[Editor's Note: We have updated this post as of January 2021. You can find that post at Wine Shipping State of the Union, 2021 Edition.]
The preamble to the United States Constitution is short and sweet:
"We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America."
As we look forward to tonight's 226th State of the Union address, I am struck by the "more perfect union" reference in the preamble, as well as the wisdom of the founding fathers and generations of Supreme Court justices in prioritizing the Commerce Clause, which protects the federal government's exclusive role in regulating interstate commerce. The 21st Amendment, which repealed Prohibition in 1933 and as a side-effect sheltered states from the Commerce Clause's requirement to maintain an open, fair market for all players, provides a glimpse into what a world absent the Commerce Clause might look like. We should all be thankful that most products we might want to buy don't have to face a similar regulatory nightmare.
So, in honor of the State of the Union, here is a summary of what the world of wine shipping looks like, from a winery's perspective, as we enter 2015, with states broken down into tiers based on the cost and ease of doing business there:
Shipping map courtesy of the great free tools at ShipCompliant
Tier I: The no-brainers (AK, DC, MN, MO)
- Right now, there are three states (and one district) that have neither permit fees nor significant reporting requirements. Thank goodness for them! But, 4 of 51 isn't a great percentage. All of the others make it more difficult or expensive to ship wine to customers who want it.
- Total percentage of US population: 4.05%
- Total number of reports required annually: 1
- Total permit fees: $0
Tier II: Inexpensive and/or fairly easy (CA, CO, FL, IA, IL, MI, ND, NH, NV, VT)
- There are an additional ten states with permit fees of $330/year or less and modest reporting requirements (6-16 times per year). These states include some big ones like our home state of California, Florida, Illinois, Michigan and Colorado, but even for the smaller ones, the number of orders that a winery would need to fill in order to pay for the annual investment is very reasonable.
- Total percentage of US population: 29.95%
- Total number of reports required annually: 110 (11/state avg.)
- Total permit fees: $1275 ($127.5/state avg)
Tier III: Moderate expense or requirements (GA, KS, MD, ME, MT, NC, NM, NY, OH, OR, TN, WA, WI, WY)
- Once you get to the next tier of fourteen, a small winery would be excused for starting to run cost-benefit analyses before springing for the permits. Some permits start to get expensive in this tier, like Tennessee's $450/year, Wisconsin's $400/year, or Maryland's $380/year. Others are less expensive, or even free, but have difficult reporting requirements, like North Carolina (28 reports/year) or Georgia, New Mexico, Oregon, Wyoming and Washington (24 reports/year each). Still, there are some pretty large-population states in this tier, and most wineries choose to ship to all or nearly all of them.
- Total percentage of US population: 27.79%
- Total number of reports required annually: 267 (19.1/state avg.)
- Total permit fees: $3126 ($223/state avg.)
Tier IV: Difficult/expensive but worth the cost (TX, VA)
- This is a tier with just two states. Both are expensive (Texas's permit costs $526/year and requires 20 reports annually, while Virginia's permit is only $160/year but requires the submission of 36 reports) but both are also big enough to justify the cost.
- Total percentage of US population: 11.06%
- Total number of reports required annually: 56 (28/state avg.)
- Total permit fees: $686 ($343/state avg.)
Tier V: Difficult/expensive and maybe not worth the cost (HI, ID, NE, SC, WV)
- The main difference between this tier and the one above it is in the potential reward, rather than the expense. Its five states are all small, and all expensive: as much as $600/year for the permit (South Carolina) and as many as 36 reports per year (West Virginia). While nearly every winery ships to Texas and Virginia, there are many who don't ship to these five smaller states with often disproportionate costs and reporting requirements.
- Total percentage of the US population: 3.65%
- Total number of reports required annually: 112 (22.4/state avg.)
- Total permit fees: $1766 ($353/state avg.)
Every winery has a different breaking point. For us, it comes here. We've decided that the 35 states above all warrant the expense of the annual permits and the reporting, though it's a close call on some in that last tier. The 16 states below we either can't ship to, or have found that the requirements to do are unreasonable. But before I look at those, it's worth doing the math on what shipping to the 35 "shipping" states costs in total: $6853 in permits plus the time and expense of preparing and filing 546 reports each year. Figure an hour for each report, at $25/hour ($13,650) for a total expense of $20,503. But for that cost, we can ship to 76.5% of the US population. Available tools (like ShipCompliant, which we use and recommend highly) provide a savings over the labor of preparing the many individual reports, but still come with a cost.
