- The Washington Times - Thursday, December 23, 1999

The gift advisers in the dot-com ads on television and radio tell consumers that a bottle of wine would make a lovely gift this Christmas.
There's just one problem if you ship a bottle of wine, you may have committed a crime.
In Virginia, the District of Columbia and Maryland, it is illegal to ship or receive wine across borders. Maryland prohibits wineries from shipping within the state as well. Two consumers and three out-of-state wineries recently filed suit in Virginia to fight direct shipment laws that regulate alcohol.
Al Kellert, who runs the Gray Ghost winery near Warrenton, Va., with his wife, Cheryl, said the shipping laws restrict his product's market.
"We do get a lot of out-of-state customers here who would like to have wine shipped to them… . You lose the opportunity of selling wine to an individual," he said.
Direct shipment has received renewed attention this year as electronic commerce companies have entered the wine market. Representatives of World Wide Web sites and wineries say their competitors ship wine illegally.
In the past, because some of the 2,000 U.S. wineries shipped a relatively small number of cases illegally per year, regulators didn't pay much attention. Now, because electronic commerce has opened up the market, alcoholic-beverage-control boards across the country are trying to crack down on violators.
The Virginia case is just one of the court cases and legislative initiatives under way throughout the country as wineries, and now electronic commerce companies, try to make direct shipment legal nationwide and as wholesalers and ABC boards try to keep it illegal.
Clint Bolick is one of the plaintiffs in the Virginia suit. A wine aficionado, he is also the litigation director for the Institute for Justice, a D.C. nonprofit, libertarian law firm and sort of a conservative counterpart to the American Civil Liberties Union.
"These laws have nothing to do with promoting temperance and everything to do with protecting the parochial interests of liquor distributors," Mr. Bolick said.
The alcohol industry is structured in a mandated, three-tier system established just after the repeal of Prohibition to further temperance. Producers make the product, then sell it to wholesalers who in turn sell it to retailers. Thirteen states none of which are local are exempt from the required three tiers, meaning wineries in one can ship directly to consumers in the other 12 states.
Small wineries like Gray Ghost, which produces 2,200 cases of wine per year, do not have enough volume to attract or be able to afford a wholesaler or distributor. Most of the 61 wineries in Virginia are similarly small operations.
"We only have a few distributors, and we have a majority of mom-and-pop level wine-producing wineries," said Gordon Murchie, president of the Vinifera Wine Growers Association, a trade group based in Alexandria, Va.
Spokesmen at wholesaler trade associations say states are allowed to regulate the sale of alcohol under the 21st Amendment to the Constitution. But wine groups argue that the laws violate the interstate commerce clause of the Constitution, which says no law can restrict interstate commerce.
Virginia wineries can ship alcohol within the state's borders, but alcohol cannot be shipped across state lines, a regulation Matt Hale, Mr. Bolick's attorney, claims is unconstitutional. The District prohibits direct shipment of more than one quart per person per month, and most wineries won't ship that small a quantity. In Maryland, both intrastate and interstate direct shipping is a felony.
"The state of Virginia is discriminating against out-of-state wineries in favor of their own wineries… . America should be one giant open market," said Mr. Hale of Williamsburg.
The wine industry and the wholesalers also are looking to lobbying and legislation to protect their interests. Earlier this year, Sen. Orrin Hatch, Utah Republican, introduced a bill to ban the Internet sale of alcohol, which failed.
That failure was due in part to the e-commerce lobby, which threw its weight behind the traditional supporters of direct shipment, winery trade groups.
"The stakes have gotten so much higher now. There's a lot more money to be made because the Web opens it all up," said Al Giannangeli, co-owner of Finewine.com, based in Gaithersburg, Md.
Mr. Giannangeli, and other representatives of the wine industry, said many wineries and World Wide Web sites ship wine illegally. And it's not easy for ABC boards to prosecute them. If a winery in California ships a case to a consumer in Virginia, the Virginia ABC has difficulty prosecuting the winery.
Rep. Joe Scarborough, Florida Republican, introduced a bill, which passed the House, that would allow state attorneys general to plea in federal court to stop offenders of their state laws. A similar measure was approved by the Senate, but it was defeated as part of a juvenile justice bill.
David Dickerson, vice president of public affairs and communications for the Wine and Spirits Wholesalers of America, said alcohol sales would be a free-for-all if direct shipment laws did not exist.
"If indeed states' controls are weakened, we're going to see not the responsible people, but the irresponsible people taking advantage of these loopholes to market in illegal ways," Mr. Dickerson said.
The wholesalers maintain that ordering alcohol via the Internet makes it easier for underage individuals to buy alcohol and more difficult for states to collect taxes on products.
Pete Downs, a lobbyist for Kendall-Jackson, one of the best-known California wineries, said that wineries are willing to pay state taxes on direct shipment if states set up a mechanism for them to do so. And, as wineries see it, the risk of underage access is very small.
"Minors do not purchase wine over the Internet, they're not willing to wait three or four days for it to get there, they're not willing to have the paper trail of the credit card, and they're not willing to take a chance of having the delivery when the parents are there," Mr. Downs said.

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