In April, 2020, Kentucky passed HB 415, which established new rules permitting the direct-to-consumer (DtC) shipping of alcoholic beverages. Early on December 14, 2020, the Kentucky legislature’s joint committee on Licensing, Occupations, and Administration Regulations voted to approve new regulations enforcing HB 415 making those laws effective and finally allowing DtC shipping to begin in the state.
The approval of these regulations allows the Kentucky Alcoholic Beverage Control to issue approved licenses to applicants for the new License to Direct Ship to Consumers. Once an applicant receives their approved license and completes any other required registration with the state’s Department of Revenue, they may begin selling and shipping alcoholic beverages directly to Kentucky residents.
Notably, Kentucky’s bill will allow all alcoholic beverages to be shipped to the states’ residents. However, only parties that hold a production license issued by their home state will be eligible for a License to Direct Ship to Consumers, meaning retailers are not permitted to ship DtC into Kentucky.
This new set of laws replaces previous statutes for DtC shipping to Kentucky, which for various reasons proved ineffective. The laws under HB 415 closely resemble other states’ DtC shipping laws and it is expected that the state will soon prove to be a valued new destination for DtC shippers.
What Are the Rules For Shipping into Kentucky?
Like all states that permit DtC shipping of alcohol, Kentucky imposes many rules on shippers. These include:
- DtC shippers must first receive a License to Direct Ship from the Kentucky ABC. This license costs $100, and must be renewed annually.
- The application for this license requires the applicant to provide proof that they have registered with the Kentucky Secretary of State as a business operating in the state.
- The application also requires the applicant to provide copies of their deed or lease for the licensed premises that they will ship from.
- Once DtC shippers have received their License to Direct Ship, they must also register with the Kentucky Department of Revenue to collect and remit the state’s sales and alcohol taxes.
- DtC shippers must register their brand/labels with the Kentucky ABC prior to shipping them into the state.
- DtC shippers are permitted to ship only brands of beverage alcohol that they own or have an exclusive license to use; alcoholic beverages shipped must be produced by the licensed shipper, or produced or bottled for them exclusively by other manufacturers.
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DtC shippers should take good faith efforts to verify they are not making a sale to anyone under 21, including ensuring that their carriers check the recipient’s ID at the time of delivery.
- A single DtC licensee is limited to shipping:
- No more than 10 gallons of spirits per month per individual
- No more than 10 cases of wine per month per individual
- No more than 10 cases of beer per month per individual
- DtC shippers are prohibited from shipping alcoholic beverages from any location other than the premises listed on their license. An applicant can have a license issued to a premises that is different from their production facility; however, they must provide proof that they own or otherwise legally possess such a premises. This means that shippers will be unable to use fulfillment houses or other such third-party storage facilities for their shipments to Kentucky.
- DtC shippers are required to collect and remit all applicable Kentucky taxes on their shipments to the state, including:
- The state’s 6% sales tax;
- Alcohol Wholesale Tax, which is set at 11% of the wholesale price for spirits and 10% of the wholesale price for beer and wine; under the DtC shipping laws, wholesale prices are calculated as 70% of the stated retail price.
- Alcohol Excise Tax, which is set at $1.92 per gallon for spirits, $0.50 per gallon for wine, and $0.080645 per gallon for beer (cider under 7% ABV is taxed as beer, and taxed as wine when above 7%).
- DtC shippers are required to file a quarterly alcohol tax and shipping report, where they remit both their Wholesale and Excise Taxes and provide summary information of each shipment they made in the previous quarter. These returns are due on the 20th of the month following the end of the reporting period.
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DtC shipments may not be made to any community in the state that prohibits the local sale of alcohol (“dry” communities). However, unlike previous DtC rules in Kentucky, liability for such a delivery will rest on the consumer, not the seller or carrier of the beverage alcohol. Nevertheless, DtC shippers should take efforts to ensure their shipments do not go to a dry community by informing their consumers of the potential risk and asking them to personally verify that they do not reside in a community that prohibits the local sale of alcohol.
The addition of a new state to the map that permits DtC shipping is always a matter of good news for us at Sovos ShipCompliant and for our customers. When suppliers are permitted access to new markets and are allowed to fulfill consumers’ desire for variety and new products, and states are able to reap additional tax payments, it benefits all parties. We look forward to providing the necessary support for our users to manage their direct shipper compliance and tax needs in Kentucky.
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