1. March 11, 2014 Licensing and Regulating Internet Retailing in Virginia J. Neal Insley, Esq. Presented by:

2. Virginia’s definition of internet wine retailer §4.1-100 – Definitions- "Internet wine retailer" means a person who owns or operates an establishment with adequate inventory, shelving, and storage facilities, where, in consideration of payment, internet or telephone orders are taken and shipped directly to consumers and which establishment is not a retail store open to the public.

3. Virginia’s definition of “sale and sell.” §4.1-100 – Definitions- "Sale" and "sell" includes soliciting or receiving an order for; keeping, offering or exposing for sale; peddling, exchanging or bartering; or delivering otherwise than gratuitously, by any means, alcoholic beverages.

4. Virginia’s Internet wine retailer license § 4.1-207. Wine licenses. The Board may grant the following licenses relating to wine: *** “Internet wine retailer license, which shall authorize persons located within or outside the Commonwealth to sell and ship wine, in accordance with § 4.1-209.1 and Board regulations, in closed containers to persons in the Commonwealth to whom wine may be lawfully sold for off-premises consumption. Such licensee shall not be required to comply with the monthly food sale requirement established by Board regulations.” Sounds pretty good right? But wait, there’s more… a lot more!

5. Breaking down § 4.1-209.1. A through G § 4.1-209.1. Direct shipment of wine and beer; shipper's license (A). A licensed shipper “may sell and ship not more than two cases of wine per month nor more than two cases of beer per month to any person in Virginia to whom alcoholic beverages may be lawfully sold.” All sales have to be for personal consumption.

6. Breaking down § 4.1-209.1. A through G § 4.1-209.1. Direct shipment of wine and beer; shipper's license (B). Summery: This subsection states that if an applicant does not “own or have the right to control the distribution of the brands of wine, farm wine, or beer identified in such person's application”. A shippers license may still be issued “if the applicant has obtained and filed with its application… the written consent of either (i) the winery, farm winery, or brewery whose brands of wine, farm wine, or beer are identified therein or (ii) any wholesale distributor authorized to distribute the wine or beer produced by the winery, farm winery or brewery…” The owner of the brand “shall not be restricted by any provision of this section from withdrawing such authorization at any time…”

7. Breaking down § 4.1-209.1. A through G § 4.1-209.1. Direct shipment of wine and beer; shipper's license (C). This subsection prescribes that the direct shipment of beer and wine by shippers licensed under this code section “shall be by approved common carrier only.” It also instructs the ABC Board to “develop regulations pursuant to which common carriers may apply for approval…” This includes: age verification, recipient's signature and production of records. This subsection also requires the package be labeled as to it’s alcoholic beverage contents and places the burden upon the common carrier not to sell to underage.

8. Breaking down § 4.1-209.1. A through G § 4.1-209.1. Direct shipment of wine and beer; shipper's license (D). “For purposes of §§ 4.1-234 and 4.1-236 and Chapter 6 (§ 58.1-600 et seq.) of Title 58.1, each shipment of wine or beer by a wine shipper licensee or a beer shipper licensee shall constitute a sale in Virginia.” i.e. Render unto Caesar, what is Caesar’s. Who pays the taxes!

9. Breaking down § 4.1-209.1. A through G § 4.1-209.1. Direct shipment of wine and beer; shipper's license (E). Wine of the month club. The gift that keeps on giving the whole year. “[A]n agreement between an in-state or out-of-state holder of a wine shipper license or beer shipper license and a consumer in Virginia to whom alcoholic beverages may be lawfully sold that the shipper will sell and ship to the consumer and the consumer will purchase a lawful amount of wine or beer each month for an agreed term of months.”

10. Breaking down § 4.1-209.1. A through G § 4.1-209.1. Direct shipment of wine and beer; shipper's license (F). Subsection (F) states that a licensed wine shipper may have “use of the services of an approved fulfillment warehouse.” It further defines a fulfillment warehouse as “a business operating a warehouse and providing storage, packaging, and shipping services to wineries or breweries.”

