Selling alcohol online is complicated
Online wine sales have increased dramatically during the pandemic. And several state legislatures are working on laws that would make it easier to buy spirits on line. The demand is there, which could mean online alcohol sales are about to skyrocket, and savvy online retailers could take advantage of growing consumer enthusiasm.
All it takes is a liquor license, right? Barely.
“I always tell my clients, when they ask me if they should ship wine to another state, that it’s a waste of time and money,” says Kimberly Frost, a Texas attorney who advises wineries on liquor shipping issues. “There are just too many moving parts to make it practical.”
Indeed, online alcohol sales in the United States are tightly regulated, a tangle of state and federal laws that take into account taxation, age verification, and even delivery. And that’s in the states where it’s legal. In all, there are 50 laws for 50 states – a legacy of the political compromise that ended Prohibition in 1933 and allowed each state to regulate liquor sales as it saw fit. Additionally, the laws differ for wine, beer, and spirits — and for in-state or out-of-state sales.
The regulatory framework in the United States for the sale of alcohol is called the Three-Tier System – created after the repeal of Prohibition. The intention was to prevent organized crime from controlling the alcohol supply chain.
The first level is made up of importers or producers – wineries, breweries and distilleries. They can only sell their products to a distributor.
Distributors are the second tier, and only they can sell to retailers and restaurants.
Retailers and restaurants are the third tier and, for the most part, the only way for consumers to purchase alcohol, although nuances exist. Drizly, for example, works with local retailers to sell and deliver alcohol to consumers.
Some exceptions to the three-tier system have occurred over the past decade. California, unsurprisingly, gives wineries more leeway to sell to restaurants and retailers, and consumers can buy wine directly from producers in most states. But these scenarios are limited. Most liquor sales in the United States exist through the three-tier system, and it gets confusing when those sales take place online.
- The laws are different not only for the sale of wine, beer and spirits, but also depending on whether the producer or a retailer is making the sale.
- The laws change whether the producer or retailer sells in-state or out-of-state. Generally, it is less complicated to sell alcohol to residents of the same state, but not always. In Texas, for example, residents of one county cannot buy wine from a retailer in another county unless they are in the store.
- Wineries can ship directly to consumers in 47 states plus the District of Columbia. But wine retailers can only ship to 14 states, plus the District of Columbia.
- Ten states, plus the District of Columbia, allow breweries to sell directly to their residents. But there is almost no legal beer retail on the internet.
- Distilleries can ship directly to seven states plus the District of Columbia. But there is almost no legal retail sale of spirits on the Internet.
- Some states that allow retail or grower sales have even stricter requirements, such as caps on the amount of product consumers can purchase annually or monthly. Often alcohol must be shipped to a retailer or authorized location and then picked up by the consumer.
- There are documentation requirements in states where it is legal. The seller must have the necessary state and federal licenses, whether it is a winery or a retailer. Additionally, the seller must be licensed for the state they wish to sell to and complete the necessary paperwork to pay taxes for that state. And it goes without saying that tax laws are unique for each state.
- Thanks to services like Drizly, local delivery is much easier than before. But non-local delivery, whether in-state or out-of-state, remains complicated. The US Postal Service cannot legally handle alcohol despite repeated attempts to change the law. That leaves UPS and FedEx, with a few exceptions on the West Coast, having a virtual monopoly on alcohol delivery in the United States, which means higher rates and sometimes troubled service.
Avalara, the sales tax platform, has released a helpful guide for wineries, breweries, and distilleries. “How to Sell Alcohol Online,” by 2nd Kitchen, a Chicago-based foodservice distributor, is also instructive. And “Selling Liquor Online” by BlueCart, an order management platform, provides additional details.