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Wines & Vines

Why not ship wine, not guns?

Why not ship wine, not guns? – shipping wine out of California

Rene Rondeau

With all the recent talk about gun control, a curious contradiction comes to light once more: in many states, it is easier to ship weapons than wine.

Shipping wine out of state is an issue which affects virtually every producer and retailer, but the questionable legalities leave most people very skittish. Everyone has opinions, sometimes very strong ones, but no winery representatives, retailers, or shippers were willing to discuss their activities on the record.

To be sure, most shippers today are taking the easy route, simply ignoring the laws. But what are the risks?

At the end of prohibition in 1933, states were granted the power to control the distribution or sale of licensed beverages within their borders. This has led to a “Balkanization” of the United States, with an incredible patchwork of conflicting regulations. In many instances, it is easier to ship wine out o the country than out of state.

Most states guard their rights jealously. Tax considerations are a major factor, of course–every state wants all the revenue it feels entitled to–but the opposition of local distributors and retailers is perhaps even more important. Retail store owners quite naturally resent the out-of-state shippers who are invading their markets without having to confront the licensing, taxes and bureaucratic headaches that the local retailers are burdened with. Wholesalers fear the breakdown of the three-tier system, and add a great deal of political muscle to the fray.

The situation gets particularly complex in the many states that still have “dry” counties. California wineries are routinely sending cases by commercial transport into communities which local retailers cannot enter. These kinds of activities clearly violate local laws, and raise the hackles of dealers in the community who risk losing their licenses if they were to do the same thing.

Ironically, shipping wine out of California is not a problem. Shipping Decious, Chief of Business Practices at the California Department of Alcoholic Beverage Control acknowledges that “California law does not prohibit the export of alcoholic beverages by a licensed retailer… However, the Department believes that it has the authority to bring discipline against a supplier or retailer who continually and deliberately violates importation-related laws of another state through the use of his or her California license.” When questioned about the grounds for this discipline, Decious replied that “the Department has very broad authority, which grants us the power to control the issuance of licenses to people who have the proper qualifications. We can refuse to grant a license, or revoke an existing license, from anyone who is involved in moral turpitude. If someone is consistently violating the laws of another state, under this broad authority we can deem such a person to not be qualified to hold a California license.” He admits that “our authority in this area may seem dubious since it hasn’t been tested in court, but we believe our authority is clear. The courts may have a different view.”

In recent years, the California budget crisis has led to deep cutbacks in the ABC. Given the lack of resources in the Department, Decious acknowledges that there has “not been a high priority placed on this issue.” However, he stresses that “the Department is aware that illegal interstate shipments of wine originating from California have occurred. While we have yet to file formal administrative charges in connection with such shipments, we have admonished several California licensees that engage in mail-order wine sales to refrain from making direct shipments to consumers into any state that prohibits the practice. A number of these contacts have resulted from requests from sister states to intervene in their behalf with our licensee.” Among the states he alludes to are Nebraska, Minnesota, Ohio and Florida.

There are other remedies that states can pursue. Some have taken action directly against the common carrier who transports the wine. Several years ago UPS temporarily abandoned all wine shipments–even legal ones–because of such an attack. More recently, Burlington Air Freight was singled out in several states, notably Texas, for handling illegal wine shipments. Ultimately, Burlington chose to close down their entire wine shipping division rather than to fight the prohibition.

States can also file civil complaints against an individual shipper. This, however, can be a costly exercise, and a judgment against one shipper would not prevent another company from violating the same laws. Nonetheless, some states indicate a willingness to pursue such action, and many state ABCs have sent “cease and desist” letters to California shippers.

Not all the news is bad, however. There are increasing numbers of states which have signed “reciprocal shipping agreements” with California, allowing individuals to ship wines from one state into the other for personal use. (Of course, most of this commerce with California is very one-sided, with little wine heading west.)

The Wine Institute has been working on this issue for several year, joining forces with the Wine Task Force of the National Conference of State Legislators. The NCSL brings together representatives from all 50 states, but their focus is primarily on major issues affecting everyone: crime, auto safety, etc. The Wine Task Force plays only a small role, but by tacking reciprocal legislation to more important bills, often at the end of a legislative session, has succeeded in opening some states to wine shipments.

Currently, these “legal” states are California, Colorado, Idaho, Illinois, Maine, Minnesota, Missouri, New Mexico, Oregon, Washington, West Virginia, and Wisconsin.

However, these reciprocal agreements are not without their pitfalls. Even these legal states impose considerable restrictions on wine shipments. For example, Colorado prohibits advertising wine from out of state, and requires that orders be placed in person at the winery or store. This clearly excludes all phone and mail orders. Illinois, Missouri, Washington and Minnesota allow residents to receive no more than two cases per year (Wisconsin allows only one case per year); Maine requires a $10 permit for each shipment; and Oregon requires shippers to obtain an Out-of-State Shipper’s License prior to sending any wine. Some states, including Wisconsin and Minnesota, restrict shipping privileges to wineries, specifically excluding retailers.

Some “non-reciprocal” states offer residents the chance to import wine from California, provided certain regulations are met. For example, Alaska allows “reasonable quantities” to be shipped; Connecticut allows five per 60 days; Hawii allows five gallons per year with a free permit. While Oklahoma only allows one quart per shipment, Iowa lets residents receive up to 22 bottles per day.

Though such states are legal, or semi-legal, they are still not serviced by the two most important common carriers: UPS and Federal Express. Those companies restrict their operations to reciprocal states, and not all of them at that. Shippers have plenty of options to non-reciprocal states, however. There are dozens of air freight services which handle wine shipments without any regard to legalities. (The Post Office is not an option for shipping wine. Federal regulations prohibit the mailing of any licensed beverage, although there are no such prohibitions on the mailing of lethal weapons.)

