Expert Analysis from DtC: 2021 Lessons Learned and 2022 Predictions
There have been many—even if minor—shifts in the beverage alcohol direct-to-consumer (DtC) industry since 2021. New economic nexus requirements will alter how wine shippers collect and pay needed sales taxes, and third-party shipping options have the ability to defy the system.
Alex Koral, Regulatory General Counsel at Sovos ShipCompliant, was asked by Wine Sector Advisor what he feels are the most important 2021 DtC lessons learnt and what the wine industry may expect in the next year 2022 Predictions.
DtC shipping permits to include more product types:
In 2021, many efforts to amend state legislation were failed, but beer and spirits companies that wish to export DtC are still hampered by restrictions prohibiting their presence. Customers’ expectations of having everything delivered to their home aren’t going away, so such efforts will almost probably continue beyond 2022. The success of DtC shipping in the wine business is widely known among beer and spirits companies. They want a piece of that pie.
States continue to exert pressure on current DtC marketplaces to regulate and control them:
State authorities have strengthened their surveillance of the business as DtC shipping has grown. There are widespread rumours about unlicensed shipping, unpaid taxes, and sales to minors, all of which are legitimate concerns for regulators, even if the solutions they employ (ongoing investigations into licenced and tax-paying shippers, and restrictions on their logistics services) aren’t always tailored to address those concerns.
Two states changed their fulfilment house requirements in May, affecting DtC wine delivery. Governor Bill Lee of Tennessee approved HB 742, which imposed additional limits on the wines that a licenced DtC shipper may sell and transport to Tennessee consumers. New record retention and quarterly reporting requirements for winery direct shipper licensees were also mentioned in a bill provision. In 2022 and subsequent years, lawmakers will strengthen this pressure by conducting further audits and evaluations of licenced shippers, as well as imposing new laws and limits on the use of third-party services such as fulfilment houses.
The bill for USPS Shipping Equity is as follows 2022 Predictions:
A bipartisan measure presented in May would abolish a prohibition-era restriction on the USPS transporting wine and other alcoholic beverages directly to customers. The USPS Shipping Equity Act will extend service to locations that are now solely served by the Postal Service, such as distant and rural areas. It will also provide producers with additional choices for delivering alcohol, perhaps lowering prices and assisting them in meeting demand. However, it is unclear if the law will pass in 2022, and if so, how the USPS would develop an alcohol transportation business. Even if the new regulation is in effect, the USPS and alcohol transporters must still follow local and state laws.
DtC shipping cases against retailers:
One of the most contentious issues in beverage alcohol law these days is whether the 2005 Granholm decision, which opened up the national market for direct-to-consumer delivery by producers, also extends to other tiers, notably merchants. After reviewing the state’s current DtC legislation, the Idaho Alcohol Beverage Control (ABC) division’s legal staff ruled that out-of-state sellers are not permitted to ship any beverage alcohol items DtC in Idaho. Previously, Idaho’s rules had been understood to create a “reciprocal” retail DtC connection, allowing shops to ship DtC to Idaho citizens as long as those retailers were located in a state that allowed Idaho retailers to ship DtC as well.
There is a fair argument that Granholm’s anti-discriminatory principles should apply equally to retailers, prohibiting states from creating DtC shipping rights for just in-state stores; nevertheless, no appellate court has agreed with that argument thus far. It remains to be seen if subsequent courts will reach a different decision, or whether the Supreme Court would intervene to establish a nationwide rule.
DtC shipping and third-party marketplaces 2022 Predictions:
In the past several years, a host of new marketplaces and other third-party platforms allowing suppliers and merchants to sell remotely to customers have sprung up. However, it is unclear if and how these services may function lawfully. To answer these issues, several states have established new permits and rules for some of these businesses, with a concentration on local retail delivery services like Drizzly.
There are a slew of legal restrictions on paid-for advertising and (electronic) shelf placements for DtC shippers, including tied house restrictions on paid-for advertising and (electronic) shelf placements, the collection of money related to the sale of alcohol (which has a number of interesting and complicated knock-on effects regarding sales tax collection), and issues about who holds licences for shuffling.