Don’t Feel Like Going to the Store? I’ll Drink to that! How to Govern the Direct Shipment of Alcohol in South Carolina
Frederick N. Hanna*
A week has gone by since you’ve returned home from your much-needed Alaskan vacation. The return to work has been brutal; multiple partners have ceased all work in your absence so that you could pick up their slack upon your return. As you toil away at your desk, you begin to daydream about the wonderful Alaskan beer you tried for the first time on your trip after a great day of fishing. Shortly thereafter, you decide that another glass would be the only proper way to recover after a long day in the office. There’s just one problem: because South Carolina wholesalers don’t purchase that particular beer, no local stores sell it. The only way you’ll legally be able to get your hands on another delicious bottle of your new favorite beer—short of taking another vacation—will be to drive to the closest state where it is distributed.
Unfortunately for South Carolina’s adult beverage aficionados, this hypothetical dilemma is likely to occur frequently in the near future. As the number of craft alcohol producers throughout the United States continues to rise, it will be impossible for state alcohol distributors to fill local retail stores with all the available craft alcohol options offered across the country. Thus, in states like South Carolina that have a low number of breweries per capita, citizens have few local alcoholic beverages to choose from and must rely on wholesalers to make their favorite drinks available in nearby stores.
In today’s world where the Internet can link even the most distant people and businesses, there’s little reason consumer preferences should be so restrained. Before the rise of e-commerce and the subsequent evolution of the freight industry, individuals could, for the most part, only buy whatever goods local brick and mortar stores had on their shelves. Now, however, online shopping has given consumers the ability to purchase goods regardless of their availability in local shops, and online sales have skyrocketed as a result.
Despite the consumer choice benefits presented by e-commerce, limits have been imposed on vendors’ ability to make certain goods available online. Such restrictions are often necessary; the anonymity afforded by the internet should never allow individuals to obtain dangerous goods online more easily than they could from a physical store. However, if a dangerous product could be purchased as safely online as it could be from a brick and mortar store, then states would have a tougher time justifying a ban on the e-commerce transaction.
Almost all states have recognized that the benefits of allowing wine to be shipped directly from out-of-state wineries directly to their citizens outweigh any of the risks associated with the product being sold in such a manner. Indeed, forty-six states, including South Carolina, allow both in and out-of-state wineries to apply for a “direct shipper’s permit” that allows them to ship their products directly to individuals in the state—provided that the wineries are approved, pay a licensing fee, and comply with other requirements the state wishes to impose. The general trend among states, however, has been to limit direct shipping privileges to wineries that actually manufacture the wine they subsequently ship to consumers. Thus, in South Carolina and the majority of states, it is illegal for breweries, distilleries, and retailers of all types of alcohol—including wine—to ship directly to consumers.
Despite the high demand for alcohol delivered through the mail, state lawmakers assert that direct shipping bans are necessary because adherence to the three-tier system—which requires that each stage of the alcohol supply chain remain separate in a production tier, a distribution tier, and a retail tier—allows states to collect taxes more efficiently and reduce alcohol sales to minors. However, states that have allowed increased direct alcohol shipping—such as Virginia, Nebraska, and New Hampshire—have reported little or no problems with tax collection or direct shipments to minors. Therefore, the more likely reason that states enforce direct shipping bans is their loyalty to local wholesalers. Indeed, recent reports indicate that wholesalers have been lobbying with extreme vigor to ensure the three-tier system—and their monopoly over alcohol distribution—remains in its current form. In South Carolina during the 2018 election, for example, both the South Carolina Beer Wholesalers Association and the Wine and Spirits Wholesalers Association of South Carolina Political Action Committee groups made contributions to candidates of both political parties, as well as to both the House Democratic Caucus Committee and House Republican Caucus Committee.
While prohibiting out-of-state manufacturers and retailers from shipping alcohol directly to in-state consumers may benefit state wholesalers, shipping bans do not benefit consumers and states as a whole. First, by limiting consumers’ ability to choose from the vast number of craft alcohol products available across the country, these laws deter free choice and hinder interstate commerce. Second, because direct shipping bans are being widely disregarded by out-of-state retailers, states without a mechanism for holding these retailers financially accountable are incurring large tax revenue losses. Third, the lack of legislation providing for responsible direct shipment has created legitimate safety concerns, as a lack of state regulation has resulted in a high risk of alcohol being delivered to minors by unlicensed direct shippers.
This Note calls for South Carolina’s legislature to amend its direct shipping law—which currently only allows wineries to obtain a direct shipper’s permit—by extending direct shipping privileges to both in-state and out-of-state manufacturers and retailers of beer and wine. Amending the law in such a manner would discourage minor consumption by supplementing the existing winery direct shipping law’s safety provisions and allowing South Carolina to punish any business that fails to comply with those provisions in a strict manner. An amendment to the law would also allow South Carolina to collect the tax revenue it currently foregoes as a result of not licensing wine retailers and beer manufacturers and retailers.
This Note examines the history and current state of alcohol distribution in South Carolina, as well as the rise of direct shipping as a result of the current e-commerce craze. Part II identifies the problematic effects of South Carolina’s current direct shipping law and discusses how the laws of other states allow for more effective direct shipping. Part III proposes a comprehensive amended statute for South Carolina to adopt, and discusses how each of its provisions promote safety, financial accountability, and consumer choice. Part IV, a brief conclusion, summarizes the reasons that South Carolina should adopt the statute proposed by this Note.
America has always had somewhat of a “drinking problem” when it comes to passing and enforcing effective alcohol laws. The high water mark of restrictive alcohol regulation occurred in the early twentieth century during the prohibition years, when the Eighteenth Amendment prohibited the “manufacture, sale, or transportation of intoxicating liquors” within the United States. However, like some attempts at comprehensive alcohol regulation, prohibition failed—largely due to the federal government’s inability to enforce the ambitious and controversial scheme.
The Twenty-First Amendment ended prohibition and envisioned a new way for the federal government to deal with the troubling issue of alcohol control—put the burden of effectively controlling alcohol and the host of problems that accompany it on the states. Importantly, the language of the Twenty-First Amendment gave states the ability to regulate alcoholic beverages entering their borders: “The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.”
Wielding this new constitutional power to control the movement of alcohol within and through their borders, the states began drafting alcohol regulations. South Carolina—and nearly every other state—decided on the “three-tier system” of alcohol regulation, which is still in place across the country today and has been blessed by the Supreme Court as a constitutional exercise of states’ Twenty-First Amendment authority. The system, as its name would suggest, requires that three-tiers—producers, wholesalers, and retailers—all take part in the distribution of alcohol. The Supreme Court, in a recent decision, explained the mechanics of the scheme: “Producers or distillers of alcoholic beverages, whether located in state or out of state, generally may sell only to licensed in-state wholesalers. Wholesalers, in turn, may sell only to in-state retailers. Licensed retailers are the final link in the chain, selling alcoholic beverages to consumers at retail locations . . . .”
