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Winemakers Grappling With Prohibitive Shipping Laws

Retailing: Citing potential tax fraud and underage drinking, 24 states have outlawed the mailing of bottles. Vintners say it's anti-free market.

September 13, 1997|SCOTT CARROLL | ASSOCIATED PRESS

ROSEBURG, Ore. — Kris Goodwillie keeps "the list" right next to the cash register in her Callahan Ridge Winery tasting room.

The 10-page document lists alcohol shipping laws for each state, letting her know which out-of-state customers can have wines shipped back to their homes and which can't.

Goodwillie, co-owner of Callahan's, is blunt in her assessment of the regulatory morass that governs direct-mail shipping.

"It's a pain in the butt," she says. "Most of our visitors come from out of state, and they don't want to take the wines they buy back with them. They want them shipped. But a lot come from states we can't ship to. So we have to tell them, 'Sorry, we can't do that.' "

Direct-mail shipping is the hot topic of conversation in vineyards and tasting rooms. Direct shipments are illegal in 24 states and regulated to varying degrees in the remaining 26. In Kentucky, Georgia and Florida, recent legislation makes shipping alcohol a felony. Oregon residents over 21 can legally receive up to two cases of wine per month.

Henry Estate Winery owner Scott Henry calls the laws "crazy." Not only are there state laws regarding shipments, Henry says, but also laws dictating the type and extent of advertising his company can conduct.

"It's anti-free market and it violates free speech. When it comes to alcohol, you have to throw out the Constitution," Henry says. "It's not just dollars and cents, either. If I have a customer who lives in a state I can't ship to and don't distribute to, they blame us. They feel like they're being left out. I don't only lose the sale, but now I have a customer mad at the winery."

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Regulators, however, say alcohol is a potentially dangerous substance and each state must have the ability to control its flow in accord with the values and mores of state residents.

"Liquor is not like tennis shoes," says Paul Williamson, a spokesman for the Oregon Liquor Control Commission. "It's a drug, and if it's made available to someone under 21 or intoxicated, it can cause major problems. Our primary concern is the potential for abuse."

Direct shipping laws date to 1934 and the ratification of the 21st Amendment, which repealed Prohibition. The amendment also gave each state the authority to regulate the sale of alcoholic beverages within its borders. The result is 50 states with 50 wildly varying laws. California, for instance, has a completely open market, while Pennsylvania controls the sale of alcohol through state stores. Texas is perhaps the most restrictive state, with half of its counties officially dry.

Although states have had laws on the books for years regulating direct shipping, violations were generally treated with a wink and a nod because of the relatively small volumes involved and the difficulty in monitoring shipments.

Recently, however, a combination of factors has led to a nationwide crackdown.

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Partly to blame is the popularity of the product and concurrent growth of the industry. Thirty years ago there were fewer than 100 wineries nationally; today there are more than 2,000. In Oregon alone the number of licensed wineries has skyrocketed from 38 in 1985 to 127. The American wine market accounts for nearly $14 billion in sales annually. It's estimated that direct shipments account for roughly 5%.

The higher visibility of underage drinking combined with the national "get tough on crime" trend also has fueled the crackdown.

In addition, those shipping alcohol often elude sales taxes, and cash-strapped state governments see millions of dollars slipping by.

But perhaps the biggest factor has been the explosion of wine clubs and mail-order wine retailers using the Internet to advertise and sell wines through the mail. Many blatantly disregard state shipping laws.

Even those who argue anti-shipping laws are necessary and proper concede it's nearly impossible to stem the tide of mail shipments.

Paul Romaine is a lobbyist for the Oregon Beer and Wine Assn., an industry group representing the state's alcohol distributors. His organization is fiercely protective of the laws, and for good reason--the 250 or so wholesalers and distributors nationally have a lock on alcohol distribution. Yet even Romaine admits buying through the mail saves money.

"I live outside Portland, and most of the wine my neighbors buy is not bought from a store," he said. "It's just cheaper to buy it through the mail."

But Romaine stresses that the crackdown on direct shipping is necessary to ensure alcohol does not fall into the wrong hands.

"If the first word the public heard about it came from some kid who bought alcohol through the mail and then had an accident or something, the public would go wacko," Romaine said. "It's a bigger problem than people know about."

Producers such as Henry scoff at that argument.

"When I was a kid, I could get a bottle of wine or whiskey pretty easily," Henry said. "Do they really think some kid is going to wait a week to by an expensive case of wine? It's just an argument thrown up to get people worried, but it has no basis in fact."

Wine producers do agree that the problem of tax avoidance needs to be addressed. Henry, whose winery ships about 100 cases of wine a year but said he could easily double that were it not for the restrictions, said making felons of wine producers is not the answer.

"Ideally, all the states will get together and agree that shipping between states isn't a big problem," he said. "Someone likes our wine, wants to buy some and have it shipped to them. Why should that be a crime?"

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