Statement of Principles on Direct-To-Consumer Shipping of Spirits
Modern-day consumers want enhanced convenience when it comes to purchasing their favorite products, whether those products are produced in-state, out-of-state or outside of the U.S.A. The world of commerce has changed and will continue to change dramatically – particularly in the wake of the COVID-19 pandemic. Markets and public policies must adapt to meet consumer demands.
The direct-to-consumer shipping of beverage alcohol is a long-established practice. Direct-to-consumer shipping of wine is allowed in 46 states and has coexisted with the traditional three-tier beverage alcohol distribution system for over twenty-years. Direct-to-consumer shipping has, will and should continue to serve as an additional market access channel to the traditional three-tier system of alcohol beverage distribution.
Across the country, the number of distilleries and new distilled spirits products have skyrocketed in recent years. Since 2003, the number of distilleries in the United States has increased from 70 to more than 2,000. Increasingly, consumers want to have access to the new and exciting spirits products that often may not be available in their state.
Further, expanding distillers’ ability to direct ship spirits to consumers will introduce consumers to many new brands and line extensions that will eventually grow into brands carried by traditional wholesalers, thus strengthening the spirits business and the three-tier system. Direct shipping to consumers enhances the three-tier system by allowing distillers to test new products directly with consumers and determine if there is a strong enough customer demand for the product, shifting the financial burden away from distributors trying to determine product viability in a market on their own.
The American Legislative Exchange Council supports extending to distilled spirits the same direct-to-consumer privileges currently enjoyed by wine and encourages the adoption of implementation legislation formed to support the following general principles:
PRINCIPLE 1 — Direct-to-consumer shipping legislation should treat all types of beverage alcohol products equally.
It is a scientific fact that “alcohol is alcohol is alcohol” regardless of the form in which it is consumed. According to the Dietary Guidelines for Americans, 2020-2025, a “drink-equivalent” is defined as 1.5 fluid ounces of distilled spirits (40 percent alcohol), 12 fluid ounces of regular beer (5 percent alcohol), or five fluid ounces of wine (12 percent alcohol). In these serving sizes, one drink, whether spirits, beer or wine, contains 0.6 fluid ounces of alcohol.
PRINCIPLE 2 — Direct-to-consumer spirits shipping legislation should treat in- state and out-of-state U.S. products equally and avoid Commerce Clause issues.
Federal case law has addressed direct-to-consumer shipping of beverage alcohol in several decisions. In the Granholm v. Heald, 544 U.S. 460 (2005), the United States Supreme Court found that a state must treat in- and out-of-state wine producers equally to avoid violating the dormant Constitutional Commerce Clause. To paraphrase Granholm, a state that allows in-state producers to ship and deliver directly to in-state residents must extend those same rights to out-of-state producers. In the June 2019 decision, Tenn. Wine & Spirits Retailers Ass’n. v Thomas (139 U.S. 1449 (2019)), the Court made clear that Granholm continues to be good law and that states have a high burden to justify measures that discriminate against out-of-state beverage alcohol producers or products.
The federal appellate courts have applied Granholm to various types of state direct ship laws. For example, face-to-face purchase requirements in direct wine ship laws were stricken as unconstitutionally discriminatory under the Commerce Clause by the 6th Circuit in Cherry Hill Vineyards, LLC v. Lilly, 553 F.3d 423 (2008). In Family Winemakers of Ca. v. Jenkins, 593 F.3d 1 (2010), the 1st Circuit held unconstitutionally discriminatory a state law allowing only smaller in- state or out-of-state wineries to direct ship to consumers because all in-state wineries were small and the purpose of the law was to prevent the participation in direct shipping by larger out-of-state wineries.
State laws should not require any face-to-face purchase, impose any eligibility requirement for direct shippers based on production levels and should treat in-state, out-of-state products equally.
PRINCIPLE 3 – Direct-to-consumer spirits shipping legislation should maintain state tax collections.
Broadly, a state should be kept whole regarding tax collections if a sale is made in that state. It must also be recognized that court decisions have established that sales and excise taxes will be paid to the state where the product is delivered. Direct-to-consumer shipments of distilled spirits should not be subjected to double taxation.
PRINCIPLE 4 – Direct-to-consumer spirits shipping legislation should safeguard against underage purchases.
As with other channels, direct-to-consumer shipping of spirits needs to uphold high standards of age verification to ensure that beverage alcohol products are delivered only to persons of legal age. The package containing the beverage alcohol must be conspicuously labeled with the words “CONTAINS ALCOHOL: SIGNATURE OF PERSON AGE 21 OR OLDER REQUIRED FOR DELIVERY.” The delivery person may transfer possession of the product only after (i) requesting the recipient of the product to provide a valid ID, (ii) receiving and visually inspecting the document, (iii) verifying the recipient’s identity and, by visual examination or by using age verification technology, that the recipient is at least 21 years of age, and (iv) obtaining the signature of the recipient.
PRINCIPLE 5 – Direct-to-consumer spirits shipping legislation should treat imported and domestic products equally.
A level playing field in the marketplace for all beverage alcohol products regardless of where they were produced is good public policy. Further, preferential treatment for domestically produced brands is contrary to U.S. trade obligations under the World Trade Organizations’ (WTO) national treatment clause (GATT Article 3), which requires equal treatment to foreign goods vis-à-vis domestic goods.
PRINCIPLE 6 – Direct-to-consumer spirits shipping legislation should ensure product integrity.
Maintaining a regulatory framework assuring product integrity within the direct-to-consumer marketplace can be achieved by limiting direct shipment licenses to the primary source, which includes domestic producers as well as U.S. importers of foreign products who are brand owners or their authorized agents.
PRINCIPLE 7 – Direct-to-consumer spirits shipping legislation should ensure the ability to utilize efficient logistical arrangements.
Producers should be allowed to utilize logistical arrangements, whether through their own operations and/or third-party arrangements, that ensure shipment and distribution of beverage alcohol to meet consumer demand in a timely, efficient, and cost-effective manner, absent unnecessary restrictions, burdens, or disruptions in operations. A fulfillment center operation is simply completing the physical logistics of packaging, shipping, transporting, etc. and does not engage in activities requiring a supplier, wholesaler or retail license or a license to be an agent or representative of any of these industry licensees.
PRINCIPLE 8 – Direct-to-consumer spirits shipping legislation should require deliveries be made only to permitted areas.
Deliveries should only be made to an address legally allowed for the purchase of spirits and not to an address in a dry county or otherwise prohibited area (viz., military installation or Indian reservation).
PRINCIPLE 9 – Direct-to-consumer spirits shipping legislation should provide for carrier reporting.
The carrier or person transporting beverage alcohol to consumers should be required to prepare and file periodic reports of these shipments with the beverage alcohol or tax authority. These reports should include, for example, the name and address of the seller and the consumer, the type of product and volume of each shipped to the consumer, and the date of delivery. The carrier or other transporter that delivered the product to the consumer also would make the records available to the State within a reasonable time of its written request.