Ohio Court Rejects DtC Shipping from Illinois Retailers

Alex Koral
September 15, 2022

In another blow to proponents of expanded direct-to-consumer (DtC) shipping of wine, a court in the Southern District of Ohio earlier this week ruled in favor of the state, rejecting plaintiff’s claims that Ohio’s DtC shipping laws for retailers were discriminatory and harmful to consumers.

What happened in this case?

The case, Block v. Capera (2:20-cv-03686, Southern District of Ohio), involved a Chicago-based wine retailer and an Ohio resident who alleged they were harmed by Ohio’s laws, which permit in-state retailers to ship wine while denying that permission to out-of-state retailers. The plaintiff’s argument noted the deleterious market effects of Ohio’s laws, which discriminate on their face against out-of-state interests, and the potential loss to the Ohio resident, who cannot access the many wines that are sold somewhere in the U.S. but not in Ohio.

However, the Ohio court rejected these claims, granting the state’s motion for summary judgment, putting an abrupt stop to the case. Summary judgment is an action commonly taken by courts on a finding that there is “no genuine dispute of fact” so that a judgment can instead be made on a “matter of law.” That is, because the disputants do not disagree as to what happened to cause the case to be brought in the first place, the judge needs only to look at what the law says to make a ruling. In this case, the judge determined that the law indeed does support Ohio’s ability to discriminate against out-of-state retailers.

Notably, the summary judgment motion in this case did not include much of a discussion about Ohio’s law or its constitutionality. Instead, the motion essentially decided that this argument had already been decided by the Sixth Circuit Court of Appeals, which found in favor of a similar discriminatory retailer DtC wine shipping law in Michigan in the 2021 Lebamoff v. Whitmer case.

Why did the court rule this way?

As a subordinate court to the Sixth Circuit, the court in this latest case was probably judicially correct in adopting the previous ruling. It is still disappointing, though, that this court almost entirely refrained from taking the plaintiff’s arguments seriously, instead cursorily adopting the position that under the 21st Amendment, any laws that states enact regarding their alcohol markets is valid. This is especially disheartening as the original Sixth Circuit ruling that this court takes as granted similarly failed to address the actual concerns of the consumers and retailers who sued to begin with.

The summary judgment motion does point out the rigorous licensing and auditing that Ohio retailers must undertake to operate in the state. Unfortunately, it then assumes as truth that, with out-of-state delivery of alcohol, “ ‘the least regulated (and thus the cheapest) alcohol will win.’ ” (Baker, p. 24, quoting Lebamoff, 956 F.3d at 872).

This assumption ignores the fact that no state has an unregulated alcohol market—retailers everywhere must be licensed and submit to local audits. While Ohio does have price controls that might make a given bottle of wine slightly more expensive on the shelf in Cincinatti than in Chicago, this claim also ignores the costs associated with a Chicago retailer shipping their products to Ohio residents, including freight and the costs of getting licensed by Ohio and paying taxes to Ohio (if Ohio were to follow its practice for how out-of-state wineries and breweries can ship DtC into the state).

Further, it ignores the fact that the current DtC wine market is dominated by more expensive products (the average bottle price of a DtC shipped wine hovers around $40 versus around $11 for wine purchased in retail stores) and by products that are not widely distributed. An Ohio resident is not going to pay shipping and handling and wait a week to save a couple bucks on a bottle of Yellowtail they can easily find down the street—they are looking to find the rare 100-point Burgundy that may be purchased in a few select import stores in the largest of markets but is not available in Ohio.

Nevertheless, the court’s ruling here is determinative in its support for Ohio’s current laws. While this is only one case among many active across the country, and the plaintiffs may appeal the ruling to a higher court, admittedly proponents of retailer DtC shipping of wine have not had much success in these cases.

At a certain point, it seems that if states will keep winning these cases as a matter of law, the better course of action would be to change the laws and grant retailers similar DtC shipping permissions as are available to manufacturers. The market for DtC shipping by wineries has proved time and again to be popular, profitable and fully capable of adhering to state regulations, like licensing, preventing sales to minors and paying taxes, and there is ultimately little to the argument that retailers cannot also meet these standards if given the chance.

Take Action

Download our complimentary ebook to learn more about DtC alcohol shipping essentials.

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 […]