Online Wine Debate Continues

On October 30, the House Energy and Commerce Committee's Commerce, Trade and Consumer Protection Subcommittee conducted hearings which may ultimately determine the fate of online wine sales and direct shipment. At issue is the question whether states may ban interstate sale of wine. Such state bans obviously have a direct and adverse impact on vinters who wish to sell their product via the Internet. The states, on the other hand, don't want to miss out on excise taxes and also don't want to encourage underage drinking.

Subcommittee chairman Clifford Stearns (R-Fla.) cited to an FTC report that criticized the practice of completely banning sales. That report concluded that states can achieve their public policy objectives using restrictions other than bans on direct shipments by requiring wineries to label their packages as containing alcohol and requiring the package carrier to verify the age of the customer by obtaining an adult signature at the time of delivery, and/or requiring out-of-state companies to obtain shipping permits and setting up penalty and enforcement systems.

But according to Rep. Janice D. Schakowsky (D-Ill.), ranking minority member of the subcommittee, "We must take every precaution to ensure that we don't make the underage drinking problem worse." She feels that the FTC report "does not satisfactorily answer" the question of the effect that lifting a ban on direct sales of wine would have on this issue.

But Rep. John Shimkus (R-Ill.) observed that Internet retail has been "a boon for small wineries" which otherwise would not have a way to get their product to consumers. Restrictions on direct sales, he asserted, are "just a guise for restrictive practices." Rep. George Radanovich (R-Cal.) noted that "online sales open a path for economic growth," which needs to be supported by Congress.

Rep. Mike Thompson (D-Cal.), while not a member of the subcommittee, attended the hearing and observed that there has been "tremendous consolidation of wine distributors." For some small wineries, he noted, the Internet is the only way to get their product to consumers. He suggested that "kids don't buy wine over the Internet."

In testimony, the FTC noted that in states that are litigating the constitutionality of direct shipping bans, several courts have found that the bans deprive the state's consumers of lower prices and greater variety." The FTC also indicated that in states where direct shipping is permitted, "few or no problems with shipments to minors" have been reported.

The FTC also noted that those states that allow direct shipping of wine are collecting taxes from those shipments. "By requiring out-of-state suppliers to obtain permits, states such as New Hampshire have sought to achieve voluntary compliance with their tax laws. Most of these states report few, if any, problems with tax collection."

The FTC also pointed out that the controversy over wine shipments has larger implications for e-commerce, since "anticompetitive state regulations can insulate local suppliers from online competition and deprive consumers of lower prices and greater selection."

Wine wholesalers criticized the FTC report, contending that it failed to recognize the unique regulatory system that governs alcohol distribution. They contend the issue is about "kids, communities and common sense."

Representatives of the smaller vinters, however, point out that the debate is about money. They contend that without direct sales, the 2,900 "mostly small American wineries" are effectively excluded from the commercial mainstream. They contend that bans on direct shipments from out-of-state firms but authorization of intrastate shipments, are discriminatory, and violate the dormant Commerce Clause.

It's unlikely this debate will be settled anytime soon. But we can be sure that it will be sour grapes for whoever loses.