Proponents of the three-tier system argue that limiting “vertical integration” between the various levels of distribution “provides for ‘checks and balances’ in the way that alcohol is distributed and sold to retailers as well as consumers.” Further, because states require that businesses obtain the licensing required for each tier—and operate exclusively in that tier—the system is said to ensure that alcoholic beverages are made available to the public in a “controlled and safe manner.” Indeed, South Carolina wholesalers argue that the strength of the system is its “licensed nature,” or the requirement that all parties handling alcohol along the supply chain are duly licensed producers, distributors, or retailers. Advocates also claim that the three-tier system “helps ensure that alcoholic beverage taxes are reliably collected.” In South Carolina, for example, the first-tier pays excise taxes; the second-tier pays applicable state and local taxes, payroll taxes, federal income taxes, state and local income taxes, and state and local license fees; and the third-tier pays state and local sales taxes and license fees.
Armed with robust Twenty-First Amendment authority and a new framework governing the distribution of alcohol within their borders, the states set out to pass alcohol laws. And, in the years immediately following the end of prohibition, they were generally allowed to do so with little oversight.
However, the early freedom state legislators enjoyed concerning the oversight of alcohol eventually led to problems. Throughout the period following the enactment of the Twenty-First Amendment, citizens were left powerless against misguided and discriminatory laws that sought to protect local interests. For example, in 1936, the United States Supreme Court held that a California law requiring all state wholesalers to obtain a five-hundred-dollar license before importing any beer into the state did not violate the Commerce Clause. While the Court recognized that the law prevented out-of-state liquor from competing with domestic liquor “on equal terms,” it reasoned: “The words used [in the Twenty-First Amendment] are apt to confer upon the state the power to forbid all importations which do not comply with the conditions it prescribes.”
This ruling meant that “[t]he Court essentially carved the Twenty-First Amendment out of the Constitution,” and that any state law enacted pursuant to the power to regulate alcohol would not be invalidated, even if it violated other substantive portions of the Constitution. Thus, without other constitutional protections like the Commerce Clause to invalidate discriminatory laws, individuals and businesses were left defenseless against lawmakers as protectionist state policies were routinely held constitutional by the Court. Indeed, the Court’s deference during this period allowed states to enact many laws that entrenched local wholesalers’ control over alcohol distribution within their home states.
However, it was not long until the Court reconsidered its stance on states’ regulatory power under the Twenty-First Amendment. In United States v. Frankfort Distilleries, the Supreme Court landed the first blow to states’ alcohol power, holding that state distributors who engaged in price-fixing activity violated the Commerce Clause. The Court held that Colorado laws allowing state alcohol distributors and national producers to conspire to fix alcohol prices at an artificial level violated the Sherman Act. In making this decision, the Court noted: “[The Twenty-First Amendment] has not given the states plenary and exclusive power to regulate the conduct of persons doing an interstate liquor business outside their boundaries.”
While Frankfort Distilleries informed the states that the Twenty-First Amendment would not shield every alcohol statute they enacted, it did not provide a test for determining which alcohol laws would exceed state power. A more definite outline of states’ regulatory powers under the Twenty-First Amendment did not come until 1984 when the United States Supreme Court decided Bacchus Imports, Ltd. v. Dias. That case involved a Hawaii law that exempted liquors made in-state from the twenty percent excise tax imposed on all other liquors at wholesale. Upon analyzing the tax scheme, the Court noted Hawaii’s intent to provide an advantage to in-state producers and reasoned that the scheme was unconstitutional because the interests it promoted did not have a close enough relation to “the powers reserved by the Twenty-First Amendment.” While the Dias Court did not explicitly state what those powers might be, subsequent decisions indicated that “promoting temperance, ensuring orderly market conditions, and raising revenue” were paradigm examples of Twenty-First Amendment power.
However, even after Dias, the question still remained as to whether a state law that promoted an interest—such as temperance or raising revenue—would be valid if it also burdened interstate commerce by favoring local business. As it turns out, that question would not be answered until subsequent revolutions in the alcohol industry—and the economy as a whole for that matter—began taking place in the following decades.
Since the earliest days of America’s founding, wine has been present. Over the years, America’s love for wine has only grown. America’s role in the production of wine has also increased—there are currently well over 7,000 operating wineries in the United States. While this high number of wineries has given wine aficionados many options when choosing their next bottle, it has also meant that wineries must hold a competitive edge to succeed in the marketplace.
One of the earliest ways that wine producers sought to hold a competitive edge was by abandoning the “closed production facility” approach and allowing the public to tour their vineyards, taste their products, and eventually, order cases of wine for delivery to their homes. Similarly, the concept of the “wine club”—which developed around the 1970s or 1980s—allowed wineries and specialty wine shops to take advantage of oenophiles’ desire to sample a variety of expert-selected wines by shipping such products directly to their doors.
Importantly, these innovations in the wine industry resulted in wineries distributing a percentage of their products outside the confines of the three-tier system. Rather than depending on wholesalers to buy their products and resell them wherever they saw fit, wineries were able to bypass the second-tier and sell directly to willing—and paying—customers they might not have otherwise reached. This development was particularly advantageous to smaller wineries that could not afford to rely on the three-tier system to ensure their products were introduced into the market, as wholesalers often favor business arrangements with larger producers. As the Supreme Court stated: “The increasing winery-to-wholesaler ratio means that many small wineries do not produce enough wine or have sufficient consumer demand for their wine to make it economical for wholesalers to carry their products. This has led many small wineries to rely on direct shipping to reach new markets.”
Legal developments also paved the way for smaller wineries to ensure that end-users were able to purchase products, even if a wholesaler decided not to stock their products. While states historically remained loyal to the three-tier system and did not allow for any direct shipping from wineries to consumers, the above-referenced changes in the alcohol industry led some states to adopt direct shipping laws. California, for example, in 1986, passed a reciprocity law that conditioned the right of out-of-state wineries to make direct wine sales to California citizens on a reciprocal right in the shipping state. While some states like California sought to protect local businesses by enacting reciprocity laws, many of the other states sought to protect local interests by only extending direct shipping privileges to in-state wineries. By 2005, approximately half of the states had enacted a law allowing for some form of direct shipping, thereby giving at least in-state wineries the opportunity to ship their wines directly to consumers who might not otherwise purchase them from a brick-and-mortar store.
