Alex Koral, Sovos ShipCompliant - DtC Wine Shipping Compliance

1. SellCompliantly,
SellSuccessfully
Alex Koral
Senior Regulatory Counsel
February2020 – Commerce7Roadshow
DtC Wine Shipping Compliance

2. About Sovos
Indirect Tax
VAT Reporting
1099 Reporting
LatAm ComplianceACA
AEOI
Sales Tax Filing
Beverage Alcohol

3. AGENDA
Why Compliance?
A Compliant Sale
• Setting it up
• Making it happen
• Following up
Questions

4. Why
Complianc
e
What’s It All About, Anyway?

5. Intro to DtC Wine Market
Direct to Consumer (DtC)
• When the winery fulfills direct sales
through a shipping service
• Not just tasting room sales; not Drizly
• Onsite: consumer buys at winery, has it
shipped home
• Offsite: consumer buys over internet,
phone, wine club

6. What Does “Compliance” Mean?
Following the laws of the destination state
• 21st Amendment gives state power to set laws for
shippers – like for in-state businesses
• Failure to meet those rules and requirements can lead to
fines and loss of license(s)
• Establishing compliance creates a virtuous cycle
Sales
Licensin
g
Account
s
Set Up Reporting
Support/Planning

7. States Are Cracking Down
Bad actors spread scrutiny
• Selling without a license
• Selling too much
• Not paying taxes
MI, IL, TX, PA are particularly
active
State action has knock-on affects
• UPS and FedEx under pressure

8. A
Compliant
Sale
End-to-End, What It Takes To
Follow The Rules

9. What’s The State of DtC Wine in 2020?

10. Setting Up Sales
Licensing
• DtC states require licenses
• AK, MN, FL, D.C excepted
• Carriers require licenses to accept packages
• Separate license for each state
• Must personally hold licenses – don’t rely on third parties
Only sell to consumers from states where you have
a license

11. Setting Up Sales
Product Requirements/Restrictions
• Federal Registration
• Everything sold interstate must have a COLA from TTB
• Wineries only selling instate may not have COLAs
• “Wines Not of Own Production”
• ~20 states prohibit selling wine not made by license holder
• Limits sales of imports, custom crush, bottling-only
Get products in order—don’t advertise what you
can’t sell

12. At-Sale Compliance
Age Verification
• At time of delivery
• Carriers should always check at delivery
• Only work with carriers who do this
• ~10 states require age check at time of sale
• Must use software for offsite sales (IDology, LexisNexis)
Never sell to anyone under 21, or who can’t
prove it

13. Point-of-Sale Compliance
Volume limits
• Many states limit how much a winery can ship
• Can be per person, or per household; can be per month or per year
• E.g. 9 liters per month; 12 cases per year
• IN, MI, TX have cap on total sales by winery
Track your orders so you don’t exceed a
limit

14. Shipping Compliance
Getting your wine packaged right
• Packaging
• Always need a “Contains Alcohol” sticker – but may need more
• Use Good Partners – Fulfillment Warehouses & Common Carriers
• Do they need/have a license?
• Do they collect necessary data? Are you integrated to get it?
• Affects customer experience too – not just compliance
Make sure your packages make it

15. Taxes
Excise Taxes
• “Standard” sale would go through distributor
• But DtC avoids them, so states need shipper to remit taxes
• Excise Taxes:
• Based on amount of wine sold
• E.g. $0.20 per gallon (TX rate)
• Collected from stated price of wine
Ensure accounting knows total sales

16. Taxes
Sales Taxes
• Collected at the time of sale from customer
• “as if sale occurred in the state”
• Means, local rates can apply to – not just state rate
• Each address you sell to can have a different rate
• Need to lookup each address
• Calculating and reporting sales taxes can be extremely complex
• Always pay to state what you collect – better to under-
collect
Make sure you’re set up to collect at time of
sale

17. General Reporting
Shipment Reports
• Most states require regular reports on what was sold
• Copies of invoices or summaries of each shipment made
• Lets state check on volume limits, age checks, products sold
• Must file report or face loss of license
• Can get very big and complex – so get ahead of the game
• We track 97 different tax and shipping reports
Good sales records make reporting easier

18. Questions Making the customer
experience compliance
friendly

19. Talking to Customers About Compliance
Explain that alcohol isn’t t-shirts
• Alcohol is strictly controlled
• Everyone knows some rules (21 age, Sunday sales)
• DtC has its own set to follow
Explain it’s not your arbitrary rules
• States make the rules, you just follow them

20. Tell Your Customers How To Help
Changing the rules starts with public
engagement
•Contact state legislators
•Free the Grapes!

21. Questions?
2020 Direct to Consumer Report
Wine Summit: May 28, Napa Valley Marriott
Shipcompliant.com/blog
alex.koral@sovos.com