Issue link: http://read.dmtmag.com/i/534849
w w w. v w m m e d i a . c o m J u l y - A u g 2 015 | V I N E YA R D & W I N E RY M A N A G E M E N T 4 7 THE DTC THRESHOLD OF PAIN Jason Haas of Tablas Creek Vine- yard created a rating system for the states based on their level of con- duciveness to DTC wine shipping. Tier I: The No-Brainers Arkansas, Washington, D.C., Minnesota, Missouri R i g h t n o w, t h e r e a r e t h r e e states, and one district, that have neither permit fees nor significant r e p o r t i n g r e q u i r e m e n t s . T h a n k goodness for them! Tier II: Inexpensive and/or Fairly Easy California, Colorado, Florida, Iowa, Illinois, Massachusetts, Michigan, North Dakota, New Hampshire, Nevada, Vermont There are an additional 11 states with permit fees of $330 per year o r l e s s , a n d m o d e s t r e p o r t i n g requirements of six to 16 times per year. Tier III: Moderate Expense or Requirements Georgia, Kansas, Maryland, Maine, Montana, North Carolina, New Mexico, New York, Ohio, Oregon, Tennessee, Washington, Wisconsin, Wyoming Once you get to the next tier of 14 states, 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 per year or Wisconsin's $400 per year. Oth- ers are less expensive, or even f r e e , b u t h a v e d i f f i c u l t r e p o r t - ing requirements. (For example: North Carolina requires 28 reports per year!) Tier IV: Difficult/Expensive but Worth the Cost Texas, Virginia Both states in this tier are expen- sive (Texas' permit costs $526 per year and requires 20 reports annu- ally, while Virginia's permit is only $160 per year, but requires 36 reports). However, both are also big enough to justify the cost. Tier V: Difficult/Expensive and Maybe Not Worth the Cost H a w a i i , I d a h o , N e b r a s k a , South Carolina, West Virginia The main difference between this tier and the one above it is in the potential reward. Its five states are all small, and all expensive: as much as $600 a year for the permit (South Carolina) and as many as 36 reports per year (West Virginia). STATES THAT DON'T CUT IT Why don't the following states make the cut for Tablas Creek? 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 Arizona, Indiana, Rhode Island and South Dakota 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 e-mail 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 com- mon carriers routinely check IDs in the 30-plus states that allow direct shipping, it doesn't pass critical muster. Distributor Exclusivity Indiana, Louisiana These states explicitly say that wineries can ship only if they don't have a relationship with a distribu- tor in that state. While this does protect distributors from competi- tion from the suppliers they repre- sent, it may also discourage many smaller wineries from signing up with a distributor from those states. Capacity Caps Arizona, New Jersey The capacity cap is the distribu- tor 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 three-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. Label Registration Connecticut Connecticut is a shipping state for many wineries, but it's not with- out its expenses and challenges. First, it's the third-most-expensive permit, at $595 a year, and requires 28 annual reports. Second, you must register each label you pro- pose to sell in the state at a cost of $200 per label, renewable every three years. Death by 1,000 Cuts New Jersey New Jersey grudgingly entered the ranks of wine direct shipping in 2012. So far, only a tiny fraction of U.S. 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 (based a sliding scale) is the country's most expensive, and there are 24 reports to sub- mit annually. + Wineries must post a significant bond. + There are registration fees of $150 per partner per year, an issue for wineries with several owners. + Receiving a permit means a win- ery has established a nexus with the state of New Jersey and is liable for paying an annual corpo- rate income tax of at least $500. + There is a capacity cap. This was based on a piece post- ed by Haas on the Tablas Creek blog on Jan. 20, 2015.