Wine shipping turns into tax maze
Wineries outsourcing to get product directly to buyers

By KEVIN MCCALLUM
THE PRESS DEMOCRAT

It's nThe U.S. Supreme Court ruled last year that states allowing their own wineries to ship directly to consumers had to allow wineries in other states to do the same.
OAS_AD('Middle'); But the court didn't say they had to make it easy.

Many California wineries are finding that while they enjoy the right to ship directly to more states than ever, doing so has never been more complicated.

"It's almost like they were spiteful in making up these regulations," said David Cumming, retail manager for Schug Carneros Estate Winery east of Sonoma.

Cumming used to personally handle all the winery's shipments to its wine club or online customers. But since last May's court ruling, the changes to state laws, the complexity of the new rules and the increased reporting requirements have put him over the edge.

"It just became overwhelming," Cumming said

So Schug did what more and more California wineries are doing to address the dilemma. It outsourced its entire direct-shipping operation.

New Vine Logistics, the fast-growing direct-shipping company, has added 60 new wineries or winery groups, including Schug, to its client list since the Supreme Court decision, said company president Kathleen Hoertkorn.

The Napa-based company, formed in 2001, expects to increase its annual revenue from $60 million last year to $110 to $120 million this year, she said.

The landscape is shifting so quickly that New Vine Logistics is hosting a direct-shipping conference this week to keep wineries up to speed on the changes.

Representatives from several area wineries, as well as industry groups such as the Wine Institute in San Francisco and MKF Research in St. Helena, are scheduled to give presentations at the invitation-only event Thursday at Cline Cellars.

"It has become so difficult to do consumer-direct legally," Hoertkorn said. "It is 100 times more difficult than it was last year."

That's because there are now 27 states that allow shipment of wine to their residents. The needed permits require wineries to report and pay taxes on their shipments on a monthly, quarterly, biannually, or annual basis.

That translates into hundreds of reports annually,Hoertkorn said, a burden fewer and fewer wineries want to bear themselves.

"It has just mushroomed," she said. "It's incredible."

Free The Grapes, a St. Helena organization that lobbies for free trade of wine, keeps a close eye on how states have reacted to the court ruling. Jeremy Bensen, the group's executive director, says wineries that expected easy access to new markets have been disappointed.

"A lot of the laws that are being passed are overly complicated and overly burdensome for wineries," he said.

Powerful wholesalers and their lobbyists pushing for as many obstacles to direct shipping as possible, he said. Their latest effort has been to threaten to strip in-state wineries of their right to self-distribute wine unless they support bans on direct shipping, Bensen said.

Arizona, for example, recently passed a ban on direct shipping by wineries that produce more than 20,000 gallons per year, an arbitrary number that amounts to about 8,400 cases, Bensen said.

"The wholesalers' tactics are shifting, but they are just as aggressive as before," he said.

Complying with these ever-shifting laws is important for a winery because the number of states enforcing their laws is increasing, said Bob Kelso, director of hospitality for Cline Cellars, at the southern end of the Sonoma Valley.

"In today's age of fulfillment, there's nothing more exciting than get a letter from some attorney general from some state saying, 'You've been a bad boy,'" said Kelso, who is one of the speakers at the conference.

The winery, which has a 250,000-case capacity, has nearly tripled its direct-to-consumer sales in the last five years, something Kelso says it never could have done without outsourcing the shipping component to New Vine.

Tom Shelton, president of Joseph Phelps Vineyards in St. Helena, says it's unfortunate that wholesalers continue to fight for restrictive, anti-competitive laws when the spirit of the Supreme Court ruling was so clearly in support of free trade.
He wishes wineries and wholesalers, who work closely on other issues, could find a way to resolve their differences instead of battling each other in legislatures around the nation.

"We need to have a discussion that no one wants to have, and I guess we're just going to bloody each other in the ring until somebody gives up," he said.

Meanwhile, fulfillment companies like New Vine continue to gain new customers. Schug's Cumming said outsourcing their direct shipping was a great decision, but it's not a magic bullet that keeps all bureaucracy at bay.

Last week, he wrote a check to the state of New York for excise taxes. The amount - 57 cents.