Can a State Restrict DtC Shipping of Alcohol into Other States?

Alex Koral
July 29, 2022

The legal landscape for direct-to-consumer (DtC) shipping of alcohol is a hodgepodge of rules and regulations that vary from state to state. This follows the broad principle set out in the 21st Amendment that each state shall govern the “transportation or importation . . . therein of intoxicating liquors.” As such, New Hampshire can permit the DtC shipping of all alcoholic beverages, Oklahoma can limit its residents to receive only six cases of wine from any given domestic winery, and Utah can prohibit all incoming DtC shipments of any alcohol from any source.

However, some states appear to be taking a further step in restricting domestic manufacturers from accessing the DtC market: prohibiting DtC shipping to consumers in other states.

To be clear, claims of such a prohibition do not seem to be widespread, and they are largely anecdotal (though various manufacturers have related to the author that they have directly been told by state officials they cannot ship to consumers in other states).

This claim that state officials could prohibit their local licensees from shipping to consumers in another state, if such shipments were in full compliance of the laws of that other state, is extremely dubious constitutionally. But it is still a major potential threat to the DtC alcohol shipping market as the claim alone has had a chilling effect among several manufacturers who had planned to enter the DtC alcohol shipping market.

What are the states claiming?

Under the U.S. Constitution, only Congress is authorized to regulate interstate commerce (the “Commerce Clause”). States are permitted to manage commerce within their borders, but they are, with some exceptions, restricted from passing any laws that interfere with or restrict trade with other states.
One of those exceptions is, naturally, the alcohol market. Coming out of Prohibition, the idea was that local communities needed the authority to impose local rules and standards on how alcohol should be produced, sold and consumed. Hence Section 2 of the 21st Amendment, which abrogates Commerce Clause principles for sales of alcohol.

With this power, states can impose restrictions on activities like DtC shipping of alcohol but cannot do so in other markets. And states do impose a lot of restrictions on the DtC shipping of alcohol, primarily regarding who can ship alcohol and what alcoholic products can be shipped DtC. Currently, 47 states and D.C. permit the DtC shipping of wine, but only around 11 permit shipping of beer and seven permit shipping of spirits.

Following those laws, some states are alleging that, because DtC shipping of beer or spirits to their residents is prohibited, their local beer and spirits manufacturers are also prohibited from shipping beer or spirits into other states—even if those other states fully legalize DtC shipping of beer or spirits and the manufacturer is fully compliant with the laws of that other state. That is, because DtC imports are illegal in a state, therefore DtC exports must also be illegal.

The author has heard manufacturers in Wisconsin (for beer) and Virginia (for spirits) say that they have been told in no uncertain terms by their local regulators that they may not DtC ship their products into states that allow such DtC shipments. While this is a limited number of states, and is largely anecdotal, the potential threat that this claim could have on the DtC market is very real.

Is this constitutional?

The big question is, can states do this? Can they assert under the 21st Amendment the authority to prohibit not merely the importation of alcohol, but also its exportation? Unfortunately, the answer is maybe (though there are assuredly many alcohol attorneys out there who would forcefully say no).
Alcohol manufacturers rely on the rights granted to them as licensees in the states where they operate. As such, they must look to the local statutes to identify what they are permitted to do—and prohibited from doing.

Generally, state statutes do authorize locally licensed manufacturers to export their products freely, as long as it complies with the laws of the destination state. However, that is not always clearly stated—or stated in a way that explicitly includes DtC shipping. For example, Wisconsin’s statutes for brewers (WRS § 125.29) allows them to sell and ship product to wholesalers, and to sell to consumers for off-premises consumption from licensed premises, but it does not set out how and where (or technically, if) brewers can sell to parties in other states. A Wisconsin regulator might then argue that, without that explicit permission, a DtC shipment to a consumer in a different state is not authorized.

But it is also not clear at all whether that Wisconsin regulator’s claim would hold up in court. While the 21st Amendment does not use the word “exports,” it does authorize states to control how alcohol is transported in their borders, which might give some merit to the argument they can prohibit local manufacturers to avail themselves of the third-party carriers who make DtC shipping possible.

It is a shaky argument to make, though, particularly in light of the 2019 Tennessee Wine & Spirits case, in which the Supreme Court set out that state laws that impose restrictions on the interstate commerce of alcohol must be clearly and demonstrably tied to the state’s interests in fostering the health and safety of its residents. It is very hard to see why Wisconsin prohibiting its brewers to ship to Nebraskans, in full compliance with the laws of Nebraska, is in any way related to the health and safety of Wisconsinites.

At least until it is resolved by courts, though, this remains an open question. And manufacturers are right to be wary of crossing any lines set out by their local regulators—it’s little solace to be right in principle at the cost of your manufacturing license. What we should hope for, then, is that state regulators will back down from this argument and make it clear that their licensees are entirely within their rights to sell and ship their products DtC anywhere they want—as long as it is in compliance with laws of the destination state.

Take Action

Download our ebook to learn more about the ins and outs of DtC alcohol shipping.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Alex Koral

Alex Koral is Senior Regulatory Counsel for Sovos ShipCompliant in the company’s Boulder, Colorado office. He actively researches beverage alcohol regulations and market developments to inform development of Sovos’ ShipCompliant product and help educate the industry on compliance issues. Alex has been in the beverage alcohol arena since 2015, after receiving his J.D. from the University of Colorado Law School.
Share This Post

North America ShipCompliant
September 29, 2022
5 Essential Questions to Ask When Searching for a Compliance Partner

Managing beverage alcohol compliance and tax in a rapidly evolving regulatory environment takes expertise and a relentless attention to detail. Odds are, you didn’t get into the industry to spend countless hours each week pouring over mandate changes, tax laws and regulatory updates. Partnering with a compliance software company is an easy way to mitigate […]

E-Invoicing Compliance EMEA
September 27, 2022
Billing SAF-T in Portugal: A New Obligation for Non-Residents

Portugal’s state budget entered into force on 27 June 2022 after protracted negotiations. The budget contained an interesting provision: the obligation to present invoice details to the tax authorities was extended to all VAT-registered taxpayers including non-resident taxpayers, who had long been exempt from this obligation. VAT-registered non-residents now have three options for communicating invoice […]

EMEA IPT
September 27, 2022
Understanding Insurance Premium Tax Prepayments in Italy

Continuing our IPT prepayment series, we take a look at Italy’s requirements. In previous articles we have looked at Belgium, Austria, and Hungary. All insurers authorised to write business under the Italian regime have a legal obligation to make an advance annual payment for the following year. What is the prepayment rate in Italy? The […]

EMEA VAT & Fiscal Reporting
September 23, 2022
Virtual Events and the Risk of Double Taxation

When organising a virtual event, it’s important to determine how this supply will be treated for VAT purposes. We have previously discussed VAT rules and place of supply for virtual events, this blog will discuss the potential future changes to the VAT position for EU Member States. Current VAT position for virtual events in Europe […]

Brazil E-Invoicing Compliance EMEA
September 22, 2022
Brazil Introduces National Standard for the Service e-Invoice

Brazil is known for its highly complex continuous transaction controls (CTC) e-invoicing system. As well as keeping up with daily legislative changes in its 26 states and the Federal District, the country has over 5,000 municipalities with different standards for e-invoicing. The tax levied on consumption of services (ISSQN – Imposto Sobre Serviços de Qualquer […]