Steve Gross is Vice President, State Relations at the Wine Institute and an expert in DTC wine regulations and compliance. We interviewed him back in 2017, talking about logistics, compliance, and DTC wine law. With so much happening in this space, we decided to reconnect with Steve to get his perspective on a number of new developments.
Dave: Great talking with you again, Steve. A lot has happened since we did our last interview! Let’s start with the big thing: The U.S. Supreme Court decision on the Tennessee Wine & Spirits Retailers Ass’n v. Thomas case. What will happen next? Is this a clear win for retailers that want to ship DTC?
Steve: There’s a lot to unpack there. As has been reported, the U.S. Supreme Court, this past June, ruled unconstitutional a Tennessee law requiring two years of residency in the state before obtaining a state-issued alcohol retailer license.
A lot of people hoped this would open the floodgates for getting licenses, and immediately allow retailers to do more DTC sales and shipping. The first thing we have to remember, though, is that this was not a shipping law. It was a law about residency requirements.
It’s true that the ruling basically stated that the law cannot discriminate against out-of-state retailers. There has to be a level playing field. But now the real hard work has to begin: Lobbying the states to allow DTC for retailers based on this new interpretation. Those laws are likely to be at least a few years away.
Dave: So, if I’m hearing you right, it will be up to the various states to pass their own laws favorable to DTC. Retailers shouldn’t expect to start shipping to states without such laws anytime soon. Is that right?
Steve: Yes, it will take time. Let’s compare this to the 2005 Supreme Court ruling in the case of Granholm v. Heald. That case was even more clear in its rebuke of state-based discrimination against wineries because it was a DTC shipping case at its heart. But it still took years for state legislatures to even consider (let alone pass) legislation allowing for more permissive DTC wine shipping. Five states still have an outright ban. I expect the same thing will happen here: There will be a new wave of cases coming down the pipe in various states, and those cases will use the Tennessee case as a precedent. These will move in tandem with legislative efforts by the retailers to pass new DTC shipping laws. In other words, it’s a process that will take some time.
Dave: So what should wineries and retailers be aware of in the meantime? Like what, for example, do they need to know about state laws and compliance? Or state laws when it comes to fulfillment and fulfillment partners?
Steve: Well, a lot.
One big thing is that there needs to be education and clarification around the emerging practice of forward staging. [NB we discuss what forward staging is here. —Dave] For example, it’s obvious that a winery is acting as a producer in its own home state. But now suppose that they use a fulfillment partner like Copper Peak, and so have a forward staging location in another state. Are they considered a producer in that state? Are they now competing with retailers in that state?
Questions around tax nexus also come up. When is a winery considered to have a “presence” in a state that makes it subject to that state’s sales taxes? Not always clear.
Wineries also need to be aware that states are putting pressure on common carriers to ensure compliance. Some of them have issued fines to carriers who have been lax. When the carriers have a significant amount of liability, they have incentive to ensure compliance. They don’t want to put their businesses in jeopardy. So the carriers in turn are putting pressure on shippers to be compliant.
Dave: Can you elaborate? Where are we now with compliance and compliance reporting, and where are we going? And does all this have an impact on who you use for shipping?
Steve: Yes, there are lots of changes coming with the carriers. They are moving toward systems that will verify accurate licensure prior to accepting shipments, for example. This is huge. States are leaning on them for enforcement, and they in turn are cleaning up their systems to make sure they are in compliance.
This gets a little complicated when a fulfillment house is involved. For example, regulators and carriers both need to be educated so that they understand that it is the winery that holds the license, not the fulfillment center. The center is simply executing the packing and shipping on behalf of the winery.
Wine Institute personnel like Terri Beirne (Eastern Council for the Wine Institute) are leading an effort to educate regulators, as they often just don’t understand the idea of fulfillment house service. There are other issues about which education is needed, too: Reporting, tracking numbers, carrier reporting interfaces, and as I said before, forward staging.
I also expect technology to be used to police permits and track expiration dates more carefully throughout the shipping process. Tracking numbers would be the common denominator for reporting to states, so when reports are pulled for wineries, carriers, and fulfillment houses, they all should match up.
Does this all have an impact on who wineries use for shipping? It might. A shipping partner should be aware of these issues, and should have technology in place to provide the right kinds of reporting.
Dave: And so what should the wineries be doing?
Steve: Well, the wine industry needs to work with the carriers, first and foremost. We don’t want our products to put their business in jeopardy! And we also should be making sure that we are following state and local laws. We all win in the long run by keeping business above-board.
Dave: What about the technology angle? Are there any new tools available that the wineries should consider using, from your perspective?
Steve: Yes. As always, utilizing compliance companies like Avalara (formerly Compli), ShipCompliant, and others make this workable for wineries. The software continues to improve and evolve and is worth the investment.
The Wine Institute itself also has some important resources wineries should be aware of. The first is the Wine Compliance Rules website, in partnership with Avalara. This is open to all and has DTC Shipping Laws for Wineries in all 50 states. The second is our members-only portal for 3Tier/wholesale laws. Both provide an overview of all the laws, licensing rules, and taxes for every state, all in one place.
Dave: Since we’re discussing technology and tools, I’ve got to ask you about delivery apps. Where do delivery app companies like Drizly and Minibar (to name a couple) fall with regard to compliance? Are they being looked at? Will they or should they be?
Steve: There’s an important distinction here between delivery, on the one hand, and shipping on the other. The former is done typically when an order has been placed with a local retailer, and that retailer delivers within their local area the same day the order is received. The latter is done via common carrier on subsequent days for local delivery.
We’re working hard to keep these separate. There are lots of moving parts, and states might be struggling to vet these all out and put the appropriate regulations in place. For example, how do delivery personnel handle ID checks? Do they take TIPS training? What happens if the consumer is not home when delivery occurs? We want to make sure that states trying to figure out delivery do not inadvertently undermine or “break” shipping rules that are working.
Dave: It sounds like technology is both enabling compliance and making regulation more complicated. A two-edged sword, so to speak.
Steve: You bet! The real key here, though, is education. The more people understand the industry, the laws, and what’s possible with the technology, the better they can make reasonable decisions that everyone can live with.
Based on Steve’s discussion, here are 7 things wineries should do to stay on top of today’s regulatory environment:
- Visit and bookmark the Wine Institute’s web pages for DTC wine laws and wholesale laws. Use these to educate yourself on state laws and licensing requirements.
- Invest in compliance software, like that provided by Avalara or ShipCompliant. Work with carriers to ensure compliance and keep a good working relationship with them.
- Don’t expect an explosion of new DTC wine laws in the wake of recent court cases—but do try to stay up-to-date on those laws as they are passed.
- Review the geographic locations you are using for fulfillment services to see if they create any tax nexus issues you should be aware of.
- Keep your licenses in order and up-to-date.
- Know how to provide required reporting to fulfillment partners, carrier,s and to any state or local enforcement organizations.
- Always look to educate yourself! For example, delivery apps might be all the rage. But delivery and shipping are different things, and it pays to know the difference.
For more interviews with industry experts, check out our expert series.
Interested in discussing shipping needs and compliance with a new fulfillment partner? Contact us or call Dave directly at 707.260-1506.