The Wine Institute offers its members a complete listing of the regulations of every state, an indispensable guide to those who hope to stay within the law. However, it seems that most shippers are not terribly concerned by the legalities, except for one reason: cost. In states which have reciprocal agreements, shippers can send wine via UPS, which is the most economical approach. A case of wine can be sent from California to New York for about $20. The same shipment, by air freight to one of the non-reciprocal states, would cost about $35. (Residents of communities far from major airports often face an additional delivery surcharge of $15 to $25.) Either way, the consumer pays the costs (plus the price of the Styrofoam shipper), but the lower the freight cost the more attractive the sale.

Because of this rate discrepancy, many shippers take a devious approach. UPS unknowingly transports thousands of cases of wine each year, labeled as “preserves,” “glassware,” or whatever disguise a creative shipper can create. (We’ve received wine as “books”–Ed.) Not all such shipments get through; many UPS freight handlers recognize the standard Styrofoam shipping boxes and intercept them. Although unlikely, the risk still exists that such shipments could lead to prosecution by the BATF for mislabeling. In the 1950s, John Walker & Co. in San Francisco was fined for that reason.

UPS representatives also point out that the company rescinds the shipping privilege of companies that repeatedly violate their policies.

One of the biggest potential traps, even in “legal” states, is advertising. Many states prohibit any kind of solicitation or advertising to their residents. Direct mailings are clearly illegal in such states; this includes winery newsletters with order forms and all retail lists. One gray area is newspaper or magazine advertising. Is an ad in the Wine Spectator illegal in Colorado or Missouri? According to one attorney specializing in this field, “Technically, yes.” Nonetheless, many retailers continue to trumpet “we ship anywhere!” in their mailers and advertisements. (Some who have had run-ins with other states’ ABCs are more circumspect, offering to ship to “most states.”)

Much of the opposition to open markets comes from wholesalers in other states, groups which can often wield considerable political power. The Wine and Spirits Wholesalers of America (WSWA) is reportedly lobbying strongly against reciprocal agreements. (WSWA representatives declined telephoned requests for interviews by this writer.)

Wholesalers don’t need to be organized to flex their muscles with some shippers. Some winery managers report that distributors have threatened to drop their wines if the winery ships anything directly to consumers. For these producers, that risk isn’t worth it.

Large wineries, such as Robert Mondavi, can avoid the problems of these retail shipments by virtue of the fact that their wines are already available in virtually every market. There is little incentive for the consumer to go directly to the winery. As a result, Mondavi ships retail orders into only three reciprocal states. However most wineries are less privileged and enthusiastically welcome and any retail business they can get.

Many wineries turn to professional shipping services to handle their shipments. In addition to avoiding the headaches of repacking bottles into Styrofoam boxes and dealing with common carriers for small shipments, wineries can also distance themselves from the actual shipment. With an intermediary acting as the shipper of record–and putting his own name and address on the bill of lading and carton–the winery reduces its exposure, and theoretically its liability. Whether that offers any real protection from legal action is debatable, but it does stack the odds in the winery’s favor, however slightly.

Unlike many of the franchised “pack & ship” companies around the country, some services in the wine country specialize in wines. One Napa-based shipper claims 170 wineries among his regular clients, and ships 1,000 cases a week to retail customers outside of California. Obviously, nott all are in reciprocal states. This company, like some others, can offer wineries the advantage of a specialized, well-organized service which can be more cost effective than shipping direct from the winery, thanks to computerization and economies of scale. There’s no secret that many of the shipments are not entirely legal. Although there have been no repercussions so far, the owner reports that some of the wineries have received warning letters from other states, notably Maryland, North Carolina, and Texas. The wineries then stop shipping into the affected states, “for a while.”

One common defense, reiterated by wineries, retailers, and shipping services, is that they are not responsible for compliance with the laws. They contend, emphatically, that any responsibility–or risk–belongs with the recipient, not the shipper or common carrier. “It’s up to the customer to meet his own state’s requirements!” insists one major shipper. That begs the question, however, as almost every shipper knows full well that the customer is unlikely to have any idea that wine is regulated any differently than other consumer products.

One major San Francisco retailer, who requested anonymity, recalls a customer in Utah who purchased a large amount of wine for shipment to his home. (Utah is not exactly considered a “wine-friendly” state. Even persons moving into the state cannot bring their own wine without permission from the liquor commission and payment of all state-mandated taxes and markups.) The customer’s shipment was intercepted and confiscated, and the consumer was heavily fined. It was a very unpleasant surprise for all concerned, especially the store when the customer protested his credit card bill and got the company to cancel the charge. (Fortunately, reason finally prevailed and the store’s deposit was later reinstated.)

Where does all this leave wineries and retailers? There are no easy answers. The legalities may be muddied, but there’s little doubt that most out-of-state shipments are either illegal or questionable. However, virtually all vendors consider the benefits to be worth the risk.

Still, several people who are closely involved with the legal issues agree that a “test case” is inevitable. It is reported that the California ABC was working on such an approach as long as two years ago, joining forces with Maryland and Texas. The apparent plan is to target a retailer who blatantly advertises nationwide shipping. Upon the arrival of an illegal shipment, the delivery driver would be arrested, the truck confiscated, and suits filed against the carrier and the shipper. It’s anybody’s guess how such a sting would play out in court, but there’s widespread agreement that it would have a serious impact on the activities of retailers and wineries.

COPYRIGHT 1993 Hiaring Company

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