Apart from changes within the alcohol industry and newly enacted state laws, advances in the e-commerce and shipping industries also led to an increased demand for direct alcohol shipping. When the internet commercially developed in the 1990s and early e-commerce sites like Amazon began making online sales, wineries followed suit and began seeking online business as well. Noting the potential that the e-commerce industry presented, wineries stood poised to reap the benefits of online sales to consumers across the country. Unfortunately, however, the internet’s potential to facilitate an efficient interstate alcohol market was not fully realized, largely because of state laws that only gave in-state wineries the ability to ship their products directly to consumers.
While wineries profited by engaging in the limited forms of direct shipping that states allowed during the 1990s, studies showed that expanding direct shipping privileges would lead to further economic benefits for both wine producers and consumers across the country. Particularly, a study conducted by the Federal Trade Commission (FTC) found that state laws prohibiting interstate direct shipping “represent[ed] the single largest regulatory barrier to expanded online in wine sales.” The report further concluded that such barriers on interstate direct shipping led to higher prices for consumers, decreased selection, and were unlikely to result in minor consumption or tax accountability issues.
States, on the other hand, often asserted that limiting direct shipping privileges to in-state producers ensured that they could keep wine out of the hands of minors and effectively collect taxes. However, given the FTC report’s conclusion that allowing interstate direct shipping would not present such risks, these laws were more likely motivated by a desire to protect local business. In states like South Carolina where there are a relatively small number of wineries, wholesalers necessarily generate the majority of their wine-related profits through imports from other states. Therefore, it stands to reason that they are opposed to the idea of allowing out-of-state producers to circumvent them by shipping directly to consumers. Political contribution data in South Carolina confirms this theory that wholesalers are a politically active group with a history of seeking to win favor with state lawmakers. Further, in-state wineries benefit from operating in states that ban interstate shipping, as they enjoy a monopoly over the direct shipping market under such a scheme. State retailers also benefit from preventing local consumers from ordering out-of-state wines directly from wineries or retailers, as allowing the direct shipment of out-of-state wines could lead to less in-store purchases. Retailers also oppose directly shipped wines because they are not subject to the price markups that occur during distribution throughout the three-tier system and could provide consumers with a cheaper option.
However, despite local interests in preventing interstate shipping, the unfortunate result of restrictive shipping laws has been to deny out-of-state wineries the potential business an entire state has to offer. For smaller wineries that do not command wholesaler attention, direct shipping served as the only method through which they could reach consumers in certain markets. Thus, by enacting intrastate-only direct shipping laws, states were reducing out-of-state wineries’ potential clientele in massive quantities. Additionally, the ability of out-of-state wineries to lawfully reach markets where direct sales were prohibited by using a state-licensed wholesaler was often meaningless, as wholesaler fees often made this process “economically infeasible.”
Eventually, dissatisfaction with state direct shipping laws led to a judicial challenge. In Granholm v. Heald, the United States Supreme Court consolidated challenges to New York and Michigan laws that permitted intrastate direct shipping while banning interstate direct shipping. In both instances, out-of-state wineries and local consumers sought to invalidate the state alcohol distribution laws on the basis that they discriminated against interstate commerce in violation of the dormant Commerce Clause.
In reaching its decision that the state laws did in fact violate the dormant Commerce Clause, the Court took the opportunity to propound relevant constitutional principles. The Court noted, “in all but the narrowest circumstances, state laws violate the Commerce Clause if they mandate ‘differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter.’” The Court explained that laws “burden[ing] out-of-state . . . shippers simply to give a competitive advantage to in-state businesses” patently discriminate against interstate commerce and face a “virtually per se rule of invalidity.”
In response, Michigan and New York contended that, regardless of any discriminatory effect their laws may have, the laws were still valid under states’ Twenty-First Amendment authority to regulate the transportation and importation of alcohol through and within their borders. The Court, however, shot down this appeal to alcohol control power, reaffirming its decades-old position that the Twenty-First Amendment must be read in light of the entire Constitution: “Section 2 [of the Twenty-First Amendment] does not allow States to regulate the direct shipment of wine on terms that discriminate in favor of in-state producers.”
In addition to providing an insightful summary of Twenty-First Amendment jurisprudence with historical origins in the pre-Prohibition era, the Court also laid down a clear rule defining when state alcohol regulation would violate the dormant Commerce Clause. In its simplest form, that rule is that “[s]tates [are] required to regulate domestic and imported liquor on equal terms.” The Court explained that if a state, hypothetically, wished to ban the importation of alcohol into the state, it would also have to ban the manufacturing, sale, and consumption of alcohol within the state as well. Otherwise, banning other states from importing their alcoholic products into the state—while at the same time allowing local producers a monopoly over the market—would clearly violate the dormant Commerce Clause. Thus, to be protected by the Twenty-First Amendment, a state policy must “treat liquor produced out of state the same as its domestic equivalent.”
The Court went on to explain, however, that the Michigan and New York laws’ discriminatory effect would not render them invalid if they “advance[d] a legitimate local purpose that [could not] be adequately served by reasonable nondiscriminatory alternatives.” The states argued that their laws served two interests that would be undermined by interstate direct shipping: “keeping alcohol out of the hands of minors and facilitating tax collection.” With regard to the minor consumption issue, New York and Michigan argued that minors “have easy access to credit cards and the Internet and are likely to take advantage of direct wine shipments as a means of obtaining alcohol illegally.”
The Court, however, found this argument unpersuasive, noting the utter lack of evidence supporting it. Primarily, the Court focused on the fact that, of the twenty-six states allowing direct shipment at that time, none reported problems with minors having increased access to wine. The Court then afforded three reasons that minors were unlikely to order wine online: first, that minors are less likely to consume wine than beer or liquor; second, that minors often have more direct means of obtaining alcohol; and third, that minors want “‘instant gratification’” and are unlikely to wait for alcohol to be delivered through the mail.
More importantly, the Court noted that Michigan and New York presented no explanation as to why direct shipments from out-of-state wineries created a greater risk of minor consumption than direct shipments from in-state wineries. Additionally, the Court remarked that states could impose statutory requirements to ensure that direct shipping does not lead to minor consumption, such as requiring an adult signature at the time of delivery. Thus, the Court concluded that the minor consumption issue did not justify the states’ discriminatory ban on interstate direct shipping.
The Court also found the tax collection justification to be insufficient. While the Court appreciated that direct shipping would disrupt New York’s current scheme of collecting taxes at each level of the three-tier system, it suggested simple methods for adapting their collection systems to incorporate for the direct shipment sales method. For example, New York could simply take the same approach with out-of-state wineries as it does with those in-state and require that the winery obtain a direct shipping permit. By imposing such a license requirement, the state could demand that the winery “submit regular sales reports and . . . remit taxes.” Thus, acknowledging that “various States use this approach for taxing direct interstate wine shipments and report no problems with tax collection,” the Court held that state interests in tax collection also did not justify their discriminatory laws.
