5 Myths Surrounding Retailer Direct-to-Consumer Wine Shipping

Sovos
October 26, 2020

By Tom Wark, Executive Director, National Association of Wine Retailers

No one who pays attention to the ongoing political and legal battles over direct-to-consumer (DtC) wine shipping will doubt that this is a contentious area of the law. Claims concerning retailer wine shipping emerge from every corner of the regulatory landscape including the wholesale tier, the retail tier and even from attorneys general and alcohol regulators. Sometimes these claims propagate myths that have the potential to become accepted as truths.

Here are five myths about retailer DtC shipping, debunked.

MYTH 1: SUPREME COURT ONLY PROTECTS WINERIES AND NOT RETAILERS FROM DISCRIMINATORY WINE SHIPPING LAWS

When the Supreme Court ruled in Granholm v Heald that a state may not discriminate against out-of-state wineries by banning shipments of wine while allowing instate wineries to ship wine to its residents, the Court did not distinguish between wineries and retailers. However, states, wholesalers, retailers and lawmakers said the Court did exactly this. They claimed in court cases, in the media, and in defending discriminatory laws that the Supreme Court’s Granholm ruling meant states could discriminate against out-of-state retailer shipping. In 2019, in the Supreme Court’s Tennessee Wine v Thomas ruling, explicitly declared that “there is no sound basis for this distinction….Granholm never said that its reading of history or its Commerce Clause analysis was limited to discrimination against products or producers.” 

MYTH 2: BANS ON WINE SHIPPED FROM OUT-OF-STATE RETAILERS PROTECTS CONSUMERS AGAINST COUNTERFEIT WINES

This justification for discriminating against out-of-state retailers is a pretext for protecting in-state interests. Though only a tiny percentage of wines sold by retailers, if any, is counterfeit, in-state retailers shipping wine can just as easily ship such wines. In the U.S. counterfeit wine is almost always a matter of very exclusive and very rare wines being counterfeited and these wines are very carefully and studiously screened for signs of fraud.

MYTH 3: RETAILERS INDUCE CONSUMERS TO PURCHASE AND RECEIVE SHIPMENTS OF WINES IN VIOLATION OF STATE LAWS 

In states where wine shipments from out-of-state retailers are banned, consumers sometimes, nonetheless, buy wines from out-of-state retailers and arrange for their shipment. Consumers don’t make this effort because they are induced by retailers seeking to motivate consumers to break the law. Consumers seek out these non-resident retailers because they can’t find the wines they want at in-state retailers. This is due to the fact that the in-state wholesalers that provide and sell inventory to retailers in the state carry only a very tiny percent of the wines available in the entire U.S. marketplace.

MYTH 4: WINE SHIPMENTS FROM OUT-OF-STATE RETAILERS HARM LOCAL RETAILERS

In reality, consumers will always look first to local retailers for specific wines they want. By doing so, they reduce the wait and often very costly shipping charges. However, when consumers can’t find the wine they want locally, that’s when they look to out-of-state retailers. If the wine the consumer wants is not available locally, then it’s not a lost sale for local retailers since they were not selling it in the first place.

MYTH 5: OUT-OF-STATE WINE SHIPMENTS DEPRIVE STATES OF TAX REVENUE

This particular myth is a claim that has been leveled at both wineries and retailers that seek the right to interstate wine shipping. The claim boils down to these shipments represent sales taken away from in-state businesses and with them the sales taxes that would have been collected. This simply isn’t true. The fact is, consumers will always buy a wine locally (and pay local sales taxes) if they can find that wine locally. Waiting for the wine is monotonous and shipping costs are expensive. It’s only when consumers can’t find a wine they want at a local outlet that they look outside the state. As mentioned above, if the wine isn’t available locally, then buying it out of state isn’t a lost sale and the sales tax can’t be lost on a non-sale. Moreover, if states are truly concerned with raising tax revenue they could easily create a license out-of-state retailers could obtain that would allow them to legally ship wine into the state under the condition that sales tax are remitted to the state—conditions out-of-state retailers have said they would gladly adhere to and that would likely bring millions of dollars in tax revenue to states. 

Learn more about how retailers can compliantly ship direct-to-consumer.

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Author

Sovos

Sovos is a leading global provider of software that safeguards businesses from the burden and risk of modern transactional taxes. As VAT and sales and use tax go digital, businesses face increased risks, costs and complexity. The Sovos Intelligent Compliance Cloud is the first complete solution for modern tax, giving businesses a global solution for tax determination, e-invoicing compliance and tax reporting. Sovos supports more than 7,000 customers, including half of the Fortune 500, and integrates with a wide variety of business applications. The company has offices throughout North America, Latin America and Europe. Sovos is owned by London-based Hg. For more information visit www.sovos.com and follow us on LinkedIn and Twitter.
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