Direct Shipping to Consumers Across State Lines

Direct shipping means selling to a consumer and sending the product to the consumer's home, without passing through a wholesaler or a retail store. It is the most significant departure from the separation of producer, wholesaler and retailer functions, and it exists only where the receiving state has decided to permit it.

Which state's law controls

The controlling law is the law of the state where the package is delivered. A producer's own state cannot authorize shipments into another state, and a permit from a third state is irrelevant. Section 122 of Title 27 supports this by making it unlawful to ship alcohol into a state for delivery in violation of that state's law.

Enforcement runs through section 122a, which allows the attorney general of a state to bring a civil action in federal district court for injunctive relief against a person engaged in shipments that violate state law. That mechanism explains why direct shipping compliance is treated as a per-state exercise rather than a single national program.

Section 124 supplies one narrow federal provision, permitting shipment of wine purchased in person at a winery during periods when airline passenger restrictions are in effect, on the conditions the section lists. It does not create a general right to ship.

The direct shipper permit

Most permitting states use a direct shipper permit or license issued to the out-of-state seller. Application typically requires proof of the applicant's home-state license, proof of the federal authorization described in the basic permit requirements, a fee, and consent to the jurisdiction of the receiving state's courts and regulator.

Conditions attached to the permit recur across states with variations. The seller may ship only product it produced, or only product it is licensed to sell. Sales must be to persons of legal drinking age for personal use and not for resale. The shipping container must be marked to require the signature of an adult on delivery, and delivery must be made by a carrier that the state has approved.

Volume caps are the second universal feature. States express them per household over a stated period, sometimes with a separate per-shipment limit, and sometimes differently for wine, spirits and beer. A shipper selling to repeat customers has to track cumulative volume by address, which is an ordinary source of unintentional breach.

Tax collection, records and returns

A direct shipper generally becomes a taxpayer in the destination state. That normally means collecting and remitting the state excise tax on the volume shipped and the sales or use tax on the transaction, at the rate applicable at the delivery address, which in some states includes local rates.

Reporting obligations follow. States commonly require periodic reports listing shipments by date, purchaser, address, product and volume, and require records to be retained for a stated period and made available on request. Several states also require the shipper to report to the regulator as well as to the revenue agency, on separate schedules.

Renewal is annual in most systems and is often conditioned on the reports having been filed. A lapse in the permit does not merely suspend the ability to ship; shipments made during a lapse are unlawful shipments, with the exposure that follows from section 122a and from state penalty provisions.

What a state may not do

Granholm held that a state may not permit in-state wineries to ship directly to consumers while denying that privilege to out-of-state wineries. The Twenty-first Amendment gives states broad authority over alcohol, but it does not authorize discrimination against interstate commerce in favor of local businesses.

Tennessee Wine applied comparable scrutiny to a durational residency requirement imposed on applicants for a retail license, indicating that the principle is not confined to producers. What courts have consistently preserved is the three-tier structure itself. A state may require everyone to go through a wholesaler; it may not impose a requirement that only outsiders must satisfy.

Whether out-of-state retailers must be allowed to ship where in-state retailers may remains contested, with different results in different circuits. Businesses building a retailer shipping model should treat the question as open and evaluate each destination separately.

Carriers, fulfillment and product rules

The shipper is not the only regulated party. The carrier making the delivery and any warehouse assembling the order are separately licensed in many states, a subject covered in the approvals required for carriers and fulfillment operations. A shipper using an unapproved carrier has a compliance problem even where every other condition was met.

Product rules continue to apply. The bottles must carry labels covered by the certificate of label approval and its mandatory statements, and any formula requirement had to be satisfied before production. Sales to persons under the legal drinking age carry the same seriousness in this channel as at a counter, an exposure described in the rules on sales to minors and third-party liability.