REthink Wine Blog

2 weeks ago I attended my third WITS (Wine Industry Technology Symposium). Though I have yet to earn my badge of ‘seasoned industry veteran’, I feel able to reflect on the impressive in-roads technology has made in the wine industry. Only now am I able to catch a glimpse of the huge transformative effect information technology can have on the industry.

On display at WITS was a lot of cool technology, all with great potential. Yet there was little evidence of truly transformative technology – the kind that radically changes an industry and captures the attention of non-wine folk.

It’s no secret that the wine industry lags far behind others when it comes to living the great economic revolutions information technology is capable of unleashing. IT has completely changed the game in so many other industries, yet for most wine industry vets, that change still remains elusive.

“Technology does not drive change — it enables change”

New technology has already greatly changed the way wine brands are marketed and the traditional function of wine marketing has been revolutionized. For brand building and consumer engagement as key functions of the wine industry, technology has indeed enabled change.

When it comes to the sales function, new technology has revolutionized the way direct sales are conducted. Yet it is worth noting that while the direct sales channel and online sales have risen greatly in the past few years, it still remains a marginal portion of all the wine that is sold in the US. Whereas new technology has already altered the wine marketing function, it has yet to enable dramatic change for the wine sales function.

Contrary to what I once believed, “direct” is no clear salvation, or at least not in the next decade. It will be a long while before the US wine market will ever resemble a free market – there is no realistic mid-term alternative to the 3-tier system, not with what’s currently preoccupying state legislatures…

The “Wine 2.0” movement and the emerging ecosphere of wine marketing agents still face an uphill battle to change the way the industry operates outside of the direct channel. Even as direct sales grow with the astute combination of cool technology and clever marketing, this trend does not yet really change ‘business as usual’ for most of the industry.

Large retailers and large distributors are themselves working through intense and expensive technology projects to create even more efficiencies for the “traditional” system. Believe it or not, the established wine world is not immune to new technology; it’s just not sexy new technology like facebook (think dour SAP). So the big boys integrate large solutions to sell more and better, while the “new tech” folks upstream battle it out on the web to find a way to convert buzz into sales.

If a bridge is built to seamlessly integrate all these new tools into the 3-tier system, only then can the visions of so many wine tech entrepreneurs really take flight. The brave new world of wine technology will come about when the new world of wine tech meets the old 3-tier world.

To paraphrase the great W&S article summarizing WITS (zoom in on the ‘Tech and the three tiers paragraph), I want you to imagine a world where any small winery can participate in the 3-tier EDI (Electronic Data Interchange: the process of connecting trading partners on the same systems so they can communicate seamlessly).

• I want you to imagine a world where it will actually make economic sense for the regional wine buyer of a large retailer or restaurant chain to actually pay attention to wine social networks and blogs to increase sales.
• I want you to imagine a world where wholesalers of all stripes will feel comfortable in sourcing new brands whilst following the hum of online demand and user-generated content.
• I want you to imagine a world where it will make economic sense for large distributors to care about suppliers with no deep pocket and for them to find profit in catering to niche markets. 
• I want you to imagine a world where wine suppliers of all sizes can build elements of control over the whole wine supply chain.
• I want you to imagine a world were a Kafkaesque regulatory maze and a severely oligopolous distribution system will not severely hinder entry to market for new suppliers.
• I want you to imagine a world where the long tail can actually work in wine.

Why has this bridge not been built yet? For those familiar with our industry, just ponder this concept and how it relates to 3-tier: path dependence. The barriers guarding the wine market are so complex that until those barriers are tackled effectively, all other efforts will be hobbled in their potential.

On a strictly operational level, this bridge will require a strong foundation of streamlined compliance tools and clearing models, optimized logistics and standardized dynamic product data systems. On these pillars a road will be built: it will be the multitude of plug-ins and APIs that will allow supply from any tier to connect to demand from any tier. The smooth asphalt will be an array of online tools to facilitate wine marketplaces. On that bridge you will see pedestrians, cars, semi-trailers and trains alike, easily go from one side to the other… you get the analogy: selling wine today is like trying to get around the Bay Area with no bridges.

