Texas Legislature Passes Bill Allowing Wineries to Ship to Consumers

First posted 04/27/2005; updated 04/29/2005

A battle that has been fought deep in the heart of the Texas wine industry for almost a decade was resolved today as the state legislature near-unanimously passed Senate Bill 877, which allows Texas wineries to ship their wares directly to out-of-state consumers and opens the state's borders to wineries wishing to ship directly to Texas wine drinkers.

The law's passage was not a surprise, as Texas wineries and wholesaler, distributor and retailer groups--which have historically been at odds over the ability to circumvent the three-tier distribution system--had reached an agreement on the bill's language and provisions after the state's ban on interstate wine shipments to consumers was overturned by a federal appeals court in 2003.

"After 10 years of work, everything finally came together," said the bill's author, Sen. Frank Madla (D-San Antonio). "Everybody decided this time around to look at it a lot closer and make compromises."

Under the new legislation, Texas wineries will each be allowed to ship 35,000 gallons (about 14,700 cases) every year directly to consumers (at a maximum of 3 gallons per month per consumer). Out-of-state wineries will be allowed to ship in the same amount all over Texas, including into "dry" counties. Texas distributors had sought the 35,000-gallon limit to assuage their concerns that direct shipping would cut into their business, most of which centers around large-volume brands.

The law's other provisions are very similar to those in the model direct-shipping legislation endorsed by U.S. winery trade associations. Any winery shipping directly to consumers will be required to hold a $75 shipping permit and pay Texas sales taxes. Recipients of wine shipments will have to present proof of identity and legal drinking age at the time of delivery.

Gov. Rick Perry has until the end of May to sign the bill. It may take until September for the Texas Alcohol Beverage Commission to finalize procedures for permits and monitoring how much wine is being shipped.

Robert "Butch" Sparks, executive director of the Licensed Beverage Distributors of Texas, said wholesalers and retailers were finally presented with legislation they could swallow. "There are a lot of safeguards built into it," he said. "We finally got some controls on the wineries. Before, they just wanted to open up the floodgates."

Several other factors, including the U.S. Supreme Court's pending decision on direct-shipping laws, allowed the bill to pass with ease, said Sterling Steves, the Forth Worth-based attorney for the consumers who challenged Texas' shipping ban in federal court. "[The wholesalers] are not as much concerned with the direct shipping as they are with some other issues," he said, referring to reports that big-box retailers Costco, Wal-Mart and HEB Foods are lobbying for legislation that would allow them to bypass the three-tier distribution system.

Madla had worked on pro-shipping legislation for each of the previous five legislative sessions. This time, he said, "Once we introduced bills, they were put on the front burner, and [Lt. Governor David Dewhurst] made it very clear that he was interested in getting this legislation passed. We all agree that as the wine industry expands it will mean economic development in Texas and more jobs and revenue for the state."

Chuck McGrigg, the central states lobbyist from the Wine Institute, a trade group of California wineries, thanked Madla for his patience and persistence, which led to the bill's success. "It's the old-fashioned legislative way.… We stayed around and watched for our window of opportunity."

Another piece of wine legislation, House Bill 937, which allows out-of-state wineries and non-winery employees to conduct tastings in grocery stores, is expected to be passed soon as well. "It's been a fantastic two weeks for wine consumers in Texas," McGrigg said.