The Granholm Court ultimately concluded that because Michigan and New York could not adequately justify their laws’ discriminatory impact on interstate commerce, the direct shipping laws—which treated domestic and out-of-state wineries differently—could not stand. The implication of this decision, however, reached much further than simply Michigan and New York. Immediately following the Supreme Court’s decision, states began “leveling up” by affording out-of-state wineries the same direct shipping privileges as domestic ones. South Carolina, for example, implemented S.C. Code Ann. § 61-4-747 in 2005, allowing “manufacturer[s] of wine located within th[e] State or outside th[e] State” to ship wine directly to local residents.
Despite the victory for out-of-state wineries that Granholm provided, almost fifteen years later the alcohol industry is still not content. As e-commerce has continued to grow nationwide, so has the number of online wine retailers. Such growth has been problematic, as most states only allow direct shipping from wineries, yet they do not expressly prohibit direct shipping from retailers. Despite the majority of states not allowing retailer direct sales, online retailers continuously ignore these laws and ship their wines into the states anyway.
Regrettably, for states like South Carolina that do not have any mechanism for overseeing online retailers, empirical evidence from a number of states suggests that these businesses are notorious for shipping wine to minors. Indeed, whereas the Granholm Court was satisfied that direct shipment from out-of-state wineries would not lead to an increased risk of minors consuming mail-ordered wine, it did not discuss the risks posed by out-of-state online wine retailers engaging in the same activity. With regard to shipments from such out-of-state online retailers, a former president of the National Conference of State Liquor Administrators has stated, “‘every state that has used a minor to do a sting has been able to buy.’” Many online merchants, according to the FTC Report, were willing to ship to minors with no more age verification than a mouse click.
This contravention of states’ laws has occurred largely due to consumer ignorance and merchant greed. Despite landmark Supreme Court cases like Granholm, consumers are unlikely to know that South Carolina only allows direct shipments from actual wineries and they are technically breaking the law when they purchase wine from online retailers. Furthermore, the fact that online retailers appear to be willing to ship wine into states at alarming rates is not comforting as well. This problem is unlikely to be resolved anytime in the near future, as it seems probable that the average consumer is more likely to continue ordering wine from a heavily marketed website such as wine.com or totalwine.com ad opposed to a winery holding a direct shipper’s permit with their state. Consequently, citizens have an economic incentive to buy wine directly from online retailers rather than wineries, as they often have a greater selection of inexpensive wine and overall competitive pricing of all wines offered.
For states like South Carolina that do not allow direct shipments from out-of-state online wine retailers, there is little that can be done to stop retailers from shipping wines to their citizens. Indeed, because the retailer has no opportunity to be licensed in South Carolina, the state is left with little leverage over the violating retailer. In fact, states’ only real hope at blocking direct shipments from retailers is that a common carrier like FedEx or UPS will refuse to ship wine into a state that it knows prohibits such conduct. However, law-abiding common carriers are not required to “fix” this problem—they argue that the consignor—not the common carrier—has the responsibility of ensuring compliance with the laws and regulations in the origin and destination states.
Even more important, however, is the fact that states have been unsuccessful in attempts to hold retailers liable in their own judicial systems. A recent attempt by the Mississippi Attorney General to hold out-of-state retailers liable for shipments into the state provides insight into the difficulties states face in trying to enforce direct shipping bans. In late 2017, Mississippi Attorney General Jim Hood—aided by the Alcoholic Beverage Control division of the Mississippi Department of Revenue–set up a “sting” operation in which state officials posed as consumers and ordered wine and liquor from sixty-three separate online retailers. Despite the fact the Mississippi law does not contemplate direct shipping, and therefore does not expressly allow any form of direct alcohol shipment, twenty-two of the retailers sold and shipped wine or liquor into Mississippi, “some without verification of a 21-year-old purchaser or without verification of a 21-year-old living at the shipping address used.”
Attorney General Hood brought suit against four of the online retailers— two from California and two from New York—in the Chancery Court of Rankin County, Mississippi. The complaint alleged that the out-of-state retailers violated Miss. Code Ann. § 67-1-9(1), which makes it unlawful for any person to transport any alcoholic beverage except as otherwise authorized by state law. Additionally, the complaint alleged that the defendants violated Mississippi laws prohibiting the sale of alcoholic beverages to minors and requiring the possession of certain permits before engaging in the distribution of alcohol within the state.
The complaint listed the alleged offenses with considerable detail, describing the process through which the direct shipment occurred. For example, paragraph sixteen of the complaint stated:
In 2017, Wine Express shipped and distributed alcoholic beverages into Madison County, State of Mississippi. More particularly Wine Express caused to be dispatched to a minor residing in Madison County, State of Mississippi, alcoholic beverages consisting of one (1) bottle of 2015 Sancerne Domaine Durand. Wine Express placed these alcoholic beverages into the possession of United Parcel Service and on February 17, 2017, United Parcel Service in turn delivered the alcoholic beverages for Wine Express to the minor’s home located at 261 Second Street, Flora, Madison County, Mississippi. Madison County, Mississippi is “wet.” However, Wine Express addressed the package of alcoholic beverages to a minor.
To remedy these violations, Attorney General Hood sought a permanent injunction prohibiting each of the defendants from soliciting unlawful activities within the state, selling alcohol within the state without the required licensing, and distributing alcohol in the state in a way that posed a risk to minors. Additionally, the complainant sought an injunction requiring, in part, that defendants train and educate their employees that alcoholic beverages cannot be shipped directly to Mississippi consumers, place disclaimers in marketing materials that may be viewed in Mississippi clarifying that offers are not available for acceptance by Mississippi residents, and make necessary modifications to ensure that ordering systems do not result in the shipment of alcoholic beverages to Mississippi consumers.
The Mississippi Chancery Court, on August 27, 2018, granted defendants’ motions to dismiss for lack of personal jurisdiction. John Hinman, national counsel for the defendants in the action, explained that the court’s decision to grant defendants’ motion was based on term of sale provisions in the Uniform Commercial Code (UCC). Specifically, the court held that the Code’s “Passage of Title” section applied, meaning that the beverage sales legally occurred in the states of licensure of the defendants, not in Mississippi. The UCC states, in relevant part, “title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed on by the parties.” Thus, because defendants’ sales materials provided that title to the alcoholic beverages “passed” in their state of operation, the court concluded that the Attorney General could not properly initiate an action against the online retailers in a Mississippi court.