Only once this bridge is (or bridges are) built, will the wine industry live to the full potential that is on display at WITS. The pillars supporting this bridge are still discreet, but the technology, the knowledge, the plans and the vision are in place. It’s just a matter of time.

A quick reminder that Wisconsin drops reciprocity effective October 1, 2008.  In doing so, it joins the growing list of states allowing consumer direct shipment of wine with a direct shipper permit.  This opens direct shipments to permitted wineries in every state instead of just those in the shrinking number of reciprocal states, which is now down to just New Mexico and Iowa.  Details will be available in the State Shipping Laws section of REthink Compliance effective October 1st.  The permit application is available at the state website:  www.dor.state.wi.us/.  Below is an excerpt from the bill’s legislative analysis outlining the basics.

This bill repeals the reciprocal agreement system for authorizing interstate wine shipments directly to consumers and replaces it with a new permit system available for both interstate and intrastate shipments of wine directly to consumers.  The bill requires DOR (Department of Revenue) to issue a new permit called a direct wine shipper’s permit that authorizes the permittee to ship wine directly to an individual in this state who is of the legal drinking age, who acknowledges receipt of the wine shipped, and who is not intoxicated at the time of delivery.  A direct wine shipper’s permit may be issued to any person that manufactures and bottles wine on premises covered by a winery, manufacturer’s, or rectifier’s permit issued by DOR, a winery permit issued by another state, or a federal winery permit.  Containers of wine shipped to an individual in this state must be clearly labeled to indicate that the package may not be delivered to an underage person or to an intoxicated person.  No individual may resell, or use for a commercial purpose, wine that the individual receives by direct shipment under the permit.  No individual in this state may receive more than 108 liters of wine annually that is shipped under authority of the permit.  Holders of direct wine shippers’ permits must report quarterly to DOR specified information related to wine shipments made under authority of the permit and must include the amount of the occupational tax in the sales price of the wine and pay the sales or use tax on the sale of the wine shipped under authority of the permit.

I was speaking with an acquaintance not long ago and he was bemoaning the fact that as a holder of a type 17/20 license he was being discriminated against as a “virtual winery” by California Alcoholic Beverage Control (ABC) because he couldn’t allow consumers to taste samples of his product while the holder of a type 02 Winegrower license was allowed to do so.  He believed that since 02’s and 17/20’s were both wine producers they should both hold the same rights and privileges.  He chalked this “discrimination” up to a bias based on economics.  That it was merely money politics trying to maintain an uneven playing field.

As he spoke it sunk in to me how little he understood the licenses he held and the rights and responsibilities the licenses conveyed.  I realized at that point how unfortunate the monicker “virtual winery” was as a way to describe the activities permitted by holders of 17/20 licenses because it caused many misperceptions among both the public and the licensees.

The last decade has seen an explosion of what have become to be known as “virtual wineries”.  This jazzy, romantic name is generally applied to wine makers who hold a Type 17 Beer/Wine Wholesaler license and a Type 20 Off-Premise Beer/Wine retailer license.  It is a relatively inexpensive way to enter the industry because it does not require the holder to purchase equipment or have a bonded wine production facility, a huge capital outlay.  Many fine wines have been made by “virtual wineries” and it has been a tremendous boon to the growth of the industry. 

In many ways I like the name…it has cachet.  The problem is that it is not an accurate description of the rights granted to Type 17 and 20 licensees.  It is misleading because, simply put, neither the 17 or the 20 license grants the right to produce wine.  The license in California that grants wine production rights is the Type 02 Winegrower license.  Neither the 17 or 20 license types were created for the purpose of winemaking.  They have been co-opted by small wine makers who did not qualify for a type 02 Winegrower license.  The 02 requires the holder to have a federal Basic Permit, which in turn requires access to a bonded space (read “winery”).  It doesn’t have to be your own space.  You can lease space in a bonded wine production facility and obtain an alternating proprietorship.  This allows a winery to get an 02 license without actually owning their own facility.  But with that bond comes responsibility.  Excise taxes, monthly reporting, maintenance of a secure facility are just a few of the myriad responsibilities required of an 02 licensee.

