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Legalize It

New York is cracking down on illegal direct shipping. Why are retailers and wine lovers outraged over enforcement rather than lobbying to legalize it?
Photo by: Mark Weinberg

Posted: Oct 9, 2014 10:40am ET

By Robert Taylor

The New York State Liquor Authority (NYSLA) has been making waves in the wine industry, ramping up enforcement on a range of fair-business guidelines intended to even the playing field among large and small retailers and distributors. Most of the $3 million-plus in fines levied over the past three years have resulted from illegal transactions between wholesalers and retailers, having little effect on consumers, but one recent NYSLA filing has wine lovers up in arms: 16 charges of improper conduct for Albany-based retailer Empire Wine for shipping wine to consumers in other states.

A look at the states that actually permit their residents to buy wine from out-of-state retailers reveals a shockingly sparse map. Just 10 states allow unrestricted retailer shipping. But residents in far more than those 10 states regularly buy wine from top retailers all over the country, many of which are located in New York.

Direct wine-shipping laws have long been loosely enforced, leaving the market open to any retailer willing to skirt the law. In a 2006 civil action in U.S District Court, the state of California stipulated that its Department of Alcoholic Beverage Control “will continue to exercise its prosecutorial discretion not to pursue enforcement action of any type … against retail licensees in other states for shipping wine … directly to California residents.”

But now the state of New York is laying down the law, first by sending cease-and-desist letters to out-of-state retailers shipping wine to New Yorkers, and now taking Empire Wine to task for selling wine to out-of-staters. Why? The most common argument against enforcing shipping laws is that direct wine shipping is a victimless crime. But is it? What of all the law-abiding retailers, trying to turn a profit without breaking the law?

NYSLA commissioner Dennis Rosen makes a compelling argument for enforcement. “When someone is doing $20 million or $30 million in interstate sales illegally, I think it puts the local operators competing with them, who aren't selling illegally over the Internet, at a terrible disadvantage for doing the right thing,” said Rosen. “When you can deal on such a large scale, you’re going to get huge quantity discounts that the smaller retailer who is not on this steroid of selling illegally into other states doesn’t have the same ability to purchase. You can purchase 500-case deals that your competitor can’t because you’re selling a lot of it illegally in a market that they choose not to have access to.”

Legal retailer direct shipping, on the other hand, is a win-win-win for consumers, retailers and the states. Wine lovers gain access to thousands more wines, retailers gain access to millions more customers, and the states collect revenue on every sale.

Almost 10 years ago, wineries took the shipping fight to the U.S. Supreme Court and won the right to send wine to and from almost every state that supports shipping by its own wineries (40 states and counting as of Jan. 1, 2015). The roadmap has been in retailers’ hands ever since—the Granholm decision should apply to them as well. Now that New York is standing up to illegal retailer direct shipping, maybe retailers will finally stand up and get it legalized.

Doug Badenoch
Bozeman, MT —  October 9, 2014 3:31pm ET
The 21st Amendment and the repeal of the Volstead Act effectively left alcoholic beverage regulation at a state and/or local level. Are you proposing a set of laws that apply to every state? I can tell you that every state has "wacky" rules. Here in Montana, wine retailers can't sell Port, Sherry, Madeira or even late harvest wines that exceed 16% alcohol. Coloradans can't buy beer higher than 3.2% in a grocery store but folks in Illinois and California can buy 151 proof rum one aisle over from cake mix at any Safeway or CVS. Are you proposing Federal Legislation and control?
Every state derives tax revenue from alcohol. Do you propose an even handed way of balancing every state budget?

I agree that consumers should have a choice but no one trusts Congress to come up with a set of laws that is fair to everyone. Life isn't fair and neither are our laws on shipping wine. Quit complaining and come up with a concrete proposal that will make this fair and low cost for all consumers.

This issue is far more complex than what you present.
Robert Taylor
New York —  October 9, 2014 5:08pm ET
Doug,

Allow me to clarify and provide some more background information. Most states allow in-state retailers to ship directly to consumers but forbid out-of-state retailers from doing same. This was once the case for wineries as well, but in 2005, the Supreme Court ruled that such a practice was a violation of the Constitution's Commerce Clause, which prohibits states from discriminating between in-state and out-of-state businesses (see the Granholm link in my blog, above). States were forced to decide whether to allow all wineries to ship to their residents, or none. In the interest of supporting their own local wineries, most states have now opted to permit winery direct shipping.

What I am suggesting here is that the Granholm decision would likely apply to retailers as well. Were someone to challenge the constitutionality of a state's retail shipping laws, permitting in-state retailers to ship but forbidding out-of-state retailers from doing so, it seems likely that that law would be struck down. States would then be forced to decide whether or not they would continue to support their local in-state retailers and open their borders to all retail shipments, or shut down the practice altogether. The aftermath of the Granholm decision indicates to me that more likely than not, states would choose to support their local businesses and allow all retailers to ship.
Daniel Posner
White Plains, NY, USA —  October 9, 2014 6:09pm ET
The issue here is this

“When someone is doing $20 million or $30 million in interstate sales illegally, I think it puts the local operators competing with them, who aren't selling illegally over the Internet, at a terrible disadvantage for doing the right thing.”

So, rather than advance the laws, we should just enforce the laws that were created in 1935. I am not even talking about moving into the 21st century. We should just move into the 20th century. Why is this industry lagging so far behind? Just look at the laws and the protection of them.

Why can a winery ship and not a retailer? Isnt the winery just acting as a retailer when they ship wine? I fail to see the difference. Unfortunately, the old guard protects this system that we have, which will not allow customers to buy wine over the internet from a wine store in another state. Why? Just because is the reason we get.
Bill Stell
Greenville, SC —  October 9, 2014 7:35pm ET
As far as I can see, the basic arguement is that the little "mom & pop" retailers can not compete. Anyone in the retail business knows that the little retailers are selling to a specific market that is very local. Those businesses live and die by the convenence of being local (i.e. right down the road) and not by having a huge selection. I fail to see how allowing out of state shipping/sells hurts these businesses, their customers don't want to wait for a shipment, they want their alcohol right now.
Daniel Posner
White Plains, NY, USA —  October 12, 2014 7:14am ET
Bill

The "industry" (read LARGE wholesalers) are trying to hold onto something that just isn't there.

Unfortunately for consumers, they are winning the battle, as they have the deepest pockets.

Doug Badenoch
Bozeman, MT —  October 14, 2014 2:03pm ET
Robert-
Unfortunately, the shoe is on the other foot in Montana. It is the in-state retailers who are bearing the burden.
Out of state retailers and in-state Montana retailers are forbidden to ship wine to consumers. If I do it, I lose my license and my business. If out of state retailers do it, nothing happens. The State of Montana cannot inspect every UPS or Fed-Ex box that comes in.
I have a back room filled up with styrofoam wine shipping cases that people bring to me. Guess what? They aren't from wineries; they are from retailers.
The disadvantage weighs on the local law abiding retailer who can lose everything while out of state retailers operate with impunity, pay no state or local taxes or support the local economy.

I don't really care if out of state retailers want to compete with our store. Bring 'em on! Let's just find a way to make the playing field level. As I pointed out earlier, the current wine laws are way to complex and convoluted.

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