This Mississippi case evidences the simple process through which businesses can reap the benefits of sales to a state not allowing direct shipment from retailers free of the threat of liability. Attorney John Hinman explains it succinctly:
If the terms of sale, including all sale documentation are carefully structured to require the buyer to pick up the goods at the seller’s location, retailers (and other sellers with the right to sell to consumers – such as breweries, distilleries and wineries) with websites may sell wine, beer and spirits to any consumer regardless of where that consumer may live.
Thus, online retailers are able to shift the entire responsibility of complying with state alcohol laws to the buyer by including passage of title provisions.
While this widely accepted UCC provision is beneficial for retailers, it is problematic for states that do not allow direct retail shipment, as the twin aims of preventing minor consumption and ensuring tax collection are threatened. First, with regards to minor consumption, passage of title provisions are troubling because they suggest that, after the initial sale is made, the minor is solely responsible for importing the alcoholic beverage to himself. Additionally, because the sale is deemed to occur in the state where the online retailer is located, the only tax that is collectable by the consumer’s state of residence is a use tax—a tax that states often have difficulty collecting.
Passage of title provisions are also likely to cause similar problems as more businesses begin selling beer and hard liquor online. While wineries were the first in the alcohol industry to recognize the business opportunities e-commerce and direct shipping presented, other players are starting to take notice as well. Notably, as the craft beer industry continues to grow, brewers themselves—as well as retailers—are turning to the internet as a means of growing their customer base. Some states have embraced this trend and allow beer producers and retailers to ship directly to citizens of their states. However, the vast majority of states do not allow beer to be shipped directly to their citizens, even while allowing the direct shipment of wine.
The following section of this Note proposes a model direct shipping law for South Carolina to adopt and explains why doing so would be beneficial.
In light of the foregoing discussion, this Note suggests that the South Carolina laws prohibiting direct wine shipments from retailers and direct beer shipments from breweries and retailers are ineffective. S.C. Code Ann. § 61-4-747(G)(1) prohibits any person who does not possess a current out-of-state shipper’s license from shipping wine to an individual in South Carolina. However, South Carolina law does not contemplate the direct shipment of beer, liquor, or wine from retailers, and the lack of an express prohibition or approval of these practices has created myriad issues. First, the lack of an outright ban on beer or liquor direct shipping has led businesses like “Best Damn Beer Shop” and “Liquor Store Online” to offer to ship beer and liquor, respectively, straight to South Carolina citizens. Additionally, the lack of a statutory enforcement provision subjecting online retailers such as these to personal jurisdiction in South Carolina has allowed merchants to limit their liability in the state through contractual “passage of title” provisions in their sales materials. Sadly, this utter lack of oversight has presented a high risk of merchants shipping alcohol to minors in the state, as South Carolina has no legitimate means of deterring businesses from doing so.
South Carolina’s current direct shipping laws have also allowed online alcohol retailers to avoid payment of sales and excise taxes despite sales to South Carolina consumers. Whereas wineries holding a direct shipper’s permit in the state are required to remit all sales and excise taxes due to South Carolina at the end of each year, no law requires retailers to do the same. This is problematic due to the fact that there is no South Carolina law on point regarding the direct shipment of alcohol to consumers—each and every dollar of these sales generate zero dollars in sales and excise tax revenue for the state. Thus, South Carolina is unlikely to recover the taxes it is owed as a result of an online alcohol sale to a South Carolina citizen, as retailers are unlikely to remit taxes absent an agreement to do so and consumers rarely remit use taxes.
Aside from failing to protect South Carolina’s interest in guarding against minor consumption and preventing tax revenue losses, South Carolina’s current direct shipping laws also limit consumers’ ability to purchase certain alcohol not readily available in the state. Indeed, despite the current “craft beer revolution” that is taking place across the country as small breweries open to fulfill consumers’ demands for a greater variety of fuller flavored beer, South Carolina drinkers’ glasses can only be filled with what local breweries have to offer or wholesalers choose to import. Thus, because South Carolina has a low number of breweries, with the existing breweries primarily concentrated in metropolitan areas like Greenville, Charleston, and Columbia, South Carolina citizens, especially those in rural areas, depend largely on wholesaler importation to satisfy their beer preferences.
South Carolinians’ wine options are also curtailed by the current law that only allows wineries to ship to the local consumers. According to the FTC Report, “the total number of [wine] varieties available online may surpass the total number available in bricks-and-mortar stores that are within a reasonable distance of a particular consumer, because the Internet effectively expands the geographic market.” This is certainly true for many of South Carolina’s more rural areas where local retailers might be less likely to stock a high variety of wines.
To remedy these problems, South Carolina should amend its direct shipping law to allow out-of-state wine retailers, breweries, and beer retailers to apply for a shipper’s permit. Such a law would give South Carolina citizens the ability to purchase a number of beers and wines not currently available in the state—or available via direct shipment from out-of-state wineries—while also allowing South Carolina to collect licensing fees and tax revenue that would not otherwise be remitted by online merchants or consumers themselves.
For a new South Carolina direct shipping bill to be effective, it must ensure that the risk of minors obtaining alcohol via common carrier is minimal. An amendment to the current direct shipping law would create greater protection against minor consumption. As this Note discussed above, online beer and wine retailers’ inability to obtain a South Carolina direct shipper’s permit has incentivized them to ship into the South Carolina completely un-monitored. By giving these merchants the ability to obtain licensing, South Carolina can encourage these businesses into complying with the requirements it sets forth.
South Carolina’s current direct shipping statute features a number of provisions aimed at decreasing minor consumption, such as requiring that licensees only ship to persons over the age of twenty-one and mark all containers of alcohol with language indicating their contents. However, more could be done to ensure that minors are not able to successfully order alcohol online. To that end, the model direct shipping bill proposed by this Note adopts certain provisions currently employed by other states to lower the risk of minor consumption.
One such provision is a requirement currently featured in the Virginia direct shipping statute that requires all direct shipper licensees to ship beer and wine to consumers using a state-approved common carrier. Another such Virginia provision that would allow South Carolina to promote minor safety is a requirement that the recipient, upon delivery, demonstrate that he is at least twenty-one years of age and sign for the alcohol being delivered in accordance with requirements set forth by the state. Finally, South Carolina should also adopt the requirement currently featured in the Virginia statute that requires the state-approved common carrier submit to the state any information it requests.