Type 17/20 licensees do not have wine production rights.  They produce their wine at a licensed winery’s bonded wine facility, frequently referred to as custom crush facilities.  They pay a fee for use of the equipment, facility and to operate under the license so they can produce their wine.  Their 17 and 20 licenses then provide the rights necessary to market their wines to wholesalers, retailers and consumers.  Still, they do not have the same level of responsibility as licensed wineries operating under a federal permit.  They are only on the hook for maintaining the responsibilities of their licenses as wholesaler/retailers.  They do not take title to the wine until excise taxes are paid and the wine is removed from the bonded facility by the 02 licensee.  They are not the responsible party if the tax doesn’t get paid or the report doesn’t get filed.

Common Misperceptions about “Virtual Wineries”

MISPERCEPTION:  By combining the type 17 and type 20 licenses together a new hybrid type of license is created that grants rights beyond those of the individual licenses.  That combining these two licenses permits wine production in much the same manner as a type 02 Winegrower license permits wine production.  That it was created by the legislature for wine producers who don’t have their own equipment or facility.

REALITY:  A 17/20 is a combination of two license-types that, put together, allow the licensee to market wine they produce in the bonded facility of a licensed winery at the wholesale and retail level.  There is an unfortunate tendency to group the two license types together, as if there is such a thing as a “Type 17/20″, but they are two separate licenses.  A check of the ABC regulations will show that no such creature as a “17/20″ exists.  They are tied together because they are advantageous for small producers and that’s fine, but they are separate licenses. 

MISPERCEPTION:  17/20’s are discriminated against based upon economics.  That because they do not have the resources for equipment and a facility they are treated differently than licensed wineries.  That rather than being a “loophole” in laws created to govern wholesalers and retailers, the 17/20 license “type” was created by the Legislature as the result of wineries, trade associations, lobbyists working to protect their sales against lower overhead 17/20 producers.

One suggested form of discrimination is that type 17/20 licensees unfairly cannot taste wine to consumers.  That since both 17/20’s and 02’s produce a wine product designed for sale to the wine consumer, they should both be able to sell their product on a level playing field.  That such discrimination clearly consists of unfair business practices and restraint of trade by one market segment over another.

REALITY:  Actually, the wine consumer has equal access to buy a “virtual wineries’” wine, they just can’t taste it first because the license types 17 and 20 don’t permit it.  The reality is 17/20’s are not truly producers from a legal standpoint.  They do not bear the same responsibilities and also do not have the same rights.  One of those rights is direct wine sampling to consumers.  The Legislature deemed it inappropriate for retail licensees to hold such rights because they didn’t want the corner liquor store to be able to sample wines.

Changing the Reality for “Virtual Wineries”

Many argue some change should be made to the type 17 and type 20 licenses to accommodate the needs of wineries operating under the combined licenses to allow them to compete more fairly with the type 02’s.  I believe the law should change as society and commerce changes.  While I can support a change in the law to allow type 17/20 producer to taste their wares to their customers, I believe the change in the law should be to the type 02 license, not the type 17 or the type 20.  To make changes to the 17 or 20 would be to permit wholesalers and retailers to taste wine to consumers directly.  This is not a desirable situation.

The fact of the matter is neither a type 17 or 20 license was written for the purpose it is now being used.  Certainly consumer tasting is unavailable to a type 17 wholesale licensee.  And it is not permitted for type 20 retail licensees either.  When was the last time you went to a 7-11 and did a wine tasting?  The license was simply not created with the idea that making wine would be the result.  It is as it is because legislators didn’t envision it being used in such a fashion when written.  What needs to happen is the type 02 license either needs to be amended to accommodate “virtual wineries” or a new law needs to be written.  The better solution is to review, and possibly revise, the qualifications for acquisition of a type 02 license to include wineries operating under 17/20’s.

