End-of-year compliance tips for direct wine shippers
The end of any year tends to be a busy time for direct wine shippers, so if staffing and supply chain challenges persist, this year could be even more stressful than usual. In addition to (hopefully) processing an above-average number of orders, direct wine shippers often have to fulfill compliance obligations most other retailers don’t need to consider.
“We see a significant portion of our annual volume of beverage alcohol license and product registration tasks during the three-month stretch between October and December,” says Benjamin Katz, director of Tax Compliance Services at Avalara. “Preparing for this busy season is critical.”
Here are four tips to help you put your best foot forward as you enter the mad rush.
4 compliance tips for the busy year-end
1. Review and renew products
Many states require businesses to register each product and to renew product registrations annually, often toward the end of the calendar year.
Label registrations are about to expire in a number of states, including:
- Louisiana (renew by December 31 annually)
- New Jersey (renew by November 30 annually)
- South Dakota (renew by December 31 annually)
While some states don’t charge a product registration fee for wine, others do: Connecticut charges $200 per label (for a three-year period); Louisiana charges $5 per label per year; New Jersey charges $23 per label annually.
Fee or no fee, registering products takes time because there’s no one-size-fits-all approach. Georgia must approve labels for direct-to-consumer wine sales, even if those labels have already been approved for wholesale distribution. Virginia requires direct-to-consumer (DTC) shippers to submit a list of all products that will be shipped DTC, along with copies of federal label approvals for any products not approved for wholesale distribution. In Michigan, labels approved for wholesale distribution are also automatically approved for DTC sales.
Take the coming weeks to review your order history and inventory lists. Identify low-demand products and consider whether you want to keep offering them. Culling your inventory is a bit like cleaning the junk drawer — it’s often neglected in favor of more pressing obligations — but it needs to be done periodically and it’s best to get it over with before it’s time to register products for the coming year.
2. Review production and shipping volume
Doing an annual review of your production volume and shipping volume is also extremely beneficial. In states that take annual production volume into account for direct shipper licenses, it’s necessary.
Production volume can impact licensing fees
States want production volume information for a variety of reasons. For example, Connecticut allows licensed wineries to self-distribute to retailers in the state only if they produce no more than 100,000 gallons of wine per year. Connecticut also levies an unusually low excise tax on wineries producing no more than 55,000 gallons annually (e.g., certified small wineries).
In Illinois, fees vary depending on how much wine the licensee produces: under 250,000 gallons, between 250,000 and 500,000 gallons, and more than 500,000. The more wine a business produces, the more expensive their license will be.
The New Jersey Out-of-State Winery License is only available to out-of-state wineries producing no more than 250,000 gallons of wine per year. And permittees that ship 5,000 gallons or more annually to consumers in Texas have different reporting and tax requirements than permittees shipping less than 5,000 gallons to Texas consumers annually.
Ohio now has two direct shipper permits: the S-1 permit for wine manufacturers and suppliers that produce less than 250,000 gallons annually, and the S-2 permit for those producing 250,000 gallons or more annually. Prior to September 30, 2021, manufacturers and suppliers producing 250,000 gallons or more annually could not ship directly to Ohio consumers.
If you don’t provide the production volume information to the states that require it, your application for a license renewal may not be approved.
Shipping volume may be closely monitored
Many states also cap shipping volume, and therefore agencies monitor shipping volume to ensure limits aren’t being exceeded. This is typically done throughout the year via shipment reports or something similar, so states may not ask for it with license renewals.
Shipping volume varies from state to state. For example, Michigan doesn’t cap the amount of wine a DTC shipper can send to one consumer, but the total wine shipped from a winery to all consumers in the state cannot exceed 1,500 cases. Though there’s no state limit in Idaho, each licensee can ship no more than 24 nine-liter cases of wine per resident annually. In Oregon, the volume limit is five cases per person per month, while direct shippers can send no more than 12 cases containing no more than nine liters (or equivalent) per person per year in Maine (containers cannot be smaller than 750 milliliters).
Texas deserves a special callout, as it tracks three separate volume limits. A winery can ship nine gallons per person per month, 36 gallons per person per 12 months, and 35,000 gallons into the state in aggregate per year.