By adding such safety provisions to its direct shipping statute, South Carolina will be more equipped to prevent alcohol from being delivered to minors. Allowing the South Carolina Department of Revenue (SCDOR) to vet common carriers to ensure that they can be relied on to transport alcohol safely will ensure that only trustworthy businesses—those with a track record of complying with state laws—are allowed to deliver alcohol to consumers. Further, the requirement that the recipient actively show that he is twenty-one years of age and sign for the alcohol must be added to the South Carolina direct shipping law, as the statute currently does not require that a recipient of alcohol offer any evidence that he is of legal age. Finally, by allowing the SCDOR to request any information from the common carrier, South Carolina will be able to ensure that these businesses are verifying consumers’ ages and obtaining their signatures.
Though the safety benefits that would flow from adopting these Virginia provisions in South Carolina law seem intuitive, data also suggests that they are a practicable way of deterring minor alcohol consumption. The safety requirements imposed by Virginia do not appear to deter out-of-state shippers from obtaining licensing, as 2,039 businesses currently hold out-of-state shipper’s licenses according to the Virginia Alcoholic Beverage Control Authority. Additionally, Virginia’s requirement that common carriers obtain state approval and comply with other state-imposed requirements does not appear to deter companies from shipping alcohol to residents of the state, as six separate common carriers—including UPS and FedEx—are listed as state-approved common carriers on the Virginia Alcoholic Beverage Control Authority website. Therefore, given the strong direct shipping market in Virginia, it is unlikely that adopting these provisions in South Carolina would deter companies from doing business in the state.
This Note has considered the weaknesses of South Carolina’s current direct shipping law and the components that a new law must include to achieve the goals of preventing minor consumption, increasing tax revenue, protecting local businesses, and appeasing consumer preferences. This Note now proposes an amended statute that allows for increased direct shipping by breweries and wine and beer retailers, and then explains how it promotes South Carolina’s interests. The proposed statute tracks S.C. Code Ann. § 61-4-747, with the following proposed changes in italics:
(A) Notwithstanding any other provision of law, rule, or regulation to the contrary, a manufacturer or retailer of wine or beer, located within this State or outside this State that holds a wine producer and blenders basic permit or brewer’s permit issued in accordance with the Federal Alcohol Administration Act, or is licensed within its state of domicile to sell wine or beer, may obtain an out-of-state shipper’s license. As provided in this section, the holder of an out-of-state shipper’s license may ship up to twenty-four bottles of wine or 288 ounces of beer each month directly to a resident of this State who is at least twenty-one years of age for such resident’s personal use and not for resale.
(B) Before sending a shipment to a resident of this State, an out-of-state shipper first shall:
(1) file an application with the Department of Revenue;
(2) pay a biennial license fee of four hundred dollars;
(3) provide to the department a true copy of its current wine producer and blenders basic permit or brewer’s permit, issued in accordance with the Federal Alcohol Administration Act, or its current alcoholic beverage license issued in this or any state;
(4) identify the brands of alcoholic beverages that the applicant is requesting the authority to ship either into or within South Carolina; and
(5) obtain from the department an out-of-state shipper’s license.
(C) Each out-of-state shipper licensee shall:
(1) not ship more than twenty-four bottles of wine or 288 ounces of beer each month to a person;
(2) only ship the brands of alcoholic beverages identified on the application;
(3) ensure that all containers of wine or beer shipped directly to a resident in this State are labeled conspicuously with the words “CONTAINS ALCOHOL: SIGNATURE OF PERSON AGE 21 OR OLDER REQUIRED FOR DELIVERY”;
(4) report to the department annually, by August thirty-first of each year, the total amount of wine or beer shipped into the State the preceding year;
(5) annually, by January twentieth of each year, pay to the department all sales taxes and excise taxes due on sales to residents of this State in the preceding calendar year, the amount of the taxes to be calculated as if the sale were in this State at the location where delivery is made;
(6) permit the department to perform an audit of the out-of-state shipper’s records upon request; and
(7) be deemed to have consented to the jurisdiction of the department or another state agency and the courts of this State concerning enforcement of this section and any related laws.
(D) The out-of-state shipper must agree to notify any wholesaler licensed in South Carolina that has been authorized to distribute such brands that the application has been filed for a shipping license. The department may adopt and promulgate rules and regulations as it reasonably deems necessary to implement this subdivision, including rules and regulations that permit the holder of a shipping license under this subdivision to amend the shipping license by, among other things, adding or deleting any brands of alcoholic liquor identified in the shipping license.
(E) The out-of-state shipper on August thirty-first of each applicable year must renew its license with the department by paying a renewal fee of four hundred dollars and providing the department a true copy of its current alcoholic beverage license issued in another state.
(F) The department may promulgate regulations to effectuate the purposes of this section.
(G) The department shall enforce the requirements of this section by administrative proceedings to suspend or revoke an out-of-state shipper’s license if the licensee fails to comply with the requirements of this section, and the department may accept payment of an offer in compromise instead of suspension.
(H) The direct shipment of wine or beer by holders of licenses issued pursuant to this section shall be by approved common carrier only. The department shall develop regulations pursuant to which common carriers may apply for approval to provide common carriage of wine or beer, shipped by holders of licenses issued pursuant to this section. Such regulations shall include provisions that require (i) the recipient to demonstrate, upon delivery, that he is at least 21 years of age; (ii) the recipient to sign an electronic or paper form or other acknowledgement of receipt as approved by the department; and (iii) the department-approved common carrier to submit to the department such information as the department may prescribe. The department-approved common carrier shall refuse delivery when the proposed recipient appears to be under the age of 21 years and refuses to present valid identification. Any delivery of alcoholic beverages to a minor by a common carrier shall constitute a violation by the common carrier. The common carrier and the shipper licensee shall be liable only for their independent acts.
(I)(1) A shipment of wine or beer from out-of-state direct to consumers in this State from persons who do not possess a current out-of-state shipper’s license is prohibited. A person who knowingly makes, participates in, transports, imports, or receives such a shipment from out-of-state is guilty of a misdemeanor and, upon conviction, must be fined one hundred dollars. A shipment of wine or beer which violates any provision of this item is contraband.
(2) Without limitation on any punishment or remedy, criminal or civil, a person who knowingly makes, participates in, transports, imports, or receives a shipment as provided in item (1) of this subsection from out-of-state commits an unfair trade practice.
While it may seem counterintuitive, extending direct shipping privileges to breweries and wine and beer retailers should make it more difficult for South Carolina’s minors to order alcohol online. Although there will be a higher number of businesses shipping alcohol into the State, these businesses will have to obtain a direct shipper’s permit to do so. This fact alone lowers the risk of businesses shipping wine or beer to minors, as doing so would be grounds for having their license revoked.
