Legislature Uncorks Wine Shipments

December 9, 2005
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LANSING — The state legislature passed two bills last week that would open up the flow of wine sales to consumers throughout the state.

House Bill 4959 would allow wineries across the country to sell their products directly to Michigan consumers, with a limit of 1,500 9-liter cases per year, per winery. Senate Bill 625 sets up further regulations on how those wineries are licensed and taxed, how they must verify the age of retail customers, and what records they must keep to satisfy the state. Gov. Jennifer Granholm will likely sign both bills this month.

If implemented, the new regulations may put an end to a legal struggle that has lasted several years. Under previous Michigan law, in-state wineries could sell their products directly to Michigan consumers, restaurants and retailers, whereas out-of-state wineries were compelled to distribute their wine through licensed wholesalers. That law was challenged and eventually deemed unconstitutional by the United States Supreme Court.

The Supreme Court ruling and a subsequent federal court ruling reinforced that it was illegal for the state to discriminate against out-of-state wineries regarding the sale of their products to individual consumers. That was ruled a violation of the Constitution’s commerce clause.

Under the proposed laws, consumers would be able to purchase wine directly from any winery in the country that obtains the proper certification from the state of Michigan. Michigan wineries could continue to sell their products to restaurants and retailers. Out-of-state wineries could not.

“Therein lies what I think is kind of a snake in the grass,” said Joe Borello, president of Tasters Guild International, a Grand Rapids-based organization for wine enthusiasts. “It looks to me like a poison pill that the wholesalers kind of put into this bill.”

Under provisions in the bills, wineries outside of Michigan would still be compelled to retain the services of a wholesaler.

“The out-of-state wineries are going to look at that and say, ‘Wait a minute. The Supreme Court says that you have to treat everybody equal, which means that if your local wineries can self-distribute, then we should be able to do the same thing,’” said Borello.

But the Supreme Court’s ruling applied to the sale from a licensed wine maker to an individual consumer. Retailers and restaurants are licensed sellers of alcoholic beverages and therefore subject to whatever regulations the state might choose to put in place.

That portion of the proposed laws may be challenged by out-of-state wineries, or large retailers. Borello said that those groups would only be inspired to challenge the proposed law if they were very eager to cash in on Michigan’s wine market. Otherwise they might choose to continue their current relationships with Michigan wholesalers and avoid the costs of a legal challenge. No opposition group has come forward voicing an intention to challenge the law.

For Michigan wineries, the changes in the law could be restrictive as well. Under previous regulations, there was no limit on the amount of wine a winery could sell in a given year. If the recently passed bills become law, Michigan wineries would be able to sell by direct shipment no more than 1,500 cases (18,000 bottles of 750-milliliter) per year. That shouldn’t be a problem, according to Kristyn Sorensen, a spokesperson for WineMichigan, a consortium of 42 Michigan wineries.

“This 1,500 cases was kind of an agreed-upon number that they worked toward. A California winery would probably tell you that it’s too restrictive. But St. Julian and our other large ones in the state would tell you that’s something they’re very comfortable with at this point,” she said. “In a perfect world there would be no limits on how much we could ship to a consumer or to a retailer, but these are livable limits.”

Sorensen said that several of the state’s larger wineries use wholesale distributors already, so the out-of-state wineries would not be at a competitive disadvantage to them. She said that she considers a legal challenge unlikely.

If the bills become law, wineries (including those in Michigan) would have to obtain a $100 “direct shipper license” before commencing sales to Michigan consumers. The direct shippers would be required to obtain proof of age from purchasers, such as a faxed copy of a driver’s license. The legislation provides for supervision and audit of direct shippers’ sales volume and age verification records. Those policing functions will be funded by a contribution equal to 55 percent of the fees generated by the direct-shipment program — paid to local law enforcement agencies throughout the state. An additional 3.5 percent of the fees will be contributed to alcoholism treatment and prevention programs.      

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