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Indiana and Oregon Change Laws on Direct-to-Consumer Wine Shipments

States now have similar, consumer-friendly rules, but Indiana wine lovers may still have trouble getting wines shipped to their homes

Eric Arnold

Posted: Tuesday, September 11, 2007

Advocates of direct-to-consumer wine shipments recently scored two points in the win column: Oregon and Indiana. Both states now have more open direct-shipping laws, though they came about in starkly different ways and, unfortunately for Indiana wine lovers, probably face different levels of success in the long term. But for now, consumers in both states can legally receive wine shipments directly from in- and out-of-state wineries.

Oregon's change was a simple legislative matter. House Bill 2171, signed by Oregon's Gov. Theodore Kulongoski on July 31, will take effect Jan. 1, 2008. Wineries and retailers alike will be able to obtain a $50 direct-shipping permit, and ship up to two cases per month per individual consumer, and are required to pay all related taxes to the state.

Previously, Oregon had so-called reciprocal shipping laws, meaning out-of-state wineries can ship to Oregon consumers as long as the producers' home states likewise allow Oregon wineries to ship to their residents. The state reconsidered its laws following the 2005 U.S. Supreme Court decision on direct shipping, in which the justices ruled that it is unconstitutionally discriminatory for states to allow in-state wineries to ship to residents but ban out-of-state wineries from doing so; they must either allow shipments from wineries regardless of location or ban all shipments. The court's wording indicated that reciprocal laws could be discriminatory since they don't allow shipments from all states.

Therefore, Oregon, one of the top three wine-producing states by volume, made a simple change to its law. Indiana's new law is similar to Oregon's, but there the transition wasn't nearly as smooth. In Indiana it took a federal court ruling, handed down at the end of August.

In 2006, Indiana passed a law to bring itself into compliance with the 2005 Supreme Court decision, but like the law currently under scrutiny in Massachusetts, Indiana's rules presented a level playing field in theory rather than in practice, opponents argued. On the surface, Indiana's law appeared to allow direct-to-consumer wine shipments: Wineries could apply to the state for a direct-shipping license, had to report regularly to the state on what was sold to whom, and pay all appropriate taxes on each shipment. But there were two additional provisions in the law that federal Judge John Daniel Tinder struck down, ruling that they were discriminatory against out-of-state wineries.

The problematic provisions, explained Alexander Tanford, a professor at the Indiana University School of Law who argued in court against the law, was that "they imposed a peculiar requirement, which was that the winery, to be eligible for [a direct-shipping] permit, must not have wholesale privileges in any state." That, of course, rules out wineries in California, Washington, Oregon, since they have the right to sell direct to retailers and restaurants in their own states. Tanford called it a "Trojan Horse" provision in that "it appears to make no sense whatsoever but … had the effect of disqualifying most out-of-state wineries from eligibility for a direct-shipping permit."

The judge also struck down a provision of Indiana's direct-shipping law that required consumers to first visit a winery in person to show proof of legal drinking age before direct shipments could commence. "Again, it appears perfectly neutral on its face," said Tanford, since the law applies equally to in- and out-of-state wineries. "[But] if you live in Indiana, the economic burden of making an in-person visit to an Indiana winery is trivial, and a visit to a California or Oregon winery is substantial. [Consumers] can't possibly, as tourists, visit all 50 states."

Because the judge focused on those two particular elements of Indiana's law, the state's existing direct-shipping rules remain intact. So long as the wineries are willing to ship and the courier services such as FedEx and UPS are willing to deliver, direct wine shipments to Indiana residents can commence. Unfortunately, however, Indiana consumers can't count their chickens just yet. Since the law is written to limit individual households to 24 cases per year rather than the wineries themselves, the wineries have no way of knowing if they'll be sending, say, the 25th case to a particular Indiana resident, and therefore violating the law. It's a risk some wineries are willing to take—but not all of them.

"Right now we are not shipping but are informing our Indiana wine lovers that we need their help to fix poor legislation," said Dennis Cakebread, director of marketing for Cakebread Cellars in Napa, Calif.

Despite that remaining barrier in Indiana, the state's wine wholesalers are unhappy with the decision. "We think the judge erred," said Jim Purucker, executive director of the Wine & Spirits Wholesalers of Indiana. "We think the legislature has the right to regulate alcohol under the 21st Amendment, and it's unfortunate that the legislature tried to do their best to … treat everybody equally, but I guess that didn't satisfy the judge. There are other places around the country where the face-to-face provision has been upheld. We would hope that on appeal his decision would be overturned."

Whether such an appeal will be filed, however, remains to be seen. "We're evaluating what we're going to do. A determination hasn't been made yet," Purucker said. Part of the reason may be, as Tanford pointed out, that if the state does not appeal a decision in which it was involved, a private third party, the wholesalers' association in this case, usually lacks the grounds to do so.

They’ll also face formidable opposition. In the months leading up the court decision, a group of Indiana consumers, led by Indiana resident Allen Dale Olson, formed an advocacy group called VinSense to fight the state's shipping laws. The only other state to see a group of consumers unite in protest of its direct-shipping laws was Michigan, one of the two states at the center of the 2005 Supreme Court decision.

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