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Online Alcohol Sales Challenge State Tax Laws
The Internet is wreaking havoc on the Prohibition-era tax structure that controls how alcohol is sold within states and throughout the country.
A federal court case challenging New York's ban on sales out-of-state vendors — by mail or the Internet — is a recent example of how vendors and consumers are challenging laws they say violate their First Amendment rights.
U.S. District Court Judge Richard Berman issued a decision earlier this month denying state officials' request to dismiss a case challenging the constitutionality of New York laws prohibiting out-of-state vendors from directly shipping wine or advertising to the state's residents.
"Technological advancements facilitate — as never before — the commerce between and among states...the Internet increasingly is responsible for direct sale and shipment of goods to consumers," Berman wrote.
Small wineries, wine consumers and commerce advocates are hailing the decision as one that could begin to break down the walls of direct shipping laws.
"This case involves protection of the commerce clause and gives to people who want to engage interstate commerce," said Miranda Perry, staff attorney for the Institute For Justice which filed the case on behalf of wineries in February. "It's even more important than before the courts uphold that protection."
But an attorney representing defendants such as wine wholesalers and retailers said the development of the Internet has not altered the Constitution.
"The advent of the Internet hasn't amended the Constitution in any way, shape or form," said attorney Randy Mastro.
Out-of-state wineries argue that New York's law violates the Commerce Clause, as well as several other portions of the Constitution. Vintners Juanita Swedenburg of Virginia, David Lucas of California and three New York residents who want to buy wine from Swedenburg and Lucas say that since New York is the second largest wine market after California, small, out-of-state wineries are being shut out of competition and consumers' choices are reduced.
"It's extremely critical for small and growing wineries that don't have a presence on retail shelf space and don't have adequate distribution relationships," said Paul Kronenberg, executive director of Family Winemakers of California."To have access to markets currently closed because of state laws, whether it's by phone, or mail order, or, in this current age of technology, the Internet, which is just another ordering mechanism — it would give New York consumers a greater choice in the wine they're able to buy."
Direct shipping via the mail or the Internet also raises a number of tax issues. Federal and state lawmakers are in the midst of determining how or whether online goods and services should be taxed, and Prohibition-era alcohol taxes complicate the issue in the case of alcohol sold online. But some wineries argue that if reciprocal deals are made between states, those tax issues can be resolved.
Governments "blow the smoke screen up on tax issues — which is a big issue for the states," Lucas, owner of Lucas Wineries in California.
Lucas said reciprocal commerce relationships, such as the one California has with Oregon, allows products to be shipped between states as long there is a working business relationship. If these relationships can be made between state governments, consumer choice would be enhanced and policymakers could establish a fair tax system so that everyone benefits, he added.
"They could actually get a whole bunch of tax revenue, where as now, they're just missing out on it entirely," the Institute for Justice's Perry said.
The New York State Liquor Authority said it would not comment on a pending case.
Mastro said the current state regulations ensure accountability, proper tax collection and the prohibition of the sale of alcohol to minors.
"There are many impending reasons why alcohol should not be shipped at the click of the mouse or the dial of the telephone," he said. "Use of the Internet functionally permits parties to evade those compelling state regulations."
More wineries would use the Internet if regulations were more lax and if random sting operations weren't set up to "catch" wineries in the act of shipping to states with anti-direct shipping laws, Lucas said.
"It's too risky" right now," Lucas said.
Bans similar to New York's exist in 29 other states. States such as Florida, Georgia, Indiana, Kentucky, Maryland, North Carolina and Tennessee make direct shipping transactions a felony. There are some cases that, like the one in New York, that are challenging these laws, many of which were established following Prohibition. But Perry said the laws that gave states more authority to regulate commerce did not give them the right to erect trade barriers.
Final decisions are still pending in cases in Texas, Illinois and Indiana — all cases in which judges ruled in favor of the plaintiffs challenging the state laws.
On a federal level, policymakers have tried to strengthen laws to allow states to more effectively prosecute out-of-state vendors for violating state direct shipping laws. Rep. Robert Ehrlich, R-MD, introduced a bill last year to further enforce state statutes in federal court. Ehrlich's bill, H.R. 1063, died in committee but was geared to amend the Webb-Kenyon Act — a 1913 law that, in conjunction with the 21st Amendment, carved out an exception to the Commerce Clause and gave states the power to regulate alcohol traffic within its borders. A similar measure in the Senate was attached to a juvenile justice bill that is stalled in a House-Senate conference.
California Governor Launches Egovernment
California Gov. Gray Davis, D, detailed his "eGovernment" initiative last week in an effort to guide the state in the new economy.
Davis said the plan would "use the power of technologies to bring people and business closer to state government."
His plan includes: an executive order calling for a director of e-government, a new push for state agencies and departments to allow residents to receive services online, and a new portal for state government that offers a one-stop access point for state government information and services. It also includes a plan to establish a Governor's eGovernment Business Advisory Council composed of the state's leading high-tech firms to advise Davis on e-government policy, as well as a measure evaluate investments into the Technology Innovation Fund to fast help bring new Web and electronic services to citizens.
On Tuesday, Davis signed S.B. 1635, sponsored by state Sen. Adam Schiff, D-Burbank, which requires the State Department of Veterans Affairs to establish and maintain an online statewide registry of veterans' memorials, providing the location and condition of each memorial.
- by Liza Porteus
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