Tennessee thumps online liquor stores with 21st Amendment Act

Only a handful of states allow direct-to-consumer (DTC) shipments of spirits, and Tennessee isn’t one of them. But apparently that hasn’t prevented some businesses from selling and shipping spirits directly to consumers in Tennessee.

During separate investigations, undercover agents from the Tennessee Alcoholic Beverage Commission (TABC) purchased and received unauthenticated and untaxed distilled spirits from six different online retailers, according to a press release issued by Tennessee Attorney General and Reporter Jonathan Skrmetti. One special agent purchased a 750-milliliter bottle of Evan Williams Peach Whiskey from an online seller and had it delivered to a Tennessee address. Another special agent purchased 12 50-milliliter bottles of Sheep Dog Peanut Butter Whiskey from a different online seller and had it delivered to a Tennessee address. And so on.

None of the retailers have a license to ship spiritous liquors directly to consumers from outside the state, because there is no such license in Tennessee. 

The TABC sent cease-and-desist letters by certified mail to each of the retailers. One such letter explained, “As a retailer, you are not eligible for a Winery Direct Shipper License, and thus any shipping of wine or other alcoholic beverages by you to consumers in the State of Tennessee is illegal.” Approximately 10 months after sending that letter, a TABC special agent purchased vodka from the retailer’s website and had it shipped to a Tennessee address. 

In fact, after receiving the cease-and-desist letter, “each company continued to ship distilled spirits to Tennessee illegally,” according to the Attorney General and Reporter. And so, on July 14, 2023, the Attorney General and Reporter filed a federal lawsuit “to immediately stop the flow of illegal liquor shipments facilitated by six unlicensed out-of-state defendants” on the grounds that “the defendants unlawfully facilitated shipments of distilled spirits for which no state license is available.”

This isn’t the first time Tennessee has cracked down on illegal DTC shipments of alcohol, but it is the first time a Tennessee Attorney General is prosecuting a violation of law under the 21st Amendment Enforcement Act. If successful, it likely won’t be the last. The 21st Amendment Enforcement Act allows state attorneys general to seek injunctive relief against anyone believed to be illegally importing or transporting alcohol within a state. 

Out-of-state businesses that may be selling distilled spirits online and shipping to Tennessee should take note.

Russell Thomas, Executive Director of the TABC, said he was happy Attorney General and Reporter Skrmetti decided to prosecute this case. “Our agents and staff worked hard to collect the evidence against these bad actors,” he said. “Too often, we find websites operated by unscrupulous individuals willing to deceive consumers.” The Law Enforcement section of the TABC consists of 38 special agents whose primary responsibility is to enforce the state’s liquor laws. 

Who is at fault? The retailer, or the consumer?

Both may be at fault under Tennessee law: “It is an offense for any person, firm, corporation, or association to import, ship, deliver, or cause to be imported, shipped, or delivered into this state any alcoholic beverages upon which the tax imposed by this title has not been paid or where such transportation is not authorized under this title to an entity possessing a license issued under this title. A violation of this subdivision (b)(1) is a Class E felony.”

Who pays the piper is another matter. Though Tennessee can go after individual consumers, it may get more bang for the buck by going after businesses that are illegally selling and shipping alcohol into the state. 

State officials expect businesses to know the law and abide by it and may take them to court — literally — if they don’t. Interestingly, one retailer involved in the lawsuit states in its terms of service, “The buyer is solely responsible for the shipment of alcoholic beverage products … We make no representation relative to your right to import spirits or wine into your state. The buyer is responsible for the shipment of alcoholic products purchased and determining the legality and consequences of having spirits or wine shipped to them.” 

Time will tell whether such a disclaimer holds any water with the courts. 

Illegal liquor sales deprive the state of tax revenue

Tennessee has powerful motivation to prevent the illegal — and untaxed — direct shipments of liquor in the state: Such sales deprive the state of tax revenue. 

“The State of Tennessee generates revenue through taxation of the retail sale of spirits and wine,” explains the legal complaint. “The illegal, unlicensed direct-to-consumer shipment of spirits causes a loss in tax revenue generated by the legal sale of spirits by licensed Tennessee retailers.” According to the Urban Institute, in 2020, Tennessee was the state with the highest share of general revenue from alcohol taxes.

The takeaway

The costs of noncompliance can be high.

The Tennessee Attorney General and Reporter is seeking:

  • Preliminary and permanent injunctive relief under the 21st Amendment Enforcement Act and the Tennessee Consumer Protection Act (TCPA), prohibiting the defendants from continuing to violate Tennessee law
  • The imposition of cumulative civil penalties against the defendants (the TCPA provides for a fine of up to $1,000 for each violation)
  • Reimbursement of investigative expenses incurred
  • Reimbursement for the costs and expenses of investigation and prosecution of actions under the TCPA, including attorneys’ fees
  • Any other relief deemed appropriate

The Attorney General and Reporter is requesting a jury trial.

Learn more about beverage alcohol trends in our beverage alcohol tax changes report.

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