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Ban Wine Sales Across The Board?

Don't pop that cork quite yet on direct online wine sales. Though the e-commerce industry hailed the May 16 Supreme Court decision as a major boon for business, states still have the right to ban direct shipments of wine.

In a 5-4 decision earlier this month, the justices said if a state allows in-state wineries to ship directly to residents, then the Commerce Clause of the U.S. Constitution requires out-of-state vintners to be treated equally.

Both New York and Michigan permit local wineries to direct-ship to residents but bar out-of-state direct sales to residents. The laws are designed to protect local wineries from outside competition and to facilitate easier tax collections on beer, wine and hard alcohol sales.

Both states, backed by 30 state attorneys general, argued the 21st Amendment gives states the sole right to regulate alcohol sales within their borders. The court agreed, unless local laws violate interstate commerce laws.

"The Supreme Court decision was a very narrow focus on Michigan and New York," said Gladys Horiuchi, the communications manager of the Wine Institute, a California-based trade association. "Nothing is going to happen very quickly."

Or nothing will happen at all if some states have their way.

Currently, 21 other states have laws similar to New York and Michigan. Other states require a reciprocal agreement between the shipping states and others simply ban all direct shipments of alcohol.

Those states with laws similar to New York and Michigan must now decide what to do: allow out-of-state shipments or ban all direct wine sales?

The Wine and Spirits Wholesalers of America (WSWA), a trade group of wholesale liquor sellers, presented the states' options in a statement released immediately after the Supreme Court decision: "States have a choice between supporting face-to-face transactions by someone licensed to sell alcohol or opening up the floodgates."

Michigan Liquor Control Commission Chairwoman Nida Samona has already asked the Michigan Legislature to pass new laws banning all direct shipments of alcohol. New York Gov. George Pataki, on the other hand, is proposing allowing out-of-state wineries to ship no more than two cases per month to New York residents.

While the state debates go on, the Wine Institute's Horiuchi says the Supreme Court decision gives her group momentum in its drive to allow wineries, which frequently use the Internet to reach customers, to direct-sell to consumers.

"Traditionally, there is always a lag time when you reform a system for the shipping [of wine] and the collection of taxes," she said. "Common carriers aren't even set up for this yet."

The U.S. wine industry does an estimated $21.6 billion in business every year. Horiuchi said online sales currently generate approximately $340 million in sales.

"Online sales are the very lifeblood of small wineries," Horiuchi said. "Because they are small they cannot get distribution [through wholesalers]. There is a bottleneck there."