A toast to wineries

Jun 01, 2005 9:30 PM  By

Vintners, rejoice: The U.S. Supreme Court ruled last month to strike down laws in Michigan and New York that banned out-of-state wineries from selling directly to customers — a decision that puts all wineries on an equal footing and could open up new markets for online liquor merchants. “The ruling does seem to indicate that the Supreme Court judges are a little more hip than we might have thought,” says attorney Sarah Hewitt, a partner with Brown Raysman Millstein Felder & Steiner in New York.

Hewitt says the Supreme Court’s decision shows that the judges are well aware of the importance of online commerce: “Their ruling indicates that online retail is not something that the Constitution should be stretched to curtail. It’s an exciting and interesting decision.”

It’s up to state legislatures, however, to decide how to implement the ruling. They can either allow all wineries to sell directly to customers or bar all merchants from doing so. “I would guess that sales should increase pretty dramatically,” says Hewitt. “Wineries that are mostly regional today get a chance to be national. People who have heard about the wine can now have it shipped to them. It broadens the channels of distribution for these wineries.” For small vintners in particular, the ruling could be a boon because these merchants can’t compete with big businesses unless they can sell online or allow visitors to their wineries to ship bottles home.

Inevitably, there’s controversy over the decision. For one thing, separate legislation is pending for an Internet sales tax, which if levied would create legal headaches for online wine merchants. “I would assume that the tax would be added to wine as for everything else,” Hewitt points out. She says that liquor wholesalers and distributors are concerned about online tax evasion, as well as about teens gaining unprecedented access to alcohol.

“A lot depends on what the states do,” says Hewitt. For example, New York and Michigan, the two states involved in the current case, have different intentions. In New York, Gov. George Pataki has been saying that New York should sell wine to all 50 states, because there is a growing wine industry in the state. Michigan, by contrast, will prohibit the sale of wine over the Internet because of fear of children buying cases of wine. Perhaps the wine lobby isn’t very big there. It will take a year or more for things to shake out.