Topic:
MODEL LAWS; LIQUOR; AGE OF MAJORITY; LEGISLATION; RETAIL TRADE; LICENSE FEE;
Location:
LIQUOR;

OLR Research Report


December 17, 2004

 

2004-R-0944

DIRECT SHIPMENT OF ALCOHOLIC BEVERAGES

By: Daniel Duffy, Principal Analyst

You asked (1) for a copy and summary of model legislation allowing direct shipment of wine to consumers, (2) for an explanation of how adopting it would change Connecticut's regulatory scheme, and (3) if there have been any bills introduced recently to adopt legislation similar to the model.

SUMMARY

We identified a “model bill” proposed by the Family Winemakers of California, the Coalition for Free Trade, the Wine Institute, and the American Vintners Association and adopted by a task force of the National Conference of State Legislatures. The bill makes changes concerning all types of alcoholic beverages, not just wine.

The model bill allows out-of-state liquor businesses to ship alcoholic beverages, including wine, directly to Connecticut consumers. The consumers must be at least 21 years old and purchasing for their own use. The bill sets a license fee of $100. It requires these shippers to label the shipped packages as alcohol, pay any excise tax to the consumer's home state, and consent to the jurisdiction of the consumer's state for legal enforcement purposes.

It prohibits a shipper from sending more than 24 bottles to a particular consumer in a month and from shipping to a “dry” area. It prohibits anyone without the license it creates from shipping directly to consumers.

If the legislature were to adopt the bill, it would apparently replace the current system. Under current law, consumers can import up to five gallons in a 60-day period from any out-of-state liquor retailer in the United States and up to five gallons in a year from outside of the country. Before doing so, consumers must obtain permission from the Department of Revenue Services (DRS) and pay the excise tax. By replacing the current system, the bill would apparently eliminate the limit on the amount consumers may import in a 60-day period.

The legislature considered bills based on the model bill in 2001. They were not reported out of the committee of cognizance.

There are pending federal court cases on the issue. The U.S. Supreme Court heard the cases on December 7, 2004 and is expected to rule on them in 2005.

MODEL LEGISLATION

The model bill allows businesses holding liquor licenses in their own state to ship any kind of alcoholic beverage, including wine, directly to consumers in other states. Consumers must be at least 21 years old and acquiring the liquor for personal use and not for resale. A copy of the model legislation is enclosed.

Before shipping, the bill requires shippers to be licensed as out-of-state shippers in the state in which the consumer lives. It requires applicants for the license to submit a true copy of their current license issued by their home state and pay a $100 fee. The business may be licensed as a manufacturer, supplier, importer, wholesaler, distributor, or retailer. Shippers must renew their licenses annually by paying an unspecified renewal fee and providing copies of their current licenses.

The bill prohibits licensees from (1) shipping more than 24 bottles per month to anyone or (2) shipping to an address identified by the consumer's state as “dry.” (In Connecticut two towns are dry, Bridgewater and Eastford. A third, Roxbury, only allows one type of liquor permit, a grocery beer permit.)

It requires licensees to:

1. ensure that all containers of alcoholic liquor are conspicuously labeled “CONTAINS ALCOHOL: SIGNATURE OF PERSON AGE 21 OR OLDER REQUIRED FOR DELIVERY,

2. report annually to the consumer's state the total of alcoholic beverages shipped into the state by type during the previous calendar year,

3. pay the alcoholic beverage tax due on the sales of that amount of alcoholic beverage calculated at the rate imposed by the consumer's state,

4. allow the consumer's state revenue department to audit its records on request, and

5. consent to the jurisdiction of the consumer's state courts in any matter relating to enforcing the model bill and related laws.

The bill authorizes the consumer's liquor control and revenue collection agencies to adopt implementing regulations. It authorizes the liquor control agency to enforce its provisions through administrative proceedings to (1) suspend or revoke a shipper's license or (2) accept an offer in compromise in lieu of a suspension.

Anyone who knowingly makes, participates in, transports, imports, or receives such a shipment from out of state guilty of a misdemeanor and a violation of its provisions is an unfair trade practice. (Under Connecticut law, there are three classes of misdemeanors. The penalty for a class A misdemeanor, the most severe, is imprisonment of up to one year, a fine of up to $2,000, or both.)

