Two Supreme Court cases have reshaped the way alcoholic beverages, particularly wine, can be marketed to consumers. And combined with the effects of the coronavirus pandemic, breweries and distilleries may also become more involved in direct-to-consumer sales, according to Jeff Carroll, general manager of Avalara for Beverage Alcohol — and that will open them up to sales tax nexus.
Granholm v. Heald decided in May 2005, is considered the wine industry’s South Dakota v. Wayfair, acting as the trigger for 46 states now allowing direct-to-consumer shipments from wineries. In Granholm, the Supreme Court narrowly held that New York and Michigan laws that allowed wineries within the state to ship wine directly to consumers, but prohibited out-of-state wineries from doing likewise, were unconstitutional.
Prior to the case, Michigan and New York, like many other states, regulated the sale and importation of wine through three-tier systems that required separate licenses for producers, wholesalers, and retailers. The court held that both Michigan and New York laws discriminated against interstate commerce in violation of the Commerce Clause, said Carroll. In Granholm, the Commerce Clause trumped the 21st Amendment.
in June 2019, Tennessee Wine and Spirits Assn. v. Thomas decided a Tennessee law requiring anyone applying for a retail license to sell alcohol to have lived in the state for at least two years. This clarified that Granholm was not limited to producers.
The wine industry created a model direct-shipping bill several decades ago. It was adopted by the National Conference of State Legislators. The bill has a provision that shippers would be subject to sales and excise tax in a destination state. Most small wineries were shipping to multiple states — and they have an obligation to register for a sales tax permit to pay sales tax at the destination, even though they don’t have physical or economic nexus. This made it easier to get laws passed, and it was a remarkable achievement for the wine industry.
Of course, with the increased opportunities come increased complexities in the rules and regulations of the varying jurisdictions, Carroll noted. These include registering with state liquor authorities, tax authorities, and adhering to volume limits, and observing other restrictions.
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By: Roger Russell
June 9, 2020