No Wine For You, South Dakota!

SDAn opportunity to open the State of South Dakota for direct to consumer wine shipping failed recently when Senate Bill 114 died in the House Energy and Commerce Committee. As a result, 11 states still prohibit winery-to-consumer shipping and 35 states still prohibit retailer to consumer shipping.

Despite South Dakota not being the most populous state in the country nor a particularly important wine drinking state, the defeat of the most recent wine shipping bill there is the kind of disappointment that continues to reinforce the impression that lawmakers are far more concerned with those that provide campaign contribution than with the interests of consumers, let alone the notion of free trade.

If you are interested in listening to how opposition to direct wine shipping is asserted, this audio recording of a February 11th hearing in the South Dakota Senate Commerce and Energy Committee is available (beginning at 18:35 into the recording). Among the various arguments that are put up against direct shipping is that out-of-state wineries would not be required to pay the same license fees as in state wine stores nor be exposed to the same tax payment structure as local wine stores. This is a disingenuous argument for the simple reason that the services that South Dakota wine retailers’ fees and taxes pay for (police services, fire and emergency services, just as an example) will never be made available to out-of-state wineries. If a Oregon winery catches fire, there will be no fire trucks from South Dakota racing to McMinneville to help quell the inferno. There is no equal access to services for in-state business and out-of-state businesses. So why ought there be an equality of fees paid by in-state and out-of-state by entities.

One point made by South Dakota retailers in opposition to the direct shipping bill does make sense to me. They complained that while out-of-state wineries would be allowed to ship under this legislation, South Dakota retailers would still not have the right to ship to South Dakotans. In any future direct shipping bill, this oversight needs to be corrected. The out-of-state wineries allowed to ship under this recent wine shipping bill were in fact acting as retailers. In-state retailers should have the same rights (as should out-of-state traditional retailers, who were left out of this bill altogether just like in-state wine retailers). Whether the South Dakota wine stores even want that right is another story. At the very least, it would remove this objection from the table.


12 Responses

  1. Ron Marsilio - March 13, 2014

    One has to remember that even though the Oregon winery will not benefit from the services provided by the tax income derived from fees on wholesalers and retailers imposed upon them, South Dakota still depends upon that income to pay for services for its citizens. As such, since all in State retail and wholesale operations are liable for them, so should their out of State counterparts.

    How would you like it if a street vendor set up shop selling fruits and vegetables right in front of your grocery store, and that vendor was not liable for taxes or fees in his retail operation thereby having the ability to sell his products at a much lower price than you and your business suffers? Would that be fair and equitable? The street vendor could be forced to pay the same taxes and fees that you, as the brick and mortar are forced to pay, but how would out of State wineries do the same thing when shipping directly to someone’s home? Did we not just see this with the Amazon and on line retailer controversy with sales tax?

  2. Tom Wark - March 13, 2014

    Ron:

    The Oregon winery is not setting up business in front of a retail outlet by virtue of selling wine direct. The reason I know that is the Oregon winery, unlike the South Dakota retail shop, does not have access to the walk up or drive by shoppers that the South Dakota retailer has access to.

    • Ron Marsilio - March 13, 2014

      Tom,
      This is true, however, if the Oregon winery in question pursued an aggressive advertising campaign in South Dakota stimulating sales, they would be enjoying an unfair advantage over the in state brick and mortar stores in alcohol sales. Take the conglomerate of many wineries doing the same thing and sales lost by in state stores and tax revenue lost by the states in question could be significant.

      I refer again to the controversy over e-commerce stores such as Amazon and the outcry from brick and mortar retail owners over the unfair advantage that these stores have in sales was enough to prompt legistators to force on line stores to collect and pay sales taxes. There is not an easy, one size fits all, solution to this problem, and to just say it is restraint of trade is not fair.

      • Tom Wark - March 14, 2014

        Ron,

        Is it really the job and mission of a state government to screw consumers for the purposes of protecting a specific industry from having to compete in a modern marketplace. Keep in mind, that if this was not wine, the rule to disallow interstate sales on another product would immediately be determined to be unconstitutional. There wouldn’t even be a debate.

        Furthermore, Amazon does not have any “unfair” advantage over in-state stores. There is nothing unfair about providing a service that consumers want. And no one complained that tax free sales on out of state goods was a bad thing as long as out of state sales was limited. Now, that internet commerce and shipping has taken off, the states want their taxes. Fine. But it’s not a matter of something being unfair.

        Finally, It’s very unlikely that a local retailer is losing much of anything in the way of sales. Few people if anyone is going to purchase the wine they want from an out-of-state winery or retailer if they can procure it locally. Why pay the shipping?

