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Legalizing Web Wine Sales Gaining Momentum

The Virginia legislature has approved Internet wine sales, becoming the 23rd state to allow for interstate, direct-to-consumer wine shipments from out-of-state wineries. The new law takes effect July 1 and will allow Virginians 21 years and older the ability to order and receive wine directly from out-of-state wineries who are licensed to make direct-to-consumer shipments.

Out-of-state wineries must first purchase a $50 license, and may ship up to two cases per month per consumer. The provisions are consistent with the wine industry's "model direct shipping" bill, which has formed the basis for successful laws in several states.

The law renders moot most the provisions of a pending lawsuit in Virginia brought by the Coalition for Free Trade (CFT), a legal foundation seeking to overturn state bans on direct, interstate shipments of wine. Last March, a U.S. District Court struck down the Virginia's ban on interstate wine direct shipments to consumers as unconstitutional and a stay was issued. In January, a three-judge panel heard oral arguments.

"It would have been great to see a win in the Virginia court, but we are pleased with Governor (Mark) Warner's signing of SB 1117," said Tracy Genesen, legal director of the CFT. "The winners in this case are indisputably Virginia consumers, Virginia wineries and wineries in the other 49 states."

The legal debate over interstate wine shipments has its roots in the 21st Amendment, which repealed Prohibition. The Amendment also gave states special powers to regulate the commerce of alcohol sales. Each state has created a strictly regulated system for the sale and distribution of alcohol.

Further complicating the issue is that while the 21st Amendment gives states the right to regulate alcohol sales and distribution, the Commerce Clause expressly prohibits states from enforcing laws designed to favor in-state interests over out-of-state competitors.

In most states the system has evolved into a three-tiered distribution system involving government, wholesalers and retailers. Proponents of three-tiered system claim it guards against alcohol abuse while critics contend it is mostly designed to deliver profits to liquor wholesalers.

The Wine and Spirits Wholesalers of America (WSWA) has, in fact, lobbied extensively to preserve the three-tiered system, including pushing for passage a Texas law that would have carried the same penalty for shipping a bottle of wine illegally to a Texas consumer as the penalty for assault with a deadly weapon. The bill passed the Texas legislature but then Gov. George Bush refused to sign the legislation.

Distributors have also backed legislation making it a felony for winemakers to ship any amount of wine directly to consumers in Kentucky, Maryland, Florida and Georgia.

"Illegal direct shippers bypass state alcohol control systems and the three-tier system to evade state and local excise taxes, and avoid regulatory scrutiny," the WSWA states in its policy position supporting the three-tier system. "In so doing, they deny states and localities excise and sales tax revenue, and provide minors with a new avenue for circumventing the law and illegally obtaining alcohol."

"Momentum is clearly on the side of wineries and consumers, as additional states pass legislation, and more courts hear the direct shipping case," said Jeremy Benson, executive director of Free the Grapes, a coalition supporting interstate shipments of wine.

Small vintners, in particular, are supporting a change in the liquor distribution laws because large wineries are in a better position to work with wholesalers to get their products in retail stores.