Avalara : Alabama will become 47th DTC wine state on August 1

Wine manufacturers will be able to ship wine directly to Alabama residents beginning August 1, 2021. At that point, Mississippi and Utah will be the only two states in the nation still banning direct-to-consumer wine shipments for off-site sales.

The change is due to the enactment of House Bill 437, which Governor Kay Ivey signed May 13, 2021. She praised lawmakers for putting together a 'good clean bill' and said, 'We are moving Alabama with the times.' Earlier this year, the governor signed a bill authorizing the manufacturers, restaurants, and retailers to deliver alcohol directly to customers, and another allowing wineries to sell directly to consumers at special events.

In addition to authorizing direct-to-consumer (DTC) shipments, the measure maintains 'the uniform three-tier system of control over the sale, purchase, taxation, transportation, manufacture, consumption, and possession of alcoholic beverages in the state.' To that end, the new law:

• Authorizes DTC licensees to ship wine to residents for personal use in limited circumstances
• Creates a licensing procedure for direct wine shippers and wine fulfillment centers (aka, fulfillment houses)
• Establishes reporting requirements
• Regulates franchise agreements between wine suppliers and wholesalers
• Requires licensed importers and wine manufacturers to enter into exclusive franchise agreements with wholesalers

How to ship wine directly to consumers in Alabama

Businesses interested in obtaining a DTC license must apply for one through the Alabama Alcoholic Beverage Control Board (ABC). They must pay an initial $200 application fee, and in subsequent years an annual renewal fee of $150.

Each DTC wine shipper licensee will be able to ship up to 12 cases of unopened containers of wine - not to exceed nine liters - to any one Alabama resident during a 12-month period. Wine shipped DTC must be either:

• Produced by the direct wine shipper licensee;
• Produced by or for the direct wine shipper licensee under a written contract with another legal wine manufacturer; or
• Exclusively produced and bottled for the direct wine shipper licensee by a legal wine manufacturer.

Furthermore, wine must be shipped directly from the licensee's licensed premises or through a wine fulfillment center.

Use of fulfilment centers authorized

Wine fulfillment centers interested in shipping directly to Alabama residents must obtain an annual wine fulfillment center license ($500). Those shipping from multiple locations must pay an additional $100 for each additional premises from which shipments to Alabama residents will be sent.

The original version of HB 437 didn't contain a fulfillment center provision, either to regulate or outlaw them. Yet fulfillment centers are a key distribution channel for many wineries, and the DTC wine market is strong: DTC wine sales rose 27% by volume in 2020, the largest year-over-year increase ever recorded. Though some of the enthusiasm for wine ecommerce will surely fade as restrictions ease, many people who started online wine shopping during the pandemic will likely continue to do so.

It's wise for Alabama to get in front of the fulfillment house issue by creating a fulfillment center license at the outset. Fulfillment centers can play a key role as the third leg in Alabama's three-tiered reporting system of checks and balances.

Common carriers and permit carriers may deliver wine directly to consumers

At the direction of a direct wine shipper licensee, both common carriers and permit carriers may transport wine shipments to Alabama residents (age 21 or older) starting August 1, 2021.

The only documentation required during transit is the package shipping label. However, the wine shipper must obtain a signature proving the recipient is at least 21 years of age and maintain a copy of the signature for at least three years; the Tax & Trade Practices Division of the ABC may ask to see it at any time.

Failure to verify the age of the recipient could lead to the suspension of the common carrier or permit carrier's license to operate in Alabama, plus financial penalties.

Reporting requirements

Whoever ships and transports wine to a resident of Alabama (common carrier or permit carrier) must file quarterly reports with the Tax & Trade Practices Division of the ABC. Reports must contain the following information:

• The name and business address of the person who directed the common carrier or permit carrier to ship wine
• The name and business address of the consumer who received the wine
• The date of delivery
• The weight of the shipment
• A unique tracking number

Shipments made through a fulfillment house may be subject to additional reporting obligations.

Effect on existing franchise laws

If the relationship between a wine wholesaler and a wine supplier were a marriage, Alabama's franchise laws would make it difficult for them to get a divorce.

HB 437 won't affect existing local franchise laws in Baldwin, Jefferson, Mobile, Montgomery, or Shelby counties. However, the measure provides more of a statewide wine franchise regulation for counties currently lacking local franchise regulations. The ABC will grant (in writing) each wholesaler an exclusive sales territory. A licensed wine supplier must sell through the licensed wholesalers in those territories.

Additional details can be found in the text of the bill.

The pressure's on for Mississippi and Utah

Now that Alabama has authorized DTC wine shipments, Mississippi and Utah will face increased pressure to do the same. Arkansas, Delaware, and Rhode Island may also feel the need to revisit their DTC regulations; these three states allow wineries to make DTC shipments only if the consumer orders the wine from on-site (i.e., while visiting the winery).

If you're struggling with compliance or have questions about DTC wine shipments, contact the Avalara for Beverage Alcohol team.