Court rules out-of-state retailers cannot ship wine to Ohio consumers

Out-of-state wine producers can sell and ship directly to consumers (DTC) in 47 states, including Ohio. Out-of-state wine retailers can ship to only 13 states — and Ohio isn’t one of them. But retailers based in the state of Ohio can deliver wine and other alcoholic beverages to Ohio consumers. 

Believing this regulatory scheme runs afoul of the United States Constitution, an Ohio wine aficionado and a Chicago-based wine seller took Ohio to court. On September 14, 2022, Judge Sarah D. Morrison of the United States District Court for the Southern District of Ohio Court Eastern Division, granted summary judgment in favor of the defendants (i.e., the state), dismissing the plaintiffs’ challenge. The case is Derek Block, et al, v. Jim Canepa, et al.* (hat tip to the Alcohol Law Review for the opinion).

Ohio has the right to regulate alcohol commerce

The 21st Amendment grants states the power to regulate commerce with respect to alcohol. According to the court opinion, “Ohio has taken full advantage of that power.”

Following the repeal of Prohibition, Ohio established a three-tier system for distributing wine and other alcohol in the state:

  1. Suppliers sell to wholesalers
  2. Wholesalers sell to retailers
  3. Retailers sell to consumers

Ohio then went further, requiring alcohol wholesalers and retailers to maintain a physical presence in the state. The wine they sell in Ohio must first “come to rest” at one of their Ohio locations. 

Retailers must have a physical presence in Ohio to sell wine

According to the court, the physical presence requirement allows the state “to efficiently collect excise taxes.” Rather than on numerous retailers, Ohio excise tax is imposed on beverage alcohol manufacturers and wholesalers. Of course, beverage alcohol retailers in the state remain liable for applicable sales taxes.

The opinion further holds that “this prescribed supply chain allows the state’s alcohol regulatory and enforcement agencies to keep close watch over the sale and movement of wine throughout Ohio.” The court was persuaded by testimony of members of the Ohio Division of Liquor Control (DOLC), who expressed that making alcohol more available, particularly over the internet, could threaten the health and safety of Ohioans.

Yet out-of-state wine producers (e.g., wineries) are permitted to sell their products online and ship directly to consumers in Ohio. In fact, the state recently opened the market to large direct wine shippers.

Large out-of-state wine producers can now ship DTC in Ohio

The Buckeye State used to allow only small wineries — those producing under 250,000 gallons per year — to ship directly to consumers in the state. However, Ohio eliminated the production cap effective September 30, 2021. 

There’s now an S-1 permit for wine manufacturers and suppliers producing less than 250,000 gallons annually, and an S-2 permit for those producing 250,000 or more gallons annually.

Nonetheless, the DOLC seems intent on enforcing their laws that prohibit alcohol sellers shipping without a permit, including wine retailers.

Ohio cracks down on direct sales by out-of-state wine retailers

In 2020, after determining multiple out-of-state retailers were illegally selling wine or spirits directly to Ohio consumers, the Attorney General’s office filed for a preliminary injunction to “immediately stop the flow of illegal liquor shipments into the state.” 

“Doing business in Ohio means following the current law and paying Ohio taxes,” explained Attorney General Dave Yost at the time. 

But since Ohio law doesn’t allow out-of-state retailers to sell beer, wine, or spirits to consumers in Ohio, out-of-state beverage alcohol retailers cannot register to collect and remit taxes in the state. 

Of course, Ohio could pass a law that authorizes out-of-state retailers to sell beverage alcohol directly to consumers and requires them to collect and remit applicable taxes. It wouldn’t be the first state to do so

Opening the market to out-of-state retailers would give Ohioans access to much greater choice, especially of imported wines. Block v. Canepa Plaintiff Kenneth Miller says he finds it easier to shop for wines online but is sometimes “forced to purchase less desirable wine” because of Ohio’s policy. For its part, the Chicago wine seller says they would register for an Ohio direct-shipping permit if they could.

It’s unclear whether the plaintiffs in Block v. Canepa will appeal the court’s decision, or what would happen if they did. In October 2021, the Supreme Court of the United States allowed a Michigan law banning direct wine shipments by out-of-state retailers to stand.  

Learn more about the battles brewing in Ohio and Michigan over wine shipments by out-of-state retailers, as well as what you need to know to ship wine into Ohio

*Plaintiff Derek Block voluntarily dismissed his claims. Defendant Jim Canepa is the Superintendent of the Ohio Division of Liquor Control.

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