“Virtual wineries” are good for the industry, even if the name is somewhat misleading.  Changes in the law to accommodate the changes they have brought to the industry are probably warranted.

Anyone in the wine industry knows full well they did not get into the business because of an unabashed love of compliance work.  Without sounding ridulous, wine is an alcoholic beverage and the production and distribution thereof is one of the most heavily regulated industries in the United States.  Unfortunately, winery compliance isn’t nearly as much fun as producing (or consuming!) a fine bottle of Cabernet Sauvignon.  Nor is it as much fun as watching the income generated when that bottle sells to an appreciative audiance.  Let’s be honest, the income side of the business equation is always more exciting than the cost side. 

Bad Idea

The problem with this equation is it results in bad business practices.  Make no mistake, producing and distributing wine is a business.  At least if you want to do it for long!  There is a natural inclination to give short shrift to the less pleasant part of the business.  Compliance - the ugly stepchild of the wine industry.  People have such a distaste for compliance that they even give it a backseat to paying the bills! 

Now I’m not here to say that compliance can be fun and we should all love it.  However, I am here to say that relegating compliance to the last seat at the dinner table only furthers the notion that compliance is some horrible task with which to deal and that’s a bad idea.

Compliance is not that hard.  It just requires organization.  As with any business task, it needs to be scheduled and maintained.  Too many times it is treated as an afterthought and not taken on until the last minute.  Attempting to gather your numbers for the previous month just before the due date is a mistake.  It’s also stressful and it often leads to calculation errors and over- or under- payment of taxes. 

You certainly wouldn’t want to approach a sales opportunity unprepared at the last minute and you shouldn’t do so with winery compliance either. 

Planning Makes Perfect

Whether you are filing your monthly TTB 702 report or your state excise tax return for North Carolina, schedule the task with enough time so that you can review your work and accommodate any unforeseen problems without pulling your hair out.  Scheduling and planning will make all of the difference. 

• Schedule a time to do the work with enough time before the deadline.
• Maintain the appropriate sales or production data over the course of the month so you don’t have to throw it all together at midnight on the last day of the month. 
• Organize your data file in such a way so that much of the work is already done for you in the data input process.

Just Another Business Cost

One last thing about compliance and taxes.  Taxes are just another part of your cost structure like any other element of your production and sales systems.  When making price determinations for your product, remember to include the likely excise taxes you will incur in your intended markets.  Florida has very high excise taxes which should be accounted for while the reverse is true for a state like California.

In the end, compliance is just another part of the wine business we all love.  Don’t let it scare you and don’t let it overwhelm you.  Just plan appropriately and the burden of compliance won’t seem so bad.  Remember, REthink Compliance is there to help.  It is the place to find the rules of the road, so to speak, for state shipping laws, perform compliance checks before you ship, and create the reports needed to stay compliant.  Now, go do the fun part…make wine!

I’m not a tax specialist, but I have picked up a few things in 15 years of performing all types of winery compliance tasks.  And I always tell people that winery compliance work isn’t nearly as difficult or scary as they may think.  Labor intensive…possibly.  Fun…definitely not!  Difficult…not really. 

For direct shipment of wine, you are essentially looking at three different reports at the most for any one state:  excise tax, shipments, and sales & use tax.  For a well-organized office, excise tax returns are not that difficult.  Total up the volume of wine you shipped to the state during the period covered by the return, multiply the total volume by the rate of the excise tax for each category of wine, write a check for the amount of the tax due.  Shipment reports are even easier…just detail what and to whom you shipped, no check required. 

