wine-bottle-in-a-box

Alabama’s new DTC application process is a doozy, and the dust hasn’t yet settled

Last May, Alabama passed a law authorizing wineries to ship wine directly to consumers in the state starting August 1, 2021. This is an exciting development for wine enthusiasts in Alabama and wineries nationwide. It’s also a major change that entails developing a new application process in a short period of time. Currently, it’s a work in progress.

The Alabama Alcoholic Beverage Control (ABC) Board published a Direct Shipment/Wine Fulfillment Checklist and Pre-Application on August 1, 2021, the day direct-to-consumer (DTC) shipments into Alabama officially began. In early September, it updated the checklist and pre-application form. A third version of the pre-application may be released by mid-October, after the ABC finalizes its regulations.

Many wineries (and licensed fulfillment houses, on behalf of wineries) are eager to register and start exploring the Alabama market. However, most are waiting to see exactly what’s required of them before beginning the application process. There are a couple of key differences between the first and second iterations of the pre-application/checklist; more could emerge if there's a third.

The pre-application and checklist released August 1 included a lot of the usual requirements and a few unusual ones. The usual suspects include:

  • Applicant ID

  • Copy of state wine manufacturer license

  • Federal tax ID (excludes sole proprietors)

  • Filing fee

  • Power of attorney (if applicable)

  • Sales tax registration

Most states ask DTC shipper applicants for the above. It’s more unusual for a state to ask for the following:

  • A certificate of existence from the Alabama Secretary of State (only for out-of-state corporations and LLCs)

  • Substantial background checks for every person with profit or proprietary interest in the applicant (including but not limited to all members of an LLC and all officers of a corporation)

  • Lease, use agreement, or deed of a winery’s place of business in another state 

  • Liquor liability insurance certificate (a minimum of $100,000 in liquor liability coverage)

  • Proof of citizenship documents for every person with profit or proprietary interest in the applicant (including but not limited to all members of an LLC and all officers of a corporation)

During the month of August, the ABC amended the checklist and pre-application form a bit. For example, it eliminated the requirement to share the lease, use agreement, or deed of a winery’s place of business. It also clarified that in-state wineries must register with the Alabama Department of Revenue for sales tax while out-of-state wineries must register for sellers use tax or simplified sellers use tax (recommended by the Department of Revenue).

On the other hand, v2 maintained the requirement for out-of-state corporations and LLCs to obtain a certificate of existence from the Alabama Secretary of State. It’s interesting that the application doesn’t have this requirement for other business types (e.g., sole proprietorship). Most states don’t require any direct shipper license applications to register with the Secretary of State in that state. 

Background checks are still required. As of October 1, 2021, every person who has a proprietary or profit interest of 10% or more in the licensed establishment will need to supply a fingerprint-based, nationwide criminal history background check (see Senate Bill 126 for more details).

The second version of the pre-application no longer asks applicants to identify the police jurisdiction they’re in — something only Alabama businesses would understand. It no longer asks for probate or booking information, also unique to in-state businesses. Yet it does still ask applicants to explain how they’ll be funding the business, and whether every person with a profit or proprietary interest in the applicant is a U.S.-born citizen, a naturalized citizen, or a non-U.S. citizen.

Also noteworthy: Alabama is still requiring direct wine shippers to obtain liquor liability insurance. Though common for businesses that sell alcohol on premises, for obvious reasons, this is a very unusual requirement for a direct shipper.

Three steps to selling directly to consumers in Alabama

 

1. Register with the Alabama Secretary of State for a Certificate of Existence (required for out-of-state businesses only, excluding sole proprietors and partnerships; in-state businesses must provide documents filed with the SOS); note: A business that registers for a Certificate of Existence will have additional tax liabilities and filing obligations, as any business entity registered to do business in Alabama is required to file an Alabama Privilege Tax Return and Annual Report

- Paper or online application

- $25 fee

2. Register for sales tax (in-state businesses) or sellers use tax/simplified sellers use tax (out-of-state businesses) with the Alabama Department of Revenue

No cost

- Submit a pre-application with the Alabama ABC

3. Paper application; no online application available

- $50 fee per license, payable by credit card or electronic check only; applicants won’t be contacted for payment until the complete application has been submitted and reviewed for accuracy by the ABC Board staff

- Obtain a direct wine shipper license ($200) or wine fulfillment center license ($500)

 

Alabama doesn’t prorate fees for ABC licenses, which expire annually on September 30. If you apply in June, you’ll have to pay the whole fee for the right to operate for just a few months. The Alabama ABC recommends businesses apply for their first license on or shortly after October 1. Renewals must occur between June 1 and July 31 of each year.

Although Alabama is still finalizing application requirements and processes, it is accepting applications at this time (or rather pre-applications, since that’s what they’re called). Currently, the pre-application process takes roughly three or four weeks, but that could change once more businesses apply.

Many wineries are waiting to register until the requirements are finalized. However, if you’re ready to enter Alabama’s market, Avalara for Beverage Alcohol can help.

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