Avalara : Kansas adopts new license requirements for fulfillment houses and updates filing frequency for wineries

Kansas has instituted several significant changes affecting direct shipments of alcoholic beverages into the Sunflower State.

Introduced mid-March, House Bill 2137 was signed into law on May 26 and took effect May 27, 2021. Among other changes, it establishes new licensing requirements for fulfillment houses operating in the state, alters the filing frequency for wineries shipping directly to consumers in Kansas, and loosens restrictions on certain retail alcohol sales.

New license requirements for fulfillment houses

One of the biggest changes for the wine industry is that fulfillment houses need a license to operate in Kansas, effective immediately.

HB 2137 defines 'fulfillment house' as 'any location or facility for any in-state or out-of-state entity that handles logistics, including warehousing, packaging, order fulfillment or shipping services on behalf of the holder of a special order shipping license issued pursuant to K.S.A. 41-350, and amendments thereto.'

Fulfillment houses must pay a $50 license fee for each location where shipments of alcoholic liquor to Kansas residents are made (additional fees may also apply). Licenses are obtained through the Kansas Department of Revenue Alcoholic Beverage Control (ABC) Division's online portal and are valid for two years from the date specified on the license.

Additionally, fulfillment house licensees must:

• Make reasonable efforts to confirm that any winery shipping through the fulfillment house has a Kansas special order shipping license (assurances from the winery are sufficient: fulfillment houses don't need to confirm such claims with a third party)
• Ensure all containers of alcoholic liquors shipped directly within Kansas are labeled with the name, address, and license number of the fulfillment house licensee
• Ensure containers are conspicuously labeled with 'Signature of person age 21 or older required for delivery'
• Ensure every shipment obtains the signature of a receiver aged 21 or older
• Ship all packages by common carrier pursuant to continuing law

The law specifies that if the holder of the fulfillment house license is an out-of-state entity, 'the licensee shall be deemed to have appointed the secretary of state as the resident agent and representative of the licensee' in the state.

New record-keeping requirements

In addition to obtaining a license to operate in the state, fulfillment houses must keep records of all shipments for at least three years.

The records must contain the following information:

• The name, address, and license number of the special order shipping licensee
• The name and license number of the express company or common carrier used
• The date of each shipment
• The carrier tracking number
• The name and address of the consignee of such alcoholic liquors
• The weight of the package and the type of alcoholic liquors shipped

These transaction records must be submitted to the ABC electronically, on a monthly basis, in the manner prescribed by the ABC.

A fulfillment house that 'willfully fails, neglects or refuses to file' any required report will be subject to a civil penalty of 'not more than $100.' More seriously, a fulfillment house can have its license revoked for failure to comply with the provisions of HB 2137.

New filing frequency for wineries

The new law changes the filing frequency for wineries in possession of a special order shipping license. Special order shipping licensees now must submit gallonage taxes on a quarterly basis, rather than annually as was previously required. Returns must be filed electronically.

According to Wine Institute: 'California wineries that hold Special Order Shipper licenses should electronically file their sales report and pay their gallonage tax for the first quarter of 2021 by June 15.' Gallonage tax for the second quarter of 2021 is due July 15 (the 15th of the month following the end of the quarter). Subsequent gallonage tax returns will be due by the 15th of the month following the end of a quarter.

Another change: Special order shipping licenses are now effective on the date specified on the special order shipping license. Previously, special order shipping licenses took effect the date the license was issued.

New relaxed rules for retail sales of alcohol

HB 2137 also relaxed several regulations related to the retail sale of alcoholic beverages, including but not limited to expanding retail sales hours, authorizing more establishments to sell alcohol to go, and eliminating the yearlong residency requirement for certain liquor license applicants.

Retail sales hours are expanded

Just in time for Memorial Day, Kansas expanded the hours when retail sales of alcoholic liquor and cereal malt beverage (CMB) are allowed.

Prior to the enactment of HB 2137, alcohol and CMB sales were prohibited before noon on Sundays, and at any time on Memorial Day, Independence Day, and Labor Day. Now, alcoholic liquor and CMB in original packaging can be sold between 9:00 a.m. and 8:00 p.m. on Sundays, and any time stores are open on the three holidays: Memorial Day, Independence Day, and Labor Day.

Alcoholic liquor retailers, clubs, and drinking establishments can sell alcohol to go

Kansas HB 2137 also authorizes alcoholic liquor retailers, class A and B clubs, and drinking establishments to sell refillable and sealable containers of beer and CMB for consumption off premises. These sales are subject to the liquor drink tax.

Previously, alcoholic liquor retailers were authorized to sell alcoholic liquor to go, but only if it was in the original, unopened container.

Now, all three classes of sellers (alcoholic liquor retailers, class A and B clubs, and drinking establishments) have the same authorizations as microbreweries, meaning they can sell beer and CMB packaged in refillable and sealable containers that hold between 32 and 64 fluid ounces. The containers must be labeled and clearly identify both the name of the licensee and the type of alcoholic beverage in the container.

Clubs and drinking establishments cannot sell refillable and sealable containers after 11:00 p.m.

Residency requirement is eliminated

The measure also removes the residency requirement for certain liquor license applicants. Previously, individuals could not apply for a liquor license unless they'd been a resident of Kansas for a full year. For married individuals seeking the license, their spouse also had to be a resident of Kansas for a full year.

HB 2137 removes the residency requirement for distributors, farm wineries, manufacturers, microbreweries, microdistilleries, and retailers.

Additional details about these and other changes can be found in the text of HB 2137.

Economic nexus does not apply to wine sales

Another change taking effect in Kansas deserves a callout. As of July 1, 2021, out-of-state retailers are required to register with the Kansas Department of Revenue and collect and remit applicable sales tax only if they meet the state's new economic nexus threshold of:

• More than $100,000 of cumulative gross receipts from sales to customers in the state for the period of January 1, 2021, through June 30, 2021; or
• More than $100,000 of cumulative gross receipts from sales to customers in the state during the current or immediately preceding calendar year.

The economic nexus threshold does not apply to wine sales. Accordingly, out-of-state wineries are required to register only if they exceed the state's economic nexus threshold, which is $100,000 of goods other than wine. Since few wineries make that volume of sales of other products, the Kansas economic nexus law is unlikely to affect most wineries.

Questions about beverage alcohol compliance in Kansas or other states? The Avalara for Beverage Alcohol team can help.