What usually throws people is sales & use tax (S&U).  Unlike the straightforward nature of excise tax and shipment reporting, S&U taxes have several other variables that can impact the degree of difficulty (Olympics jargon here) in completing the return.  Besides that, the form is usually longer with schedules and attachments for deductions, exemptions, adjustments, credits and prepayments.  And let’s not forget local taxes. 

Having said all that, even completing S&U tax forms for most states a winery ships to is not that complex; you simply need to separate the wheat from the chaff and understand a few basics about what information the state wants.

A comment I hear often is that the forms are so complicated and the instructions so difficult that I don’t know how to complete the form.  The reality is that for every state except the home state in which your winery is located most of these schedules and attachments aren’t going to apply.  These forms are generally designed for resident businesses in the state and as such cover many exceptions that are only applicable to resident businesses.  For a winery shipping wine direct to out-of-state residents, completing that state’s S&U tax return is pretty much limited to reporting the sales activity for wine and any other products you ship into the state, deduct any non-taxable items (such as shipping costs or non-prepared foods) and multiply the net sales by the state tax rate.  The only difficult S&U tax return is going to be for your home state…and you have to do that whether you ship or not because your home state S&U tax return includes all of your sales activity in the state, not just your shipping activity.

A couple of key things to be aware of when comleting S&U tax returns:

Gross Sales v. Net Sales:  almost invariably on line 1 of the return the state wants to know the amount of sales activity you had in the state for that period.  Read the instructions for line 1 carefully because the value to put there will determine your response to other questions on the return.  Specifically, determine whether the state wants to know your Gross Sales (taxable and non-taxable) or your Net Sales (taxable only).  Most states want to know your Gross Sales and then let you deduct your non-taxable sales further down in the form.  Non-taxable items could be certain types of products (non-prepared foods like that jar of gourmet mustard) or sales to certain types of customers (sales to the U.S. government, sales for resale).  They could also include shipping charges incurred.  The important thing is to be sure to understand what sales are to be included in line 1.

Frequency:  how often you are required to file is usually a function of the volume of sales activity in the state.  For most wineries that will be relatively low resulting in only annual filing.  For others, quarterly or even monthly filing may be required.

Local Taxes:  more and more states are moving to “destination-based” systems wherein the winery is required to collect and remit not just the state S&U tax but also the local S&U tax.  Local taxes usually range from a .25% up to 2.5%, depending on the region and are determined by city, zip or even street level address.

When all is said and done, most of your compliance work is not as cumbersome as it may seem once you look past the extraneous information on the forms.  And for the information that is required, new systems are available to assist you to complete these tasks effectively and efficiently.  That is why we created REthink Compliance.  To bypass the chaff and remove the anxiety of direct shipping compliance.  The reports generated there will tabulate the sales activity according to each state’s requirements…right down to local sales & use tax rates.  So don’t despair.  Taxes are still a nuisance, but they don’t have to be scary.

I’m relatively new to Inertia, having been here for about five months now.  My role is in fostering relationships with the many different types of vendors who share this space with us, with the ultimate goal of building a “partnership ecosphere” so to speak, one which will provide the most value to our clients.  And while I’m anxious to write about our plans regarding these operational partnerships, I thought I would write about a different sort of partnership today – the partnerships we’ve formed with our winery clients.

I’ve been involved in direct-to-consumer sales for many years now, and from what I’ve witnessed there are basically two different business models in use by winery direct sales platforms such as ours. 

The Investor Dictionary defines a business model as “the mechanism by which a business intends to generate revenue and profits.  It is a summary of how a company plans to serve its customers…….”  The way I see it, there are basically two models in use in this space:  1) a “Perpetual License” model, and 2) a “Value Creation” model.   The former involves a flat fee, while the latter involves a small share of revenue.  In looking at the rev share model, the provider or business partner doesn’t have a viable business UNLESS its clients grow direct revenues.   So while both models satisfy the first half of the definition above, in making that commitment to its clients, the rev share partner has gone much further in defining the latter half of the definition – developing a plan to serve its customers.

