DtC Alcohol Shippers Cannot Contract Their Way Out of Compliance

Alex Koral
February 25, 2022

Suppliers looking to get into the valuable and growing market of direct-to-consumer (DtC) alcohol shipping often need support from third parties. From setting up sales to managing shipping logistics to handling complicated tax filings, DtC alcohol shipping is often too much for any one business to deal with entirely on their own.

Within the ecosystem of third-party providers, a set of services have come up with a unique way to dispense with the responsibility of complying with the state laws and regulations that govern DtC alcohol shipping: foist that responsibility onto the consumer. These services draft their terms and conditions in ways that limit their own liability and require that their customers, the people buying alcohol on their platforms, assume the duty to ensure the purchases they make are legal.

All suppliers, retailers and consumers of DtC shipped alcohol need to be aware that these sort of contractual gimmicks do not work when selling alcohol. By using or purchasing from these services a supplier, retailer or consumer is opening themselves up to possible enforcement actions from state regulators.

What are these services doing exactly?

Generally, these services are online storefronts or third-party marketplaces run by a retailer licensed to make off-premise sales in their home state. Day-to-day, they are clearly allowed to sell the alcoholic beverages they market to anyone, from anywhere, who enters their store and is otherwise allowed to purchase alcohol. The complication comes, however, when the sale then involves the alcohol getting shipped direct to the consumer’s home, especially when the consumer lives in a different state than where the retailer is licensed.

If these retailers were limiting their sales to the states that do allow DtC shipping of alcohol by retailers and abiding by those states’ laws, there wouldn’t be much of an issue. Instead, these retailers often offer shipping to all states (even Utah!) and do not appear to be licensed by those states or pay any taxes on their shipments.

To see how they are getting away with this scheme, you have to dig into their terms and conditions. Within the legalese, you will find interesting clauses that broadly say:

  1. Title of the goods (the alcoholic beverages) passes to the consumer in the state where the service operates; and
  2. The consumer is responsible for abiding by all state and local laws, including ensuring that they can even receive an alcohol shipment to begin with.

Now, these contractual gimmicks are actually quite common, and largely uncontroversial, in other types of business. It is often necessary to set out prior to a sale what taxes will apply, where any litigation will take place, and who is responsible for any problems that might arise during the physical transfer of goods. But as we all know, beverage alcohol is not a normal type of business.

What is problematic with these services?

At a baseline, it is generally illegal for anyone who is not properly licensed by a state to sell, receive or transport alcohol. So most individual lay-consumers are prohibited from shipping alcohol, even alcohol they’ve legally purchased and even if they are only shipping it to themselves. Most common carriers will not accept a package containing alcoholic beverages unless the shipper can provide clear proof they are licensed to ship into the destination state.

Even if a state does allow its residents to ship alcohol themselves or have it shipped to them on their behalf (such as Connecticut or Hawaii), how many lay-consumers are reading their terms and conditions? And if they do, how aware are they of the legal requirements around DtC shipping of alcohol, like getting pre-approval from their state alcohol regulators or paying taxes, that likely apply? Especially if a purchase is being made online, the customer is likely to believe they have no actual liabilities.

So at best, these services are setting up their customers for a fall should state regulators investigate those shipments. However, it is still the case that these services—and any supplier who signs up to work with them—remain at risk of liability themselves.

This is because no court has ever accepted the claim that an alcohol seller is ever an innocent party to a sale of alcohol, nor have they adopted the transfer of title claim. Indeed, this very argument was made recently by a New York retailer that shipped wine to a Mississippi consumer. After a lengthy round of litigation, the Mississippi Supreme Court roundly rejected the New York retailer’s argument that they were merely acting as an agent for the Mississippi consumer, and so weren’t at fault. (Though, in that case the Mississippi Alcohol Beverage Control Board was the customer—it was a sting operation—but that is beside the main point.)

It is possible that these services have the belief that they are working within a state’s personal importation laws. Most states do allow their residents to personally bring in alcohol they have bought out of state, or out of country, without needing to get pre-approval or pay taxes. But—and this is a big “but”—those personal importation laws require that the state resident personally import the alcohol, carrying it in their trunk or checked luggage, and do not permit the use of common carriers in a personal importation. (See Texas’s guidance on this, under “Bringing Alcohol Into Texas.”)

Again, if a service is relying on personal importation laws, they are at best mistaken, and are unfortunately setting up their customers, their partners and themselves for potential enforcement action from the states.

The fact is that selling alcohol is difficult and almost always requires managing a wide range of disparate laws and regulations, some of which fly in the face of standard business practices. But states are committed to enforcing their beverage alcohol laws, and they will act as they think best to ensure the health and safety of their residents. Anyone who sells alcohol while relying on gimmickry is setting themselves up for a fall, and suppliers that sign up with such services are assuming the real risk of fines or loss of licenses.

There are no simple solutions to avoiding regulatory compliance when it comes to shipping alcohol DtC, there are only ways to make managing the compliance a little easier.

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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.
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