The Pros & Cons of Shipping Wine to Illinois Consumers

Posted by Tom Wark on Feb 23, 2009

On Friday, Illinois State Representative Julie Hamos (D) from Evanston introduced House Bill 2462. If it becomes law it will right a wrong.

In 2007 Illinois, which had allowed consumers to purchase wine from both out-of-state wineries AND retailers formalized their wine shipping laws via House Bill 429. The bill created a permit for out-of-state wineries that allowed them to ship wine to Illinois Consumers (VERY GOOD!!). However, at the same time, the bill prohibited out-of-state retailers to continue to ship wine to Illinois consumers (VERY BAD)!

It turns out that HB 429 was a pretty complicated bill. Not only did it deal with issues of shipping wine to consumers, but it also dealt with "Self Distribution", the term for wineries selling directly to retailers and restaurateurs without having to go through a middleman distributor. Only a very limited form of self distribution rights were left to wineries and what rights did remain were denied to medium and large sized wineries. Bottom line: Distributor Protection bought and paid for.

Representative Hamos' bill (HB 2462) is pure. It presents to Illinois lawmakers and citizens a single question: SHOULD ILLINOIS CONSUMERS BE ALLOWED TO BUY AND HAVE SHIPPED TO THEM WINE FROM OUT OF STATE WINE STORES, AUCTION HOUSES AND WINE CLUBS THAT ARE NOT CONNECTED TO WINERIES?

In order to answer that question responsibly, it's important to understand exactly what HB 2462 would do.

1. Create a permit that out-of-state retailers would buy $500 annually that gives them the right to ship wine directly to Illinois consumers

2. Retailers would pay sales tax to the state on every shipment of wine to consumers

3. Retailers would submit themselves to Illinois legal jurisdiction, meaning Illinois' attorney general could prosecute them in Illinois courtys if they broke Illinois law

4. Retailers would submit themselves to the jurisdiction of the Illinois Liquor Control Commission, meaning they could be audited by the ILCC

5. Retailers would be required to engage a company to get a signature of someone over 21 when the wine is delivered.

6. Retailers would be required to file reports with the state detailing the shipments that are made into the state.

The upshot of all these provisions would be the following:

1. Consumers would now have access to a huge portion of the wines now available in the U.S. market instead of just those that come from wineries that ship direct or the tiny percentage of wines Illinois distributors bring into the state and are left on the shelves for them to find. It means a huge increase in the number of imported wines and hard-to-find domestic wines that consumers will have access to.

2. Illinois, through the sales tax levied on the wines and the permit fees that are collected ,would be in a position to raise, conservatively, a half million dollars in revenue in the first full year the program is in place.

3. The state of Illinois would be in a much better position to track the amount of wine being distributed in its state just as the 21st amendment says it has the right to.

4. Illinois law enforcement officers would have a new way to prosecute out-of state shippers who break Illinois law in addition to the 21st Amendment Enforcement Act that gave them prosecutorial powers over out-of-state businesses when it was passed by congress in 2000.

5. Illinois, giving out-of-state retailers the same shipping rights as in-state retailers, would no longer be violating the Commerce Clause of the United States Constitution.

So what's the argument against HB 2462?

I can imagine some Illinois retailers will come right out and ask that the state deny its residents access to wines in order to "save jobs" in the retail sector. History, statistics and common sense deny this argument. In states that allowed retailers to ship in they found that overall in-state sales and tax revenue increased afterward.

Another objection to HB 2462 would be that increased opportunities for direct shipping of wine means increased opportunity for minors to obtain wine via direct shipment. The problem with this argument is that one has to ask why then it should be ok for in-state wineries, out-of-state wineries and in-state retailers to ship wine direct to Illinoisans. In other words, this will be a non starter of an objection.

Another objection to HB 2462 would be that it will open the flood gates to 1000s of retailers across the country to ship into Illinois and the Illinois Liquor Control Commission won't be able to handle it. This argument, however, flies in the face of experience. In every single state where both out-of-state retailers AND wineries are allow to ship, it is WINERIES that hold 80% to 85% of all shipping permits. This is obviously because nearly every winery in the U.S. (over 5,000) have direct shipping as a part of their sales strategy. However, only a very tiny minority of America's retailers even consider shipping direct.

Finally, It is likely that opponents of HB 2462 will argue that since retailers do not obtain a permit to operate from the federal government, like wineries do, they have no incentive not to break the law since if got doing so they can still operate, just not in Illinois. The problem with this argument, besides being pretty offensive, is very few businesses or individuals have the threat of losing a federal permit to operate or act as the deterrent to committing a crime…and yet the vast majority still don't commit any crimes.

In order for Illinois consumers to see their right to access wine returned to them and in order for retailers across the country to overcome the unconstitutional protectionist discrimination that has been foisted upon them, Illinois lawmakers will have to work through these issues laid out above. They'll have to address the positive and negative aspects of direct shipping as explained by its opponents and proponents. But most of all they should listen to their constituents, who have in the past overwhelmingly rejected the current prohibition on purchasing wine from out of state retailers.