Let’s look first at the subscription or flat fee model.  In some instances they may build a website for you, in others they might simply host your shopping cart, charging a flat monthly fee in return.  Typically your contract will show different fees for services such as basic support.    Under this model, the focus is naturally on maximizing the number of websites which are turned out each month.  The model itself doesn’t provide incentive for the provider to work with existing clients to help them maximize revenue potential.

With a revenue share model, the focus by definition is on creating value.  I believe that this leads to the strongest possible relationship, one which is mutually rewarding and delivers an increase in creativity and high priority response times.   Since I’ve been with Inertia, I’ve had the opportunity to view the many ways in which we view our roles and responsibilities in terms of creating value for our winery partners, both in our current business model and in terms of our overall corporate vision.  While I won’t go into all in detail today, a few prime examples are:

Focus on quality not quantity:  We study best practices, usability, and conversion rates.  Each and every site is designed with one purpose in mind – selling wine.   Most importantly, as we develop the next generation of our platform, our focus is entirely on the ways in which we can leverage technology to connect our clients with demand, providing access to new markets and the opportunity for our winery partners to connect directly with both consumers and the trade, forging lasting relationships.

A passion for selling wine:  A perfect example of this is the Inertia blog and the enthusiasm with which our bloggers share their thoughts and tips for maximizing direct sales.  In addition to the blog, we offer quarterly workshops which focus on current trends in wine marketing, monthly newsletters loaded with useful tips, and a set of excellent training sessions.  In addition, our client development group is devoted to working with our existing client base to help maximize direct sales.

REthink Compliance:  Our free compliance tool is another great example of our overall vision at work.  By helping to remove the remaining barriers to direct sales and providing winery partners with access to an even broader marketplace, we enable them to tap into demand channels that were not available to them in the past.

Looking through the Family Winemakers newsletter recently I found a very interesting article on the positive results that can accrue when wineries play by the direct shipping rules.  Here is the brief but important text:

Florida Direct Sales Solid
“Recent figures released by the Florida Department of Business and Professional Regulations show that direct-to-consumer sales remains strong.  Florida has been open to direct shipping without permit for 2.5 years. In that time the state has collected $704,561 in excise tax from 867 individual wineries.  As context it should be remembered that there is no permit required, no quantity limit and there have been no reportsof illegal access by minors. The monthly sales trend continues to nudge upward and it appears that roughly 450 Floridians order wine monthly.”
          Source:  Family Winemakers of California Friday Wine Chronicle, July 25, 2008

This is what I argue all the time – wineries play fair and play by the rules.  Wineries will follow the rules, pay taxes and file reports if states would just give them reasonable rules by which to live.  The court injunction in Florida has resulted in minimal rules and oversight, yet this article demonstrates that wineries will pay the excise tax due and not sell to minors even without onerous rules that some states put in place to prevent the feared abuse of an uncontrolled market.  The rules are really designed to restrict  access.  The wine industry as whole abiding by a reasonable set of rules will put the lie to such fears.  The result will be more open states and consumer access.  Wineries want to be responsible citizens and have access to responsible consumers.  The results in Florida are a perfect example of what can happen when given the chance to prove it.  Good things happen for everyone - the consumer, the winery, and the state, when you play by the rules.

About this time of year I like to raise my head up out of the detail of direct shipping compliance and survey the landscape.  At the beginning of the year I anticipated many developments would occur to further brighten the future of direct shipment of wine within the United States.  Some developments happened, others did not.  Overall its been a positive first half of 2008. 

Illinois, and soon Wisconsin, joined the ranks of permit states.  Georgia eased restrictions on permits and increased the customer aggregate volume to 12 cases per year.  Attempts to end reciprocity in both New Mexico and Iowa failed.  A restrictive bill in Florida failed as well.  Its easy to argue that lack of legislative action can be a good thing when you are looking at a bad law.  The net result is that Florida remains open to direct shipping until the legislature comes up with a solution.  Since it has one of the highest per capita wine consumption rates, keeping Florida open for direct shipping is definitely a plus. 