Further, the addition of section (H) to the South Carolina direct shipping statute will provide the necessary safeguards to ensure that increased direct shipping does not lead to a higher rate of minor alcohol consumption. As discussed by this Note in Part III, the requirement that all shipments take place via a state-approved common carrier, who will be required to submit requested information to the SCDOR, will ensure that all alcohol shipments are transported by responsible, law-abiding businesses that remain accountable to South Carolina. Additionally, the requirement that the recipient of the alcohol actively demonstrate that he is at least twenty-one years old and sign for the delivery will ensure that all alcohol is delivered to a responsible party. Given the high number of both out-of-state shipper licensees and approved common carriers in Virginia, the addition of these safety provisions presents no foreseeable risk of deterring business in South Carolina.
South Carolina’s wholesalers are likely to argue that allowing beer to be shipped directly to citizens creates a minor consumption risk, as many people associate underage drinking with beer or liquor more so than they do with wine. Despite the fact that wholesalers are biased against all forms of direct shipping, these arguments must be taken seriously given the high costs of underage drinking. However, even if the data suggesting that teens are more interested in consuming beer than wine is accurate, the mechanics of direct alcohol shipping make the threat of minors consuming mail-ordered beer relatively low. As the Court noted in Granholm, minors have more direct means of obtaining beer than via direct shipping. Indeed, irrespective of direct shipping, data suggests that minors are able to obtain alcohol in their communities with relative ease. According to the FTC Report, “approximately 68% of eighth graders, 85% of tenth graders, and 95% of twelfth graders [surveyed] said that it is ‘fairly easy’ or ‘very easy’ to get alcohol.” Additionally, as the Granholm Court noted, direct shipping is an imperfect avenue of obtaining alcohol for minors because they want “instant gratification.” In other words, minors who want to drink “do not order premium wine over the Internet and then wait two or three days for it to arrive.” The same would be true with beer.
South Carolina should not, however, extend direct shipping privileges to distilleries and online liquor retailers. While all alcohol can be dangerous in the hands of underage drinkers—or any irresponsible drinker for that matter—data suggests that teenagers indulge in more hard liquor than beer or wine when they drink. However, South Carolina should also limit direct shipping to beer and wine because the market for craft liquor made by small-scale distilleries does not yet demand the same consumer attention as the market for craft beer. Indeed, whereas many craft breweries have large production levels and are able to distribute their beer by the truckload to distant customers, many craft liquor distilleries are smaller and make the majority of their sales to customers in their home state. Further, because many craft distilleries enjoy non-adversarial relationships with larger companies in the liquor industry, they may be able to distribute their products through the traditional three-tier system with greater ease than small-scale craft breweries or wineries.
Similarly, the best way for South Carolina to guarantee adequate and proper tax collection is to provide more businesses direct shipping privileges. Traditionally, it has been difficult for states to collect any taxes on sales made to their citizens by online retailers. This difficulty has stemmed from the fact that out-of-state sellers have historically only been required to collect and remit a sales tax to the consumer’s state when the seller had a “physical presence” in that state. Thus, online sellers have benefitted by limiting their physical presence to just a handful of states, thereby avoiding “the regulatory burdens of tax collection and . . . offer[ing] de facto lower prices” in states where they had no presence. To make up for this loss, states that impose sales taxes also impose a “use tax.” Under this complimentary sales and use tax regime, when the seller does not remit a sales tax, the in-state consumer is “separately responsible for paying a use tax at the same rate.”
Unfortunately, use taxes account for large amounts of revenue losses to states, as consumers are unlikely to pay them and enforcement by states would be infeasible. Thus, as the internet “change[s] the dynamics of the national economy” and e-commerce retail sales skyrocket, states lose huge amounts of revenue in foregone sales and use taxes. Interestingly, a recent United States Supreme Court case has overruled the physical presence rule and placed states in a position to mitigate these massive tax losses. In South Dakota v. Wayfair, Inc., the Court considered the validity of a South Dakota statute that was enacted to combat its “inability to collect sales tax from remote sellers.” The statute “require[d] out-of-state sellers to collect and remit sales tax as if the seller had a physical presence in the state,” if the seller “deliver[ed] more than $100,000 of goods or services into the state or engage[d] in 200 or more separate transactions for the delivery of goods or services into the state” on an annual basis.
While the Court noted that abandoning the physical presence rule could burden interstate commerce by “subjecting retailers to tax-collection obligations in thousands of different taxing jurisdictions,” it nonetheless held the rule unconstitutional, largely because of the rule’s practical effect of allowing e-commerce retailers to avoid sales tax obligations across bulks of the nation. The Court went on to explain, however, that a tax must “appl[y] to an activity with a substantial nexus with the taxing State” to be valid. “Such a nexus is established when the taxpayer [or collector] ‘avails itself of the substantial privilege of carrying on business’ in that jurisdiction.” The Court ultimately concluded that, because the only out-of-state businesses affected by the South Dakota statute either delivered more than $100,000 of goods into the state or engaged in two hundred or more separate transactions for the delivery of goods into the state on an annual basis, a nexus would clearly exist any time the tax applied.
While the Wayfair decision could allow South Carolina to collect more tax revenue from ordinary online retailers if it chooses to enact a law like the South Dakota statute, the law would likely have no impact on beer and wine vendors. First, states can only require out-of-state retailers to remit taxes when the retailer’s activity has a “substantial nexus” to the taxing state. A substantial nexus existed between South Dakota and the business in Wayfair because the business delivered more than $100,000 of goods into the state on an annual basis. However, even if South Carolina were to adopt a law requiring that online retailers who deliver such an amount of goods into the state remit taxes, it is unlikely that South Carolina could enforce the law with respect to online wine and beer retailers without first licensing them and subjecting them to sales-reporting requirements.
Even supposing that online retailers currently deliver upwards of $100,000 worth of beer or wine into South Carolina each year and have a “substantial nexus” with the state, they would still be unlikely to remit any taxes to the SCDOR. Indeed, if retailers are currently delivering that much alcohol into the state, then they are doing so illegally, as South Carolina does not currently allow direct shipments from online alcohol retailers. That means South Carolina has no way of determining what amount of taxes these businesses should be remitting or what amount of use taxes are owed by local consumers. Additionally, if these retailers are willing to contravene state alcohol laws prohibiting direct shipment from out-of-state retailers, then the likelihood of their compliance with state tax law is not promising.
Therefore, South Carolina will place itself in the best position to collect tax revenue from remote alcohol retailers if it extends direct shipping privileges to online alcohol retailers. If South Carolina licenses out-of-state retailers, then it can guarantee tax income that is otherwise uncollectable by subjecting these retailers to the same tax remittance requirements that currently apply to out-of-state wineries. First, each licensee will be required to pay a biennial license fee of four hundred dollars. Second, licensees will be required to pay both sales and excise taxes due on sales to South Carolina consumers each year. Thus, licensees will be required to pay certain alcohol-specific taxes—like excise taxes—for which a proposed out-of-state retailer tax remittance statute like the one adopted by South Dakota in Wayfair might not expressly account. Therefore, giving online retailers the opportunity to obtain direct shipper’s licenses is the best method of serving South Carolina’s interest in ensuring tax compliance by remote businesses.