Why don't states make the cut? The reasons vary, and you'll notice that some of the "no-ship" states fall into more than one category. But in most cases, you'll see some effort toward protecting distributors from competition, at the expense of both consumers and wineries.
On-site purchase requirements (AZ, IN, RI, SD, DE)
- There are states that will allow a winery to ship (typically with few or no hurdles) if someone purchases wine at the winery, but won't allow the same customer to order wine by phone or email from home. The logic written into the laws is typically couched in the guise of ensuring that only of-age buyers can purchase, but given that common carriers routinely check ID's in the 30+ states that allow direct shipping, it doesn't pass critical muster.
Distributor exclusivity (IN, LA)
- There are two states that explicitly say that wineries can ship only if they don't have a relationship with a distributor in that state. While this does protect distributors from competition from the suppliers they represent, I wonder if it discourages many smaller wineries from signing up with a distributor from those states. The two states (Indiana and Louisiana) are both just large enough markets (2% and 1.5% of the US population, respectively) and just far enough away from California that we've decided that it's not worth foregoing the wholesale business we do for an uncertain amount of direct business.
Capacity caps (AZ, NJ)
- The capacity cap is the distributor lobby's wedge issue of choice at the moment. It writes into law that wineries below a certain size may ship direct to consumers, while wineries at or above that size must use the 3-tier system and sell their wine through traditional channels. Typically, this capacity cap is set just above the size of the state's largest winery, protecting all the local wineries' business models while shielding distributors from as much competition as possible. In the recent case of Massachusetts, the link was made so explicit (it was promoted on the floor of the legislature) that a federal appeals court declared it in violation of the Granholm v. Heald decision that established the primacy of the Commerce Clause in the interstate shipment of wine. But in other cases it has withstood legal challenge, and with New Jersey's recent capacity cap bill and a push last year to add one in Florida, it seems likely we'll see more in the future. The capacity caps have been set as low as 25,000 gallons (roughly 10,000 cases) in places like Arizona (which we don't fall under), and as high as 250,000 gallons in New Jersey and Ohio (which we do).
Label registration (CT)
- Connecticut is a shipping state for many wineries, but it's not without its expenses and challenges. First, it's the third-most-expensive permit, at $595/year, and requires 28 reports to be filed annually. Second, you must register each label you propose to sell in the state at a cost of $200/label, renewable every 3 years. At Tablas Creek, we sold 28 different wines direct last year (different wines, not different vintages). That would require a $5600 investment, adding $1866 to the already-considerable annual $1295 cost of permit and reporting.
Death by 1000 Cuts (NJ)
- New Jersey grudgingly entered the ranks of direct shipping wineries with the passage of a bill in 2012. So far, only a tiny fraction of the nearly 10,000 American wineries have done so. Why would only 237 wineries have received a permit, in the country's fifth-largest wine market? Let us count the ways:
- The permit (a sliding scale, but for us $938) is the country's most expensive and the are 24 reports to submit annually
- There is a significant bond wineries have to post
- There are registration fees of $150 per partner per year, an issue for a winery like ours owned by two families, each with several owners
- Receiving a permit means that we have established a nexus with the state of NJ and are liable for paying an annual corporate income tax of at least $500
- There's a capacity cap to ship that we fall under, but many wineries don't
- And the coup de grace is that anyone who owns at least 10% of the winery must satisfy the same laws that govern the ownership of a liquor store or liquor wholesaler in the state, which precludes foreign residency.
About to join tier II (MA)
Absolute prohibition (AL, AR, KY, MS, OK, PA, UT)
- The good: most of the states that don't allow the shipping of wine in any situation are among the smallest wine markets in the country. Other than Pennsylvania, the six prohibition states combine to make up just 3.3% of the American wine market.
- The bad: Pennsylvania is the country's 6th-largest state and 10th-largest wine market
- The good: it seems like there is momentum building to finally get Pennsylvania's direct shipping laws changed. Given the challenges now (you can technically ship, but only to a state store, and only if no other vintage of that wine is in the state store system, and the recipient has to come to the state store to pick up and pay all the taxes) welcoming Pennsylvania to the post-Granholm world would be a huge boon for all wineries in 2015.