In the courts, the highly anticipated Costco decision was handed down by the 9th Circuit Court of Appeals, overturning the district court’s decision that Washington state’s regulatory powers were invalid under federal anti-trust laws.  In Texas, the Siesta Village Market decision set an interesting precedent when the federal district court opened direct shipment of wine to consumers by out-of-state retailers.  While the decision included an extremely limiting restriction that the retailer must purchase the wine from a Texas wholesaler, the important aspect is that the Granholm rationale applies to retailers.  This decision will no doubt be used as ammunition in attempts to open other states to retailer direct shipments to consumers.  Finally, an ongoing case is the Family Winemakers suit in Massachusetts to remove the 30,000 gallon production cap for wineries seeking a permit to ship to Massachusetts consumers.  A motion for summary judgment was recently filed by FWC so a decision could come soon. 

Here is a list of developments in key states since the beginning of the year:

Florida:  Open to direct shipping due to a 2005 court injunction on FL authorities from enforcing exisiting statutes.  The legislature has continued to fail to pass a new direct shipping statute in 2008 and the DPBR did not promulgate new regulations.  As a result, FL remains a legal state for winery shipments.

Illinois:  As of June 1, 2008 dropped reciprocity and joined the ranks of permit states.  Wineries can ship up to 12 cases of wine per year to Illinois consumers.  The cost of the permit is $150 for wineries producing less than 150,000 gallons annually.  It also permits direct distribution rights for wineries producing less than 25,000 gallons per year.

Washington:  Beginning July 1, 2008, requires “destination-based” payment of sales tax, meaning the local tax must be paid based on where the wine is shipped to rather than where the shipment originated.  While this will not impact non-Washington wineries who must already pay the tax on a destination basis, it will affect Washington wineries shipping to Washington consumers.

Ohio:  Effective July 1, 2008, raised the production cap for wineries eligible for a Direct Shipper License from 150,000 gallons to 250,000.

Oregon:  Reciprocity repealed effective 1/1/2008.  Permit required for wineries and retailers allowing shipment of up to 2 cases per month per consumer.  The permit costs $50 and a $1,000 bond is required.  A separate permit also creates a direct distribution right for wineries to Oregon retailers with endorsements from the OLCC.

Wisconsin:  Effective October 1, 2008, Wisconsin will drop reciprocity and join the list of permit states.  The permit fee is $100 and allows the permitted winery to ship up to 108 liters to a Wisconsin consumer per year.  Sales and excise tax reports and payments must be filed quarterly.

Iowa:  No significant regulatory changes in 2008.  Attempts to drop reciprocity in favor of a permit system failed in the legislature.

New Mexico:  No significant regulatory changes in 2008.  Attempts to drop reciprocity in favor of a permit system failed in the legislature.

Arizona:  No significant regulatory changes in 2008 however an administrative interpretation that a visitor to a winery may pre-order up to volume limit of 2 cases annually, including wine club membership.  Still, a new visit is required each year.

Georgia:  Effective July 1, 2008, Georgia has changed some key elements of the rules for direct shipments.  A direct shipper applicant may have a relationship with a Georgia distributor.  Also, the per person customer aggregate volume limit has been increased to 12 cases per year.  A permit holder must now collect and remit GA sales tax, excise tax and comply with reporting requirements.

While this is not an exhaustive list, it provides a look a changes in key states in a constantly changing landscape.  Part of my job is to monitor those changes to ensure that the REthink Compliance web tool is always up to date.  You can find all of the state shipping laws at www.rethinkcompliance.com.  When the rules change, REthink Compliance is your key resource to view those changes to help you stay compliant.

