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North Dakota Expands Its Direct-Shipping Laws

Reciprocity statute opens lanes between consumers and wineries in several other states

Eric Arnold

Posted: Friday, August 05, 2005

As of Aug. 1, consumers and wineries in North Dakota have more freedom when it comes to ordering wines from and shipping wines to several other states. North Dakota has become the 14th state to allow direct-to-consumer wine shipments through what is known as a reciprocal system.

Since 1999, North Dakota has allowed out-of-state producers and retailers to ship limited amounts of alcoholic beverages directly to its residents; wineries that bought a $50 license and paid state sales and excise taxes were permitted to ship up to one case a month to adult consumers.

House Bill 1325, which adds to the existing regulations, allows wineries in other reciprocal states to ship directly to North Dakota consumers without buying a license or paying taxes, giving North Dakota's six wineries the same rights in those states. Wineries in reciprocal states are allowed to ship up to three cases per month to North Dakota residents.

Greg Kempel, owner of Maple River Winery near Casselton, said North Dakota producers--who mostly make wines from fruits such as rhubarb and apples--needed the new statute because it draws so many summer visitors from the reciprocal shipping states of Washington, Oregon and Minnesota. "Last year there were so many people from these states who couldn't order our wine," said Kempel, who projects that 50 percent of his sales next year will be shipments to consumers outside the state.

North Dakota hadn't been able to ship to those states because different states interpret reciprocity laws differently, explained Bill Nelson, vice president of government relations for WineAmerica, a national association of wineries. "There's never a clear definition." In general, reciprocal systems mean that states allow direct shipments only from sellers in other states that also allow such shipments. Some will only work with states with similar reciprocal laws. Other reciprocal states are less strict and allow shipments from states that require a shipping license and tax payments.

The 10 other reciprocal states are California, Colorado, Hawaii, Idaho, Iowa, New Mexico and Wisconsin, along with three that North Dakota vintners said they were previously unable to ship to: Illinois, Missouri and West Virginia.

House Bill 1325 was passed with only one dissenting vote in early April, and Gov. John Hoeven (R) immediately signed it into law. "The wineries … had a pretty convincing case that this would help them," said Don Larson, spokesman for the governor, "and we're always looking for ways to help out small businesses in our state."

The bill was introduced by Rep. Dan Ruby (R), and unlike direct-shipping bills under consideration or already passed in states such as Michigan and Rhode Island, this one was not opposed by state wholesalers or retailers. Under the North Dakota statute, they are also allowed to ship to out-of-state customers, although the laws in some reciprocal states limit shipments to only those from wineries.

Unlike in most states that allow interstate wine shipments, North Dakota wineries are not permitted to ship wine directly to consumers inside the state. "Everything sold within the state of North Dakota has to be sold within the three-tier system unless it's sold right at the winery," said Rob Hansen, general manager of distributor Northwest Beverage. Kempel said wineries have no problem with this law since they generally enjoy a good relationship with the wholesalers, and it would be more expensive to ship wine across the state than for consumers to buy it from a local retailer.

Nonetheless, this restriction isn't in line with recent developments in response to the U.S. Supreme Court ruling on interstate shipping, which was issued more than a month after North Dakota passed its new law. The Supreme Court said that it was a violation of the Constitution's Commerce Clause for states to ban out-of-state shipments while allowing in-state shipments, because that was discriminatory. The judges said that all wineries must be treated equally, and states have been responding by either allowing all shipments or banning all shipments.

The Supreme Court ruling also raises questions about the long-term usefulness of North Dakota's new reciprocity law. The decision can be interpreted to mean that at least some states' reciprocity laws are discriminatory because they treat wineries in non-reciprocal states differently. One of the winery owners who helped draft the North Dakota bill, Jeff Peterson of Pointe of View, said that the new law is mostly a temporary solution that gets North Dakota wine into reciprocal states between now and the day that those laws are eventually challenged.

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