There tends to be a spike in beverage alcohol sales during the holidays. Knowing how much you’ve shipped into each state in advance of the holidays helps ensure your holiday orders won’t tip you over a shipping volume threshold. Penalties for exceeding your shipping limit range from fines, to suspension of the license, to charges being issued against the licensee; it depends on how many times and how severely a volume limit law has been broken.
States generally issue some kind of warning when they catch a wine shipper exceeding a volume limit, and the warning may have a fine associated with it. Should a business continue surpassing a limit in the wake of a warning, the penalties may become more severe. It depends on the state.
3. Renew and obtain new licenses
Like product registrations, beverage alcohol licenses in many states expire annually, often at the end of the calendar year. States want to ensure the information they have for each business is accurate and up to date.
States where DTC wine permits expire each year on December 31 include:
In Louisiana, the direct wine shipper permit issued by the Alcohol and Tobacco Control expires December 31 of each year. However, the direct wine shipper license issued by the Louisiana Department of Revenue, which is called the Authority to Make Direct Shipments of Wine to Louisiana Consumers, expires each year on June 30.
Other annual expiration dates include February 28 (Arizona), April 30 (Michigan), and June 30 (California). DTC licenses expire one year from the issue date in Connecticut and Virginia but two years from the issue date in Kansas. In North Carolina, DTC permits generally don’t expire.
Most renewals are now done online and are relatively simple. It’s usually a matter of verifying information for the business and licensee, such as the address and ownership, and paying the fee. Some states still send out paper renewal forms and require them to be submitted, but that’s becoming less and less common.
While renewing expiring licenses, you should also check that you have the licenses needed to ship in all states where you sell — or where gifts are being sent from consumers in other states.
Avalara for Beverage Alcohol can help you with licensing and registration requirements in all states, as well as beverage alcohol tax calculation and returns.
4. Start making your wish list for 2023
Unless you’re already registered and doing business in every state (and every country), you likely have your eye on compelling new markets. As you consider growing into a new area, keep in mind the costs (financial and otherwise) associated with doing business there … and the risks of shipping into a state if you’re not licensed to do so.
Wineries seeking to grow may make DTC shipments into states where they’re not licensed to do so. Some entities may be so small they’re not licensed to ship to consumers in any states, while rapidly growing companies may simply be having trouble keeping up with expanding requirements.
Whatever the reason, the risks of shipping into states without a DTC permit are real. In March, Michigan announced it had issued injunctions and fines against three out-of-state companies for “illegally shipping wine direct to Michigan consumers without a license.” As of that date, the state had collected more than $100,000 in fines against “illegal alcohol shippers” and had 17 other lawsuits pending.
Michigan isn’t the only state scrutinizing DTC shippers for unauthorized activity. Texas is reportedly auditing thousands of shippers, and enforcement efforts are underway in Louisiana, Missouri, and Tennessee. Enforcement efforts in Virginia typically focus on education rather than penalties. “Some states are very strict with their initial enforcement efforts,” says Jeff Carroll, general manager of Avalara for Beverage Alcohol. “Others are more focused on education and give you an opportunity to get licensed before penalizing you.”
If you’re already selling and shipping beverage alcohol products in the United States, you (hopefully) meet the federal requirements to do so. But since states regulate the production, sale, and distribution of alcohol within their borders, you need to make sure you meet all state requirements too. Depending on the jurisdiction, there may be local requirements as well.
Before shipping beverage alcohol into any new state, contact the appropriate alcohol beverage authority to learn what you need to do to be in compliance; the Alcohol and Tobacco Tax and Trade Bureau (TTB) publishes a list of alcohol beverage authorities in the United States, Canada, and Puerto Rico. Avalara for Beverage Alcohol can also help you establish your business in new markets and comply with direct-to-consumer wine shipping rules in all states.
To learn more, visit Avalara for Beverage Alcohol.
It’s here — Read Avalara Tax Changes 2023
Review tax updates and trends, plus get a forecast of what’s to come
Stay up to date
Sign up for our free newsletter and stay up to date with the latest tax news.