Inertia’s 5th Annual Direct Symposium will take place on July 11th, from 9-3:30pm at COPIA in Napa. This year, we’ve expanded our agenda to include interactive sessions on topics chosen by attendees. Last month, we released a survey on what we were hearing from our clients and industry partners as the ‘hottest’ topics in the direct industry. Topics included:

• Website Design
• Website Merchandising
• Selling Direct to Trade 
• Direct Shipping Compliance
• Allocation Program Management 
• Wine Club Management
• Wine Blogging
• Online Social Networks

We asked attendees to ‘vote’ on their topics of choice for breakout sessions at our July Symposium. The results were tallied, and we have our winners… 

• Selling Direct to Trade: Access. Control. Sales. 
• Direct Shipping Compliance: A Dynamic Marketplace. Your Options.
• Wine Blogging: Brand Building, Customer Loyalty and Sales
• Online Social Networks: Consumer- to-Consumer, Peer-to-Peer Engagement
• Website Design: Designing for Best User Experience & Greatest Sales
• Website Merchandising:  Sell More Online 

Our Symposium agenda will allow attendees to participate in two breakout sessions of their choice: One in the morning, one in the early afternoon. During each of these sessions, panelists will lead an interactive discussion with the audience around a designated topic. Based on several workshops which we led earlier in the year, we know our clients are eager to engage and look forward to some good interaction.

Because of limited space in each of our breakout sessions, we request that attendees reserve their spot in the session of their choice as soon as possible. Signups will be taken the day of the Symposium, at check in, but to ensure you get a seat in the topic of your choice, send your request through today (along with your RSVP if you haven’t already!) to rsvp@inertiabev.com.

See you in July!

Changes to direct shipping law feels a little bit like following the Democratic presidential nomination process.  Every time you turn around it’s off to a new state, criss-crossing the U.S., trying to keep up with the shifting landscape.  If you follow this type of thing, as you most surely know by now, Illinois officially switched to a permit system on Sunday, June 1st.  I won’t hit you with all the details because they are available now at REthink Compliance.  Just be aware that as of yesterday a licensed winery needs a permit costing from $150 and up (based on production, of course) to ship into this former reciprocal state.  Perhaps of equal importance, the new law permits small (25,000 gallons) wineries to self-distribute to retailers in the state.  Inertia’s Direct-to-Trade program is now available to one of the highest per capita consumption states.

As with the primaries, once a state is in the rear view mirror, it’s time to move on.  So next stop is Georgia, which recently made changes to its existing permit law that removes restrictions and allows more wineries to ship direct to it’s residents.  There are two key changes that take effect July 1, 2008.  First, a winery with an existing distributor relationship in Georgia is now allowed to acquire a direct shipper permit.  This is good news for medium to larger wineries who previously were shut out of direct shipping to Georgia because of their distributor relationship in the state.  Second, the per customer volume cap has been increased from 5 to 12 cases per year.  Those Georgia residents who want to join a higher level wine club (6-bottle and 12-bottle) can do so without fear of exceeding the limit.

Moving down the road to the fall, we have Wisconsin, which switches from reciprocity to a new permit system on October 1, 2008.  Pretty basic stuff with this one:  $100 annual fee, 108 liter (12 cases) per customer limit, and no production capacity caps.  It should be noted the per customer limit is from ALL wineries shipping to the state but is the responsibility of the customer, not the winery as in Massachusetts.

The movement of states to well-considered permit systems is a positive for the wine industry.  I stress this nearly every time I blog but winery adherence to these systems encourages the spread of direct to consumer shipping into states previously closed to such shipments.  Permit systems have created access to approximately 80% of the U.S. market, much higher than the days of reciprocity, when most of the U.S. was closed.  Of course, as with all permit systems, these changes come with the usual reporting and payment of sales and excise taxes, delivery restrictions, and shipping label requirements.  REthink Compliance is available to help with these and all of the reporting requirements for state’s permitting direct to consumer shipping.  As the laws change, so will REthink Compliance, staying current as the source for direct shipping developments today and down the road.