This blog was last updated on February 2, 2022
It’s hard to believe that the first month of 2022 is already in the rearview mirror, but the same way that time keeps moving along, the DtC wine shipping world continues to change. With more states implementing DtC shipping options — and some that took a step in the other direction — it can be difficult to keep pace with the latest compliance requirements. Here are some key areas to be keeping an eye on for a successful 2022 and beyond.
The state of enforcement and audits
Audits are increasing for DtC wine shippers, with states going after licensees for alleged shipping issues, with a particular focus on preventing sales to minors. Carriers are the central player in that aim, as they must check IDs and gather an adult’s signature at the time of delivery, and as such are often themselves subject to state scrutiny. But wineries can also do their part by conducting point-of-sale age checks using public record data or receiving a facsimile of the purchaser’s ID. Even if a state doesn’t explicitly require these point-of-sale checks by their licensees, this is a best practice for DtC shippers on all their orders.
However, age checks are not the only area that state regulators are looking into. Many state audits also focus on ensuring all shippers are properly licensed and are shipping only products that they are authorized to sell and ship.
And of course, taxes are always a major concern for state regulators. It’s important to note that states are changing their reporting processes, with many adopting electronic filing options. This means that DtC shippers need to stay up on the latest filing trends and that states are receiving more data every day, so they can better review and scrutinize the DtC wine shipping market.
Economic nexus continues to evolve
While the 2018 South Dakota v. Wayfair Supreme Court case did not result in too many changes for DtC wine shippers, the subsequent economic nexus changes have created new tax burdens for DtC shippers in some states. This has largely been in those few states that do not condition getting a DtC license on also registering as a sales tax collector.
In 2021, two of these states, Florida and Missouri, passed economic nexus laws imposing a sales tax liability on all remote sellers that meet the threshold of $100,000 in annual revenue in the state, including for DtC shippers. Florida’s law came into effect on July 1, 2021 and Missouri’s will become effective on January 1, 2023.
To manage possible tax liability coming from economic nexus, it’s critical for DtC wine shippers to carefully monitor how much revenue they get annually in each state. But they also need to recognize how each state defines “annual revenue.” Is it measured by all revenue or only taxable revenue? In the former case, wholesale sales could trigger the threshold well in advance of DtC sales alone. Further, economic nexus rules for online marketplaces could make sales tax management even more confusing for DtC shippers who use them. It’s important for DtC shippers to communicate with their marketplaces to understand who is collecting and remitting sales tax and where the DtC shipper needs to manage that themselves.
Fulfillment house updates
More states are adopting laws around how fulfillment houses can be used by DtC shippers for their sales into those states. Alabama, Kansas and Tennessee all adopted new regulations in 2021 (with Tennessee’s going into effect on January 1, 2022).
Fulfillment houses are essentially logistics centers where alcohol producers store their products until they’re ready to be sold. As such, many wineries use them to facilitate their DtC shipments, relying on their packaging services and existing relationships with carriers. However, as fulfillment houses expand their services, more states are requiring them to get licensed and file regular reports of the shipments they’ve supported. It is anticipated that additional states will adopt these requirements for fulfillment houses in the years to come.
When looking into working with a fulfillment house, it is important to make sure that they are aware of this trend in licensing and reporting requirements, and that they are keeping up with their own compliance requirements. If a winery uses an unlicensed fulfillment house to ship to a state that requires them to be licensed, the state will cite the winery for a compliance failure right along with the fulfillment house.
DtC wine shipping compliance matters
Shipping wine to consumers can be a great option for producers, but it must be done the right way. The rules for compliant DtC wine shipping rules can vary from one state to the next, and states are becoming increasingly strict about enforcing their regulations. Make sure that you obtain the proper license for each state you want to ship to, and ensure that your entire team understands the importance of compliance. States are aware of so-called “workarounds,” and non-compliance can lead to audits, fines or the loss of a license.
Remember that working with the right partner can simplify the DtC shipping process, keep you compliant and ensure your consumers stay happy.
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