CHANGE TO CONNECTICUT REGULATION OF ALCOHOLIC BEVERAGES

The model legislation would replace the current system used by consumers to buy alcoholic beverages from out-of-state suppliers. This report describes changes that would be made if the model legislation replaces the current regulatory scheme while making only the minimum number of other possible modifications.

The bill allows shippers of all types of alcoholic liquor to get a license to ship directly to Connecticut consumers. Under current law, out-of-state businesses can get permits to ship alcoholic liquor only to Connecticut manufacturers and wholesalers that hold liquor permits (CGS 30-18, 30-18a, and 30-19). The model bill would add an additional liquor permit. An unknown number of out-of-state wineries and other liquor sellers would qualify for it.

The bill prohibits anyone without a direct shipment out-of-state shipper's license from shipping to Connecticut consumers. To avoid a statutory conflict, the legislature would have to repeal the law establishing the current system. Currently, the law allows a consumer to import up to five gallons of alcoholic beverage in any 60-day period from any other state and up to five gallons in any 365-day period from outside the country (CGS 12-436(b)(2)). The law does not require a consumer to be physically present when ordering alcoholic beverages. This means that under current law consumers may order by whatever method they choose, such as by telephone or over the Internet (CGS 30-77(a)). Alcoholic beverages imported in this way must be for personal consumption. The law requires consumers to obtain prior approval from DRS and pay excise and sales taxes before importing any liquor. The process is described in Department of Revenue Services (DRS) Informational Bulletin IP 2000-15. Consumers must use DRS forms BT-100 or BT-101 to request permission to import and form S&BT to pay the excise and sales taxes. Copies of the bulletin and forms are available on the DRS website (Connecticut Department of Revenue Services) and are enclosed.

The model bill does not address the amount a consumer can import. It indirectly restricts the amount a consumer may obtain from a single shipper in a month, but it does not restrict the number of shippers from whom a consumer may purchase in a month. This means that adopting the model bill would allow Connecticut consumers to import by direct shipment unlimited amounts of alcoholic beverages. The current system limits consumers to five gallons in a 60-day period from all sources.

The model bill requires shippers to place a label on the packages stating that they must be delivered to someone at least 21 years old. It does not set standards on the delivery companies themselves. Existing Connecticut law requires companies to obtain an in-state transporter's permit (CGS 30-19f). If the model legislation were adopted and this provision remains in effect, delivery companies would still be required to obtain the permit. The permit allows deliveries only if the excise tax has already been paid. To avoid a statutory conflict, the legislature would have to modify the law to allow deliveries on untaxed alcoholic beverages because the model legislation requires shippers to pay the tax after the end of the calendar year in which the beverages are sold. Currently, 42 businesses have an in-state transporter's permit.

The model bill requires all wineries that ship directly to Connecticut consumers to pay the state excise tax on alcoholic beverages to the Department of Revenue Services. Currently, the approximately 100 Connecticut wholesalers pay the tax. In addition, about 500 consumers paid the tax using form S&BT last year, according to DRS. Under the model legislation, an unknown but significant number of out-of-state wineries and shippers of other kinds of alcoholic beverages could pay the tax.

RECENT LEGISLATION

The legislature considered the model bill in 2001. The General Law Committee drafted two bills that incorporated features of the model legislation, HB 5589 and HB 5280. It held a public hearing on one of them, HB 5280, on February 22 but the motion to report the bill to the floor failed on March 27, 2001. Copies of the bills are enclosed.

The legislature passed a related bill the same year. The provision allowing someone to import alcoholic beverages without being physically present was adopted the same year. Copies of the public act and public act summary are enclosed (PA 01-92).

FEDERAL LITIGATION

Small wineries have challenged state regulatory schemes in court. The U.S. Supreme Court heard oral arguments on December 7, 2004 on the following question: “Does a State's regulatory scheme that permits in-state wineries directly to ship alcohol to consumers but restricts the ability of out-of-state wineries to do so violate the dormant Commerce Clause in light of Sec. 2 of the 21st Amendment? The question arose in two cases being considered by the court, one from Michigan and the other from New York. Connecticut's regulatory system for alcoholic beverages is broadly similar in this aspect to those in Michigan and New York. In Michigan, the wineries successfully argued that the regulatory scheme violates the Commerce Clause (Heald v. Engler). In New York, the State of New York successfully argued that the 21st Amendment gave it the authority to establish the regulatory scheme (Swedenburg v. Kelly). The decision may prompt states, including Connecticut, to revise their regulatory scheme.

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