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Pennsylvania Struggles to Comply With Direct Shipping Laws

Proposed legislation would make direct shipment of wine from out-of-state wineries unfeasible; bill's sponsor plans substantial amendments

Robert Taylor
Posted: August 28, 2008

Three years after the United States Supreme Court's Granholm decision, the Keystone state is still struggling to pass legislation that would bring the state's shipping laws into compliance. The latest suggestion—routing all shipped wine through the state liquor authority—isn't winning rousing support.

While Pennsylvania technically permits direct shipping, the government has yet to pass legislation that would bring the state's laws into compliance with Granholm, which effectively rendered Pennsylvania's shipping laws unconstitutional in 2005. The state theoretically allows out-of-state wineries to ship directly to residents through a limited license obtainable from the Pennsylvania Liquor Control Board (PLCB), but only one winery, California's Kistler, has bothered to obtain it while the state's legislators continue to debate the issue.

The latest proposed legislation, if passed as is, would effectively make direct-to-consumer shipping cost prohibitive as well as exclude almost all out-of-state wineries by virtue of production limits. House Bill 2165, sponsored by State Rep. Paul Costa, requires that any wine shipped to a resident of Pennsylvania by an out-of-state winery must pass through the PLCB, which would likely charge a handling fee. The wine could then be picked up at a state store. The bill also lowers the cap on the production of wineries permitted to ship into the state from 200,000 gallons annually to 80,000 gallons, a change which would severely limit the number of eligible out-of-state wineries. (An 80,000-gallon cap, approximately 33,000 cases, would exclude about 80 percent of wineries in the United States, according to Jeremy Benson of consumer advocacy group Free the Grapes.)

In-state wineries aren't happy with the bill either: In order to comply with Granholm and level the playing field, in-state winery sales will also be subjected to the infamous "Johnstown Flood" tax, from which they'd previously been exempt. The "Johnstown Flood" tax was instituted in 1936 as a 10 percent tax on all alcohol sold in the state to help with the rebuilding of Johnstown after the flood of that year. The tax was never repealed, however, and was raised to 18 percent in 1968, long after the city had been rebuilt. (The approximately $200 million in annual revenue the tax generates is now directed into the state's discretionary fund. The greater Johnstown area is home to almost 150,000 residents today.)

Pennsylvania Winery Association representatives have attended two public hearings on the bill held by the state's House Liquor Committee to voice their objections. "We're not terribly pleased with it," said association president Bob Mazza of Mazza Vineyards near Erie. "In our opinion [the bill] moves the wine industry backward--it would require some wineries in Pennsylvania to reduce their size to ship directly to customers."

"The other issue we have is that we don't think shipping directly to customers ought to involve the PLCB in terms of physically handling the wine," Mazza said. "We feel that whatever issues there are in regard to revenue, whether they be excise taxes, markups, handling fees, they can be handled by simple reporting and payment to the LCB if that's the case. If it's about the money, that can be handled without them physically handling the wine which, I think, is not in the best interest of the customer."

Not even the bill's sponsor is supporting the bill in its current incarnation. "My ultimate goal was to continue to allow the in-state wineries to use direct wine shipment." Costa said. "If by chance we get an opportunity to run this bill this session, I have amendments ready to go to make changes that have been suggested. When we first introduced a shipping bill [in 2005], we put an 80,000-gallon limit, so anyone who produces 80,000 gallons or less can do direct wine shipment in Pennsylvania. At the time we did that, the 80,000-gallon limit was well above any winery in Pennsylvania. Fortunately, they are growing, and that number is irrelevant now."

As for shipping the wine through the state's liquor control board, Costa said he never intended the bill to be drafted with such a stipulation. (All bills in Pennsylvania are drafted by the Legislative Reference Bureau.) "My intent was to make sure that the LCB was able to keep track of the wine that was being shipped directly to people's homes. I envisioned this happening through the LCB's website or a packaging list from the shipping companies," Costa said. Shipping the wine directly to the LCB to then be delivered to the customer "obviously doesn't work because you have more people handling it as well as added cost. That is not what I envisioned but that is what is drafted. We're going to clear that out," he added--Costa did not himself draft the bill but has been attempting to get the Pennsylvania legislature to address the state's need for a wine shipping bill for three years now.

Costa is also planning to cut the third major contention of the bill, the "Johnstown" Flood tax. "That's something the state was never used to receiving [from direct wine sales] in the first place. I don't have a problem with paring that out," he said.

Direct-shipping advocacy group the Wine Institute of California also opposes the bill, particularly the requirement that the wines pass through the PLCB. "That's not direct shipping," said James Goodman, the institute's governmental affairs manager for Eastern states. The proposed capacity cap on wineries that can ship into the state is also a point of contention. "We're opposed to capacity caps," he added. "They had a hearing a couple weeks ago at which I testified. They want to put on a cap that covers the in-state wineries but excludes 80 percent of the market." Asked how his testimony was received by the Pennsylvania legislators, Goodman replied, "without comment."

The PLCB's stance on the bill is officially that the state's shipping policies are "ultimately a decision for the legislature," said PLCB spokesman Nick Hays. "The [PLCB] believes that a legislative solution that facilitates adult Pennsylvania's access to a wider variety of wines would be beneficial to its consumers."

Due to a legislative break for elections this November, it is expected that there will not be time to vote on the bill during this session. Costa plans to resubmit a severely amended version when the new session opens in January 2009. In the meantime, Pennsylvania wines lovers will continue to have only one option when it comes to buying wine made outside the state: their local liquor control board.

John Albritton
Irvine, CA —  April 21, 2010 12:35am ET
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