion at all when they go about prohibiting their citizens from buying from out of state retailers. Instead, they simply take the advise of wholesaler-campaign contributors to not allow it.

    This position is bad for the states as well as consumers. By prohibiting state residents from having wine shipped to them from out of state retailers, states let pass millions of dollars in tax revenue and prevent residents from accessing the totality of the American wine market.

  2. Ian Griffith
    January 18th, 2011 @ 1:27 pm

    Tom, thanks for your comment. If underage access is the only reason to block beer and spirits shipping then it should be possible to overcome those objections.

    SWRA has a strong argument that retailers shouldn’t be made the exception and hopefully SCOTUS will agree to hear that argument and confirm it. A decision like that will be a powerful lever in prying open the states.

  3. Ian Tjornhom
    January 19th, 2011 @ 11:44 am

    We live in an open market system and when competition is allowed market forces dictate price. However, our industry is run primarily as an oligopoly and/or monopoly with pricing dictated by a limited few. Many markets are, to put it nicely, out of sync with national pricing. Opening the borders allows for market forces to better mandate pricing structure.

    As far as shipping goes, I feel the current system is lacking. States continue to loose ground on sales tax and the field of play is pitched in favor of the out of state shipper because of this. Risk and liability has also been proven to reside with the permitee baring Fedx and UPS from liability. This brings me to the conclusion that our US postal service should handle Alcohol and taxes should be assessed at time of pickup. This would level the field of play, mitigate risk to retailers, assure tax is paid in the respective state and help market forces impact pricing. The added bonus would be a boon for the postal service…come ran or shine…

  4. Daniel Posner
    January 22nd, 2011 @ 4:01 pm

    Wholesalers have no legitimate argument, at all.

    What they have is money. Money buys power.

    It is unfortunate that ultimately wine consumers lose out because of such archaic laws, that are still legal, due to people like Craig Wolf, who continue to offer support to the notion that the WSWA is completely out of touch with reality.