Virginia's Legislature Passes a New Direct Shipping Law
By Leslie Weinhardt, Contributing Writer

Under a new law, approved by Governor Mark Warner in April, Virginia consumers will be able to have a limited amount of wine shipped directly to them from any state in the union as long as the seller holds a Virginia wine shippers license, effective July 1, 2003.

While this is obviously good news for Virginians who enjoy hard to find out-of-state wines, you may wonder how it benefits non-Virginians. Representatives of the Virginia wine industry hope that by opening our own market to out-of-state shipments, the industry will in turn gain access to markets in other states that currently prohibit direct shipments of wine from Virginia.

In an age when it seems like you can buy practically anything from practically anywhere and have it on your doorstep within a week, people from certain states have been surprised to learn that they could not ship even a single bottle of Virginia wine to their own home, but they might be able to ship a couple of cases to a friend in a neighboring state.

To understand how this situation developed, we must go back to the 21st Amendment to the U.S. Constitution, which ended the nationwide prohibition of alcohol and allowed individual states to regulate the sale, import, transport, and manufacture of alcoholic beverages.

Following prohibition, a crazy quilt of legislation and regulations evolved. Most states developed what is known as a "three-tier system" for distribution of alcoholic beverages, under which manufacturers sell to licensed wholesalers, who then in turn sell to licensed retailers, who in turn sell to individual consumers.

The intent was to prevent any one entity from gaining control over all aspects of the industry. Such systems were also designed to facilitate the collection of taxes and to prevent minors from gaining access to alcohol.

Current state laws regarding direct shipping vary widely but can be grouped in three main categories: first, states prohibiting it entirely; second, those allowing limited shipping from any state in the union; and lastly, those allowing shipping only from states which permit consumers to receive direct shipments in return. This last category is referred to as the "reciprocal states."

With passage of the new law, Virginia moved from the first category to the second. Previously, about the only ways Virginia residents could legally obtain out-of-state boutique wines were either to bring them home in personal luggage or to try to purchase them through the three-tier system.

The system apparently worked well enough for large production wines, but was not responsive to consumers interested in wines produced in such small quantities that they were often not worth a wholesaler's time and effort.

Recent years have seen a dramatic increase in the number of boutique wineries across the country making limited production wines. In turn, the demand for states to allow direct shipping has grown commensurately. Consumers in at least eight states, often in conjunction with out-of-state wineries, have challenged the constitutionality of state laws against direct shipments.

At the heart of each case is the question of which takes priority, the 21st Amendment or the Commerce Clause of the Constitution. Some courts have declared laws that prohibit direct shipping unconstitutional, while others have upheld the status quo. After the District Court in Richmond found a Virginia law prohibiting direct shipments from outside the state unconstitutional, the General Assembly took action.

Terri Cofer, a lobbyist for the Virginia Wineries Association (VWA), which actively supported the legislation, indicates that the General Assembly rarely takes up an issue that is under litigation; however, in this case, had the legislature not acted, the courts would have been put in the precarious position of trying to "guess the intent of the General Assembly." By going through the legislative process, the General Assembly was able to devise a solution that addresses the interests and concerns of wineries, wholesalers, and consumers alike.

The legislature considered two options for reconciling the shipping law with the constitution. Delegate Albo sponsored House Bill 1652, which basically would have required all Virginia wine sales to go through ABC stores, virtually eliminating in-state direct shipments. This option risked further limiting consumers' choice of wines and potentially reducing overall sales of Virginia wines.

Meanwhile, Senator Hanger introduced Senate Bill 1117, which would have required out-of-state wineries only to be licensed by the Virginia Alcoholic Beverage Control (ABC) Board in order to ship wine to consumers in Virginia. Wholesalers generally supported the House bill that reinforced the three-tier system, while wineries favored the Senate solution.

Cofer indicates that both sides began working toward a compromise early in the legislative session. Wholesalers dropped the idea of requiring Virginia wine sales to go through ABC stores, and the wine industry agreed to require Virginia wineries to get the same licenses that would be required for out-of-state shippers.

Cofer says that the new law was specifically crafted to gain reciprocity for Virginia, thereby opening up shipping both to and from the 13 existing reciprocal states. If for any reason, Virginia is not recognized as reciprocal, the industry intends to seek further legislative action until reciprocity is attained.
Cofer also mentions that along with the VWA, The Virginia Vineyards Association (VVA), The Virginia Farm Bureau, and The Agribusiness Council all actively supported passage of the new law.

Tim Gorman, former president of the VVA, comments, "As growers who sell fruit for wine, we feel it is important to support our customers-the wineries. Obviously, a more prosperous Virginia wine industry will only strengthen the role of the independent grower...The VVA approached the VWA and offered our assistance. We worked to let legislators know we were out there in larger numbers and more districts than the well-known wineries...Working with the wineries association, I think the Virginia Vineyards Association was successful on a truly "grass roots" level at getting the legislation we desired."

While the law definitely brings Virginia one step closer to free and open interstate trade where wine is concerned, barriers to such trade still exist. Lew Parker, President of the VWA, points out, "the new law should keep Virginia's wineries shipping to their own in-state customers and afford them the opportunity to gain customers for direct shipping in the 13 other reciprocal states.

"Now we need to have more reciprocal states. Many of us have customers in Maryland. Even with the new law, we will not be able to serve these customers because of Maryland's highly restrictive laws, and we hope Maryland's legislature will begin to take note of the wishes the voting public."

Under the new law, all shipments of wine to consumers in Virginia will be considered sales in Virginia, and all license holders will be required to collect and remit appropriate taxes to the ABC Board and Department of Taxation each month.

Since Virginia taxes are already collected on direct shipments within the commonwealth, the law will not affect how Virginia wineries collect or pay taxes on intrastate wine shipments. However, interstate shipments fall under the purview of two sets of laws, those of the state of origin and those of the state of delivery.

Under the new law, a license holder can ship up to two cases of wine per month to a given consumer. The law further required each shipper to keep "complete, accurate, and separate records" and to submit a monthly report reflecting quantities sold and prices charged as well as the names and addresses of all purchasers.

According to Walker the reporting requirement will apply to in state and out of state permit holders alike, and reports will be required even in months when no shipments are made. Reporting forms and procedures are being developed, with some online reporting options being explored, and should be available no later than July 1, 2003.

Finally, the law requires all shipping containers to be clearly labeled, "CONTAINS ALCOHOLIC BEVERAGES; SIGNATURE OF PERSON AGED 21 YEARS OR OLDER REQUIRED FOR DELIVERY."

While Virginia wineries will face some additional licensing, reporting and administrative requirements for in state shipments and may initially have to sort through a plethora of laws, regulations, and possible permit requirements in reciprocal states, the law presents a clear opportunity for the Virginia wine industry as well as to consumers both inside and outside of the commonwealth.

Forms and procedures for implementing the new law are to be posted to the Virginia ABC Board homepage at www.abc.state.va.us.

© 2003 Virginia WIne Gazette, All Rights Reserved. Summer 2003