Apart from generating tax revenue and preventing minor consumption, a direct shipping statute must also make more beer and wine labels available to South Carolina citizens to be effective. However, giving consumers the ability to purchase rare wines and craft beers that are not available locally is not the only interest South Carolina must serve. Instead, the state should also ensure that the direct shipping exception to the three-tier system of distribution does not injure local business interests. Specifically, direct shipping should be limited so that it does not disrupt the livelihood of state wholesalers, brick-and-mortar retailers, or local breweries and wineries.
South Carolina breweries and wineries are likely to oppose direct shipping. Local producers may view direct shipping as a mechanism that incentivizes consumers to drink imported beverages rather than local beers and wines. South Carolina’s direct shipping bill, however, would not incentivize local drinkers to order beers through the mail. The law proposed by this Note provides no special status to mail ordered alcohol and merely serves as a safe and state income-producing way for consumers of alcohol to order products not available locally. This law will not encourage remote craft producers to replace South Carolina’s wineries and breweries; it will simply allow dissatisfied consumers to purchase their favorite drinks when they find local options lacking.
The health of local breweries in other states that allow direct beer shipping is also telling of the minimal impact this law will have on local business. Virginia, a state that allows direct beer shipping and whose law served as a model for a portion of the statute proposed by this Note, ranks eighteenth in the United States in breweries per capita and has 236 breweries. Thus, with even a higher number of breweries competing for in-state business, Virginia has been able to allow direct shipping without harming local brewery interests. The strength of Virginia’s local beer industry is also evidenced by the fact that since 2007, when it first enacted a law allowing for the direct shipment of beer, at least 150 new breweries have opened in the state.
Additionally, direct shipments from wineries do not pose much of a problem to wholesalers and local retailers. In fact, wineries commonly turn to direct shipment when state wholesalers decline to distribute their goods and make them available to a wide range of consumers. As the United States Supreme Court stated in Granholm, “[t]he increasing winery-to-wholesaler ratio means that many small wineries do not produce enough wine or have sufficient consumer demand for their wine to make it economical for wholesalers to carry their products.” Therefore, the majority of wineries possessing direct shipper’s permits are smaller business that otherwise would be unable to reach consumers in states where wholesalers do not carry their products.
Similarly, direct shipments from breweries do not seriously threaten state wholesalers or local retailers. Like small wineries, small breweries—acting economically—are only likely to apply for an out-of-state shipper’s license in states where their products are not already distributed by wholesalers. Thus, while wholesalers may compete with direct shipments from breweries in the sense that the consumer might have purchased a less desirable drink from a local store if shipping were not an option, there is little direct competition for sales of the same label.
Online retailers, however, could compete more directly with state wholesalers and local brick-and-mortar retailers for sales. Indeed, large online retailers offer hundreds of brands of wine and beer from across the country, many of which are doubtlessly distributed by South Carolina wholesalers and available at stores across the state. Thus, allowing consumers to purchase these products online, where they are often available at a lower price, could significantly interfere with local business interests.
Nebraska’s direct shipping statute, which allows for direct shipment from online retailers, features a mechanism for avoiding such interference with local business interests. Nebraska, like South Carolina, implements the three-tier system and has an interest in protecting distributors. However, by requiring that an applicant for a shipper’s license identify the brands it wishes to ship into the state, the Nebraska Liquor Control Commission is able to assess the impact a shipper might have on local markets before awarding it a license. Despite the burden these wholesaler protection provisions might place on direct shipper applicants and licensees, there are currently 563 Nebraska direct alcohol licenses held by companies across the country.
To provide South Carolina businesses with a similar degree of protection, Section (B)(4) of the proposed amended statute requires that an out-of-state retailer applying for a South Carolina direct shipper’s license “identify the brands of alcoholic beverages that the applicant is requesting the authority to ship either into or within South Carolina.” Similarly, Section (C)(2) requires that a direct shipper only ship the brands of alcoholic beverages identified on the application.
By adding these provisions to the direct shipping statute, South Carolina can protect local businesses from the threat of losing sales to online retailers while also making more wine and beer brands available to consumers. Indeed, the SCDOR will be able to determine exactly which products the retailer seeks to ship to consumers in South Carolina. Thus, if the department determines that the applicant is a high risk for shipping products to consumers that are already available locally, it can simply deny the application. This will encourage retailers to exclude from their applications any wines and beers already heavily distributed through the three-tier system and to limit direct shipping to the more exclusive brands and bottles they carry.
Apart from having the power to deny an application for a direct shipper’s license, the SCDOR will also be able to prevent online retailers from unduly harming local business after they obtain licensing. Under the proposed statute, retailers are required to only ship those wines identified on their application. So, if retailers comply with this requirement, they will only be shipping those brands approved by the SCDOR—those which are not readily available in local stores. If, however, retailers ship other unapproved beers or wines into the state, the SCDOR has the power to suspend or revoke the shipper’s license or accept payment from the licensee in compromise of suspension.
While wholesalers are typically opposed to all forms of direct shipping, the addition of these local business protection provisions would most likely allay some of their concerns. At the same time, however, these provisions would ensure that consumers have access to a large number of alcoholic beverages. Indeed, for South Carolina to strike a balance between solely insulating local business at the expense of the consumer—and allowing remote online sellers free rein to the chagrin of wholesalers and brick and mortar retailers—it must adopt sections (B)(4) and (C)(2) of the model bill.
While the three-tier system has served as an effective method of alcohol distribution in South Carolina for nearly a century, changes in consumer preferences—and the alcohol industry as a whole—show the need for limited exceptions to this system of distribution. The convergence of e-commerce shopping and craft alcohol popularity has created a demand for direct alcohol shipping, and by adopting the amended statute proposed by this Note, South Carolina can meet that demand without disrupting the alcohol industry as it currently exists. By supplementing current South Carolina law with provisions adopted from states with robust direct shipping markets, South Carolina can allow its citizens to have access to their favorite wines and beers delivered directly to their doors. More importantly, South Carolina can structure its laws so that direct shipping generate tax revenue without injuring local businesses or creating a higher risk of minor consumption. Therefore, South Carolina should adopt the amended statute proposed by this Note.
www.wineinstitute.org/resources/statistics/article86 (last updated July 12, 2017). ↑