Revised Texas ABC advisory updates rules for unlicensed ecommerce businesses
The Texas Alcoholic Beverage Commission (TABC) has updated a draft advisory on ecommerce platforms.
TABC published its first ecommerce advisory in 2013, and according to Jeff Carroll, general manager of Avalara for Beverage Alcohol, it was a big deal at the time. This was five years before the Supreme Court of the United States issued its seminal ruling in South Dakota v. Wayfair, Inc. (June 2018), which freed states to tax remote sales. The 2013 advisory focused on unlicensed third parties offering advertising and payment processing services to direct wine shippers.
In July 2022, TABC updated a marketing practices advisory originally released in October 2021. The 2022 draft advisory focuses on the use of online platforms that facilitate the sale of alcoholic beverages. Specifically, it discusses the use of sales and advertising on these platforms, and the underlying relationships between suppliers, retailers, wholesalers, and third parties.
According to the July 2022 draft advisory, TABC has “observed an increase in platforms that go beyond facilitating retail sales by also providing marketing/advertising services to alcohol manufacturers while simultaneously operating an online store or marketplace on behalf of TABC licensed/permitted retailers.” TABC “views these digital/online platforms as an extension of a retailer’s brick-and-mortar location.”
There are four key takeaways:
- There’s an increase of unlicensed third-party platforms
- The lines between manufacturers, retailers, and wholesalers (the three tiers) are blurring
- Rules governing brick-and-mortar stores apply to ecommerce sites
- Online B2B platforms threaten the separation of the three tiers
The updated draft guidance also specifically addresses B2B ecommerce sales of alcohol moving through the three-tier system. It notes that the link between the tiers means “these platforms may have functions that threaten the independence of each tier, especially retailers.”
Since the three tiers must remain separate in B2B as well as B2C transactions, TABC suggests industry members be especially mindful when a situation involves things of value, special services, prohibited agreements, or exercise of licensed privileges.
TABC also emphasizes the need to mind the line between supplying a technology versus engaging in the functions of a licensed business. Providing technological services is permitted. Engaging in the functions of a licensed business is not.
What comes next?
Jeff Carroll isn’t surprised the draft advisory extends the rules governing physical stores to online stores. Tied-house laws prevent suppliers from giving anything of value to retailers in exchange for premium placement or advertising, and it makes sense that an agency would look to apply those rules to ecommerce as well, especially as more and more B2B transactions are facilitated online.
In this regard, the Texas draft guidance will likely have ripple effects in the industry if adopted because many unlicensed marketplaces currently accept payment from suppliers for premium placement/advertising. Texas may be one of the first states to weigh in on some of these topics, but it likely won’t be the last. It’s common for states to follow each other’s lead in situations like this.
Read more about this topic in our Alcohol Marketplaces blog series, where Rebecca Stamey-White, partner at Hinman & Carmichael LLP, and Jeff Carroll explore multiple issues surrounding alcohol marketplaces and propose a compliance framework to meet the goals and concerns of different stakeholders.
There’s also good information in Beverage alcohol compliance basics: The three-tier system, product registration, and taxes.
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