Kentucky to allow DTC shipments in 2021

Kentucky has taken another step on its long, slow march toward direct-to-consumer (DTC) alcohol shipments. On October 30, 2020, the Kentucky Department of Alcoholic Beverage Control (ABC) announced manufacturers could pre-apply for a license to ship alcohol directly to consumers. Retailers cannot make DTC shipments in Kentucky.

In April 2020, when restaurants, bars, and tasting rooms nationwide were reeling from the impact of COVID-19, the Kentucky Legislature passed a measure allowing licensed breweries, distilleries, and wineries (i.e., manufacturers) to make DTC alcohol shipments into the state. This represents a big change for Kentucky — and change takes time.

Though HB 415 officially took effect July 15, DTC sales won’t be permitted until the legislature finalizes and approves regulations governing DTC sales. According to Wine Institute, this is a time-consuming process that “requires publication, comment period, and legislative approval.” If the regulations are finalized by the end of the year, as currently expected, manufacturers should be able to start shipping directly to consumers in early 2021.

Meanwhile, the Kentucky ABC has opened its application portal to DTC licenses. Businesses licensed as a manufacturer of malt beverages, spirits, or wine in their operating state can now start the process of applying to make DTC sales in Kentucky.

From start to first sale, it’s a seven-step process under the draft regulations:

Step 1: Register with the Kentucky Secretary of State

Step 2: Pre-apply with the ABC

Step 3: Wait for the regulations to be finalized

Step 4: Pay the ABC $100 for the DTC permit

Step 5: Receive the DTC permit

Step 6: Register with the Kentucky Department of Revenue

Step 7: Start DTC sales

Before transacting DTC business in Kentucky, all businesses must obtain a Certificate of Authority from the Kentucky Secretary of State. The filing fee for all business entity types is $90. Applications must be remitted by mail or submitted in person (which may be impossible due to COVID-19).

The Kentucky Department of Alcoholic Beverage Control application portal is currently accepting applications from alcohol manufacturers looking to make DTC sales in Kentucky. The online application portal can be found here. This puts prospective licensees in the queue.

According to the ABC, “Pre-filed applications will be processed when the final ABC regulations related to this bill are approved by the appropriate legislative committees. Upon approval of the regulations, approved pre-applicants may remit a $100 filing fee and receive a license electronically.”

The ABC portal won’t accept payments until the legislature finalizes the regulations. Businesses that complete the online application will be contacted by the ABC once it’s ready to accept payments.

The ABC won’t process the application until the legislature finalizes and approves the regulations. There’s no way to know exactly how long that will take. Patience is advised.

During this time, the ABC will review your application to ensure all is in order.

Once the regulations have been finalized and approved, ABC-approved pre-applicants will be required to remit the $100 fee to the ABC. 

After the DTC regulations have been finalized, the ABC will issue a DTC permit to successful applicants who have completed all the necessary steps and paid all required fees. The license will be delivered electronically after payment has been made.

Manufacturers holding a Direct Shipper’s license from the ABC must create a revenue account with the Kentucky Department of Revenue.

DTC alcohol sellers are required to register with the Kentucky Department of Revenue to collect the following three taxes:

• Sales tax
• Wine excise tax ($0.50/gallon)
• Wine wholesale sales equivalent tax (10% of wholesale price; when no wholesale price is available, it’s assumed to be 70% of the retail price)  

Holders of a DTC permit may start making DTC sales in Kentucky. DTC sales will likely be permitted in early 2021.

As in most other states that allow DTC shipments, manufacturers shipping directly to consumers in Kentucky must abide by certain rules. For example, there’s a cap on the amount of beer, wine, and spirits manufacturers can ship to each consumer per month; shipments to consumers in dry areas are prohibited; the consumer’s age must be verified at delivery; and so on. 

Manufacturers of alcoholic beverages have two options at this point:

1. Pre-apply with the ABC without knowing the final regulations
2. Wait for the regulations to be finalized before applying

There’s no cost to pre-apply; applicants won’t be charged until the regulations are finalized and the application is approved. One of the things to keep an eye on in the final regulations is whether shipments will be allowed from fulfillment houses. 

Avalara for Beverage Alcohol can help businesses ship directly into Kentucky or any other state. Contact us at 877-855-9956 or visit our solutions overview to learn more.