A guide for producers who are just starting out
While compliance for direct-to-consumer (DtC) shipping and wholesale distribution should never be an afterthought, there are a few steps your business will need to take before you’re ready to make the most of compliance software.
What follows is not a comprehensive guide, but pointers on key concerns for wineries, breweries, distilleries and other producers that want to move into direct-to-consumer shipping or distribution through the three-tier system.
Across the board, states will require your business to hold the appropriate license(s) to distribute or -ship directly to consumers in their state. There are a few ways to approach this important hurdle. The three main ways to get licensed are DIY, a hybrid approach or outsourcing to an expert.
Doing it yourself will cost the fewest dollars, but this method is the most likely to result in headaches and delays as you navigate complex state bureaucracies.
A hybrid approach keeps you in the hands-on role, but supported by software that guides you to more complete, approval-ready license applications.
Outsourcing to an expert, such as a consultant, attorney or Sovos ShipCompliant, allows you to hand off all licensing tasks to an experienced professional who manages the entire process on your behalf.
License applications are typically returned by the states between a few weeks and two months or more after the application is made, so it pays to plan ahead. (Some DtC shipping licenses are granted immediately, and Florida, Minnesota and Washington, D.C. do not require a DtC shipping license, although you may need to collect and remit sales tax within those locales, depending on the economic nexus status of your business.)
Learn more
Three-Tier System Essentials: Getting Licensed
DtC Essentials: How to Get Your Alcohol Shipping License
You know better than anyone what your realistic production target will be, based on your facilities and other resources, along with market demand. Your annual production will influence your go-to-market strategy as described below. And of course, the greater volume you ship DtC or distribute wholesale – or both – outside of your home state will increase your compliance management needs.
Learn more
10 Steps to Grow Your Winery’s Footprint
10 Steps to Expanding Your Brewery
Considering your total annual production, identify how much you aim to sell own-premise (tasting room/tap room), on-premise (through wholesale distribution), off-premise (also via wholesale) and/or DtC shipping. Each means of getting your product to market involves different efficiencies, costs, licensing requirements and marketing considerations.
Learn more
DtC Wine Shipping ROI Tools
Three-Tier System Essentials: Distributor Relationships
It’s never too soon to begin researching and selecting your sales partners, whether that be an ecommerce platform, a distributor (wholesaler) partner or both. Consider allowing six to 12 months for these processes.
Set yourself up for success by selecting an ecommerce platform that can provide accurate sales tax rates for beverage alcohol products and not just general merchandise. Talk with your ecommerce partner about realistic timelines for establishing a web store and what will be required of you in the process. Many producers streamline success by adopting an ecommerce platform that is fully integrated with Sovos ShipCompliant, enabling seamless, automated compliance when the time comes.
If you plan to sell wholesale, do your due diligence with candidate distributors to identify what they would require to bring you on board, and what the benefits and limitations of the contractual relationship would be.
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Find ecommerce partners integrated with ShipCompliant
Learn more about distributor relationships
Whether you’re still putting the finishing touches on your business plan or producing product ready for sale, aspiring DtC shippers do well to think ahead about fulfillment, or how you’ll get packages to customers — compliantly and with the kind of tracking capabilities that enable top-notch customer service. Will you work with a third party such as a fulfillment house, or handle it in house? If you decide to work with a third party, ask how their processes will connect with your ecommerce and compliance partners.
Common carriers like FedEx and UPS are also critical to your success as a compliant DtC shipper, avoiding fines and penalties. Alcohol shipments always require ID verification and an adult’s signature, so work with carriers that fully commit to following the law. While the burden is levied on the carriers, your shipping license is the one on the line. Your ecommerce or fulfilment partner may recommend a preferred carrier.
Learn more
Find fulfillment partners integrated with ShipCompliant
Where Are We With Fulfillment House Regulation?
Out of the gate, you’ll also want to be thinking about how to collect and report/remit taxes with tools that help you minimize costly errors.
While there’s a lot to consider here, perhaps the most important guidance is to be sure you’re collecting alcohol-specific tax rates at the specific, destination level. This allows your business to avoid over- or under-collecting taxes, each of which comes with its own problems and even legal consequences.
Also note that once you receive your licenses, you will often have an obligation to begin reporting to the corresponding states, even if you have not yet made sales there. This is called a zero-dollar report, and Sovos ShipCompliant can help you with these as you are getting started.
If you plan to use Sovos ShipCompliant’s tax calculation and filing solution, you’ll want to allow four to six weeks for implementation. Many customers time their kickoff with ShipCompliant around the same time that license applications are being filed.
Learn more
DtC Shipping Essentials: Tax Determination and Reporting
A Guide to Direct-to-Consumer Taxes for Brewers and Distillers
How to Grow Your DtC Wine Business with Real-Time Software
Direct-to-Consumer Shippers and Sales Tax
Sales Tax Guide for Direct-to-Consumer Shippers
Feeling ready to dive deeper on DtC shipping? Download your complimentary ebook,
DtC Alcohol Shipping Essentials: Getting Started & Staying Compliant.
Find out more about What to Expect When Implementing DtC Shipping Compliance Software.
Need more info on whole distribution compliance? Check out this ebook: Three-Tier System Basics: Staying Compliant in an Evolving Industry.
Learn What to Expect When Implementing Wholesale Distribution Compliance Software.
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