        • Ron Marsilio - March 14, 2014

          Tom,
          Actually, the whole debate and subsequent legislation regarding Amazon was initiated by the retailers who were subject to State sales taxes, not the government. You are right in stating that Amazon is providing a service to the consumer, which they want, however, they do have an unfair advantage over retailers who must collect State sales taxes. Let’s face it, if you were going to make a $200.00 or $300.00 purchase and could save yourself $15.00 to $20.00 on the sale, who are you going to but from?

          The same is true for direct sales from wineries. Let’s open everything up to direct sales, get rid of the three tier system, do away with the wholsaler and the retailer. Sound ridiculous? This could happen. Of course there will still be retail shops, but how many?

          I am all for doing away with fees and taxes, but how will Federal, State and local govenments be funded to provide us with the services that we need and WANT if there was not some method of collecting monies from various sources. Budgets are very tight, and the slightest cut in the sources for federal and local incomes could be catastrophic to our schools, our roads and our services. At its inception, no one thought that Amazon would develop into what it is today. We have already seen a decline in brick and mortar income as a result of these on line “stores”. Each Christmas season their total sales take a hit to e-commerce. It will only get more drastic if the playing field is not leveled. I agree whole-heartedtly with South Dakota’s decision, unless there is some means or method for on-line retailers to pay what every other retailer has to pay.

  3. Steven Harrison - March 14, 2014

    Hi – I have to side with Tom here. The local retailer will always have an advantage as they can provide instant gratification and the consumer does not have to pay additional shipping. What the retailer cannot do is offer a full range of wines – just not possible. So if the consumer is willing to pay the additional shipping cost to try something new or get a wine they really like that is not available locally then they should be allowed to do this. Many states have successful programs for the collection of both sales and excise taxes on these imports. It just is not rocket science to do this. If you look at the recent market analysis that shows the top 30 wineries in the country sell 92% of the wine consumed, then we are talking about allowing the other 7,970 (99.6%) of wineries to sell the 8% that remains. These wineries should be able to sell to any of age consumer and not be locked out of markets because they are not big enough for wholesale distribution. We should be supporting our domestic businesses and not preventing them from growing due to artificial concerns.

  4. Bill Williamson - March 14, 2014

    All nice arguments but for two glaring issues, first we must consider it is the constitutional right of every American, regardless of state of residence, to freely engage in legal business transactions such as buying wine, over the internet or from their corner store or from a store in another state.

    Second, as one of the winery owners who may want to sell part of that 8% of wine directly, I would be happy to faithfully collect and pay the applicable state taxes on all such sales, just as I do for many other states who have provided their residents with normal citizen rights. My GrapeGears software automatically collects and reports all sales state-by-state thereby producing the same state revenue on sales made by retailers who will never require state resources.
    .

  5. Tom S. - March 14, 2014

    The 21st amendment allows states to regulate alcohol. So every state has decided that wine is sold in the state where the consumer receives it. Even Amazon is required to collect sales tax on alcohol sold through its website. If I have a consumer standing in my tasting room, yet elects to have me ship the wine home for him rather than taking it with him from my winery, I am required to pay sales and excise taxes to the the consumer’s home state.

  6. Bill Williamson - March 14, 2014

    Your comment on 21st amdt is technically true but it was based upon allowing alcohol consumption by a state’s residents. It does not state that a state may treat its residents differently. Interstate commerce is not about allowing youngsters to get access to alcohol.

    I may be wrong but I think your comment on tax collection is not exactly accurate. The state resident is required to pay state sales tax on their purchases. It is not a requirement for a reseller in another state to charge and pay sales tax to another state. As a responsible community I believe wineries should collect and pay the taxes and the states should recognize this and, in turn, make it easy with simplified reporting procedures and an open door policy on internet sales.

    • steven harrison - March 14, 2014

      Bill

      Well it ends up being a combination of all of the above depending if you have obtained a direct ship permit or not. Some states as you know require you to collect and remit the taxes if it is shipping to their state (condition of getting the direct ship permit) – California is one example of this for out of state wineries. If you sell in CA but the customer is shipping to themselves in another state, then you are not obligated to collect the tax for that state, the consumer is responsible for reporting the use tax to their own state (few if any do). However, if the customer wants to take the wine with them as opposed to have you ship it for them, then they are liable for the local state tax as the disposition of the wine is not actually known and therefore considered used in the state it is sold.

  7. Jan Slort - March 15, 2014

    We are required to charge sales tax in our tasting room for all merchandise that is taken out, or consumed. If a sale is made to a customer in our place of business, but shipped out of state, we are NOT required to charge the tax.

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