Wine Industry Urges the Reform of Rules on Interstate Shipment

Wine lovers beware: Shipping your favorite Cabernet to a cousin in Kentucky could be a crime.

It is a felony in seven states to directly ship wine across their borders. All but 12 states and the District of Columbia have significant restrictions that make it difficult to send Oregon Pinot Gris to a business associate on the East Coast.

Advocates for free and easy interstate wine shipments liken it to prohibition and restraint of trade. Supporters of the laws contend it’s a health issue for minors, a tax matter for state government and a competitive issue for distributors.

Based on litigation pending in several states, the battle over direct wine shipments has shaped up as a conflict between 21st Amendment rights giving states the authority to regulate alcohol and constitutional guarantees to the rights of interstate commerce.

Throw in the complexities of doing business on the virtually unregulated Internet and the dispute becomes as murky as sediment in the bottom of a wine barrel.

At McCarthy & Schiering Wine Merchants in Seattle’s Queen Anne neighborhood, owner Daniel McCarthy keeps a shippers’ pamphlet handy, telling him which states have what rules and where he could face criminal charges for sending a case of Chardonnay.

“In the long run, what you have is a fatal flaw in the system,” McCarthy says. “I would say it probably affects our sales by about 25%.”

McCarthy, who did about $3 million in business last year, would like to offer more direct shipments as a convenience to customers interested in Northwest wines.

“I could also do more rare and fine wines if I were to use an Internet site. I don’t do that right now because of this whole shipping situation. I don’t want people dropping an order for wine and then [my] not being able to fill it,” he says.

Several Internet sites have been set up to lobby for direct shipments, including one group called Free the Grapes in Napa, Calif., with a fierce-looking grape mascot named “Shackles.”

The biggest problem falls on new, small wineries trying to break into the market, says Chris Figgins, a board member for the Washington Wine Institute. His family also owns the prestigious Leonetti Cellars winery in Walla Walla.

Distributors are consolidating as the wine industry booms, particularly here in the Northwest. New wineries can have difficulty finding an interstate distributor, so the other option would be to ship directly to consumers.

“They’re denied that market entirely,” Figgins says.

John De Luca, president of the Wine Institute in San Francisco, the public policy association for the California Wineries, says much of the direct shipment reform movement is driven by consumers, who try wines while traveling or read about them in the wine press, and want access to vintages not handled by their state’s distributors.

Of course, there are businesses that skirt the laws.

“A lot of people have taken a policy of ‘we’ll ship anywhere,’ ” McCarthy says.

“They create a DBA [Doing Business As]--a name that doesn’t have anything to do with wine in it--and they use that for their shipping labels. There are no receipts in the box, and no reference to where the wine is from,” McCarthy says. “I don’t think it’s worth the time, not for a felony.”

Recent federal legislation gives state attorneys general the authority to go outside their own borders to prosecute such offenders.

Many in the wine industry blame big distributors or wholesalers for tying up the interstate market with what they call protectionist legislation in their home states under the guise of the best interest for minors.

Figgins says that’s “absolutely hogwash.”

“Consumers are fed up with being told it’s a danger to children that they can’t order a bottle of $50 Merlot from Washington state,” he says.

Phil Wayt, director of the Washington Beer & Wine Wholesalers Assn. in Olympia, suspects that minors ordering wine probably aren’t the real problem.

“I don’t know how many underage kids are receiving product,” Wayt says. “I doubt there are too many 16-year-olds who, on their parents’ credit card, order a nice Cabernet from Washington and wait five days for it.”

The concern among distributors is unfair competition and the possibility of expanding direct shipments to beer and spirits, Wayt says.

He’s already shown the Washington State Liquor Control Board evidence of laws and rules being broken through prohibited direct mail and Internet solicitations of customers in Washington.

He says alcoholic beverages are coming into Washington from both the 13 reciprocal areas--those that allow direct shipments to consumers--and other states in ways that violate the law.

“The concern of our distributors is not so much we want a piece of the pie; it’s that the unchecked, unregulated and unreported distribution of product into the state has an unfair advantage over all the other systems,” he says.

The state liquor board has no estimates on how much tax revenue the state might be losing annually on out-of-compliance wine shipments to Washington, says board spokeswoman Gigi Zenk.

A committee was established recently to discuss controlled delivery of wine and beer to the state over the Internet, to allow for tax collection and to prevent delivery to minors, Zenk says.

De Luca says the new year will bring a renewed push on a state-by-state basis to facilitate direct shipment.

From 1985 to the present, the institute’s lobbyists have been able to change interstate commerce laws for wine in 20 states and intrastate laws in 30 states, De Luca says.

“We’d like to continue that,” he says. “Hopefully, wholesalers will work with us at the state level to craft creative solutions.”

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https://www.freethegrapes.org

https://www.wswa.org

https://www.wineinstitute.org