Arizona Uncaps Direct-to-Consumer Sales

Daniel Kostrzewa
April 6, 2016

Currently, if a resident of Arizona wants to make a direct-to-consumer (DtC) purchase of wine, she must either journey to the winery for an on-site sale, or restrict herself to buying only from a winery that produces 20,000 gallons or less annually. However, a new law recently passed in Arizona will greatly expand her selection.

On March 31st, Arizona Governor Doug Ducey signed into law SB 1381, which establishes a new license type in Arizona, the Direct Shipment License. At present, only wineries with a Farm Winery license that produce 20,000 gallons or less annually may make off-site DtC sales. The new Direct Shipment License will allow wineries of all sizes to make off-site sales.

Of course, a winery will have to first receive a Direct Shipment License. These licenses are not yet available, but SB 1381 mandates the Arizona Department of Liquor Licensing and Control (DLLC) to begin issuing them by January 1, 2017. Once available, a winery will need to apply and provide a copy of their Federal Basic Permit and their wine production license issued by its local state alcohol beverage regulator. The Direct Shipment License will then need to be renewed annually.

Once licensed, a winery will need to comply with other, standard DtC regulations. These include:

  • Age Verification – only adults over the age of 21 may purchase or receive wine, and wineries will need to receive a copy of the purchaser’s license, or use an age verification service, before making a sale.
  • Labeling – all packages containing wine must be conspicuously labeled with the words, “CONTAINS ALCOHOL, SIGNATURE OF PERSON AGE 21 OR OLDER REQUIRED FOR DELIVERY.”
  • Annual Reporting – by January 31st every year, a winery will need to file a report with the DLLC on their sales the previous year; the report will need to include the winery’s name, address, and license number, as well as the date of shipment, shipped-to address, and amount of wine delivered for every sale made the previous year.
  • Tax Payments – wineries are required to pay all Transaction Privilege Taxes and Luxury Taxes on their DtC sales, as if the sale occurred in Arizona.

In addition, the new law limits the amount an Arizona resident can purchase from any one licensed winery in a given year, which will gradually increase over the next few years. Up until December 31, 2017, an Arizona purchaser may only receive the equivalent of six nine-liter cases of wine per winery; in 2018, she is limited to the equivalent of nine nine-liter cases of wine per winery; and after January 1, 2019, the limit will cap off at the equivalent of twelve nine-liter cases of wine per winery.

The passage of SB 1381 marks a huge development in DtC sales in Arizona, as the current production cap meant only wineries on the very low end of production could make off-site sales. It could not have passed without the tireless efforts of Wine Institute, which spearheaded a campaign that included the Arizona Winegrowers Association, free market advocates, and Arizona consumers (who were largely directed by the Free the Grapes!). Thanks to them, soon hundreds, if not thousands, of wineries will be able to make off-site DtC sales in Arizona.

Notably, the new law keeps intact the existing Farm Winery license and its attenuate privileges. Therefore, wineries producing 20,000 gallons or less annually that have a Farm Winery license may continue to make off-site DtC sales, though they may soon choose to switch license types once the Direct Shipment License becomes available.

There are still some details to be finalized concerning the Direct Shipment License. For instance, the exact process and cost of applying has yet to be determined. We at ShipCompliant will monitor these developments as they happen, and will make sure to pass this information along to you. If you aren’t already, subscribe to our blog for regular updates.

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Author

Daniel Kostrzewa

Daniel Kostrzewa is a Regulatory Counsel at Sovos. Within Sovos’ Regulatory Analysis function, Daniel focuses on domestic sales tax issues. Prior to joining Sovos in 2018, he worked as an attorney in Boston. Daniel received his B.A. in Economics from Boston College and J.D. from Boston College Law School. He is a member of the Massachusetts Bar.
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