California spirits DTC bill heads for showdown

Should distilleries be allowed to ship directly to consumers in California? Proponents and detractors of direct shipping will present their cases to the California Senate Governmental Organization Committee on Tuesday, January 11, 2022, in a hearing for Senate Bill 620. It could be a charged event.

There’s strong opposition to opening direct-to-consumer (DTC) shipping to distilleries: The Wine and Spirits Wholesalers of California has even developed a microsite “to fight direct-to-consumer spirits shipping.” But some distilleries are already making DTC shipments in California under a COVID-19 relief provision set back in March 2020. Although most COVID-19 relief provisions related to beverage alcohol were allowed to expire December 31, 2021, Governor Gavin Newsom extended the relief for distillers with Type-74 licenses (craft distillers manufacturing up to 150,000 gallons of distilled spirits per fiscal year) through March 31, 2022.

As the countdown to March 31 advances, the next move belongs to the California Legislature — starting with the Senate Governmental Organization Committee at the January 11 hearing.

The enactment of SB 620 would allow distillers of any size from any location (i.e., inside or outside of California) to apply for a direct shipper permit. The measure doesn’t limit DTC privileges to Type-74 licensees, as did the emergency provision.

This would open up an enormous market for distilleries, which currently can ship into six states, plus Washington, D.C. According to Jeff Carroll, general manager of beverage alcohol at Avalara, “Even though it will take a long time for distilleries to get parity with wineries, they could get a lot of traction by adding the big four DTC states of California, Florida, New York, and Texas.” And California often serves as a bellwether.

As detailed in SB 620, a distillery seeking a distilled spirits direct shipper permit would have to file an application with the California Department of Alcoholic Beverage Control (ABC), pay the application fee (if not currently licensed by the department), give the department its current California alcoholic beverage license (or a true copy of an alcoholic beverage license issued by another state), and obtain a seller’s permit or register with the State Board of Equalization.

That distillery would then need to comply with California’s direct shipping requirements, such as labeling shipments with “CONTAINS ALCOHOL: SIGNATURE OF PERSON AGE 21 YEARS OR OLDER REQUIRED FOR DELIVERY.” Additional proposed requirements are explained in the text of the bill.

SB 620 would also create a direct shipper permit for beer manufacturers, with “an analogous set of obligations and rights for the direct shipping of beer as those described … in connection with the direct shipping of distilled spirits.” This is good news for breweries, which can only ship to about 17% of the U.S. population today (read more about the state of beer DTC).

It should be noted that SB 620 failed to pass last year, and there’s no guarantee it will win the support of the Legislature in 2022. The fierce opposition to opening the DTC market to spirits and beer is fueled in part by the fact that other states will likely follow California’s lead. California was one of the first states to allow DTC shipments of wine, and today, most states do the same.

In a separate but related issue, temporary COVID-19 relief provisions authorizing to-go sales of alcoholic beverages in California expired December 31, 2021. However, new provisions authorizing alcohol to go took effect January 1, 2022. 

The now-expired relief measures generally enabled any on-sale licensee to sell alcohol to go. With the enactment of Senate Bill 389, the following businesses are permitted to make to-go sales of alcoholic beverages that are in manufacturer-prepackaged containers as of January 1, 2022:

• Licensed craft distillers that operate a bona fide public eating place at their production premises

• Licensed beer manufacturers that operate a bona fide public eating place at their production premises

• Licensed wine manufacturers that operate a bona fide public eating place at their production premises

• The holder of an on-sale license for a bona fide public eating place that has off-sale privileges

This, too, is a temporary provision; it will sunset January 1, 2027. 

To learn more about the forces shaping beverage alcohol tax compliance throughout the U.S., see the beverage alcohol section of Avalara Tax Changes 2022.