11. Breaking down § 4.1-209.1. A through G § 4.1-209.1. Direct shipment of wine and beer; shipper's license (G). Subsection (G) allows holders of a shippers license to use a marketing portal. A marketing portal is defined as “a business organized as an agricultural cooperative association under the laws of a state, soliciting and receiving orders for wine or beer and accepting and processing payment of such orders as the agent of a licensed wine or beer shipper.” The main piece of this legislation is that it requires the marketing portal to prove that it is “appropriately organized as an agricultural cooperative association and licensed for the services to be provided by the state in which its place of business is located…” It also requires record keeping, and a written contract designating the marketing portal as the agent of the shipper.

12. Further Defining - 3VAC5-70-220 (A) (B) (C) & (D) As required in § 4.1-209.1 ABC regulation 3VAC5-70-220 further defines the requirements as provided in Code. Subsection (A) provides more detail as to the application process and brand registry. (B) Discusses the requirements to notify the Wholesaler of the brands to be shipped. (C) Allows shipper's or Internet wine retailer's to add or delete brands to be shipped. (D) Provides the details on how a brand owner “may withdraw such consent by a dated letter to the affected wine or beer shipper's licensee or Internet wine retailer's licensee.”

13. Further Defining Code- 3VAC5-70-220 (E) Subsection (E) of the regulation requires shippers and internet wine retailers to keep records for two years, “of all shipments made under the privileges of such licenses…” This includes the following information for each shipment: 1. Number of containers shipped; 2. Volume of each container shipped; 3. Brand of each container shipped; 4. Names and addresses of recipients; and 5. Price charged. “The records required by this subsection shall be made available for inspection and copying by any member of the board or its special agents upon request.”

14. Further Defining Code- 3VAC5-70-220 (F) Subsection (F) provides that anyone licensed under this provision of the code shall file on or before the 15 th day of each month “with the Supervisor, Tax Management Section… a report of activity for the previous calendar month.” This report shall include: 1. Whether any shipments were made during the month; and 2. If shipments were made, the following information for each shipment: a. Number of containers shipped; b. Volume of each container shipped; c. Brand of each container shipped; d. Names and addresses of recipients; and e. Price charged. Unless otherwise paid, payment of the appropriate beer or wine tax shall accompany each report.

15. Further Defining Code- 3VAC5-70-220 (G) Subsection (G) requires that all shipments by licensees, licensed under this code, shall be done by “approved common carrier only…” This section of the regulation further defines the qualifications of a common carrier, the reporting requirements of the common carrier and the grounds for which the Board may revoke or suspend the permit of a common carrier.

16. Further Defining Code- 3VAC5-70-220 (H) Subsection (H) deals with the delivery or attempted delivery of wine or beer by a common carrier and requires that: 1. The recipient to demonstrate, upon delivery, that he is at least 21 years of age; and 2. The recipient to sign an electronic or paper form or other acknowledgement of receipt that allows the maintenance of the records required by this section. The regulation mirrors the code requirement for age verification and package labeling (I.D. as A/B).

17. Further Defining Code- 3VAC5-70-220(I) Approved common carriers shall maintain for two years complete and accurate records of all shipments of wine or beer received from and delivered for wine or beer shipper's licensees, or Internet wine retailer's licensees, including for each shipment: 1. Date of shipment and delivery; 2. Number of items shipped and delivered; 3. Weight of items shipped and delivered; 4. Acknowledgement signed by recipient; and 5. Names and addresses of shippers and recipients.

18. Further Defining Code- 3VAC5-70-220(J) Subsection (J) requires that a licensed common carrier shall file on or before the 15 th day of each January, April, July, and October “with the Supervisor, Tax Management Section… a report of activity for the previous calendar quater.” This report shall include: 1. Whether any shipments were delivered during the quarter; and 2. If shipments were made, the following information for each shipment: a. Dates of each delivery; and b. Names and address of shippers and recipients for each delivery.

19. Feeling Fulfillment Yet? The Virginia the General Assembly adopted a fulfillment warehouse and marketing portal structure to address the modern business practice while maintaining the integrity of the three tier system. The Code and regulation does address many enforcement concerns a state might have in regulating the activities of out of state licensees and third party sales such as, licensing, reports and sale to underage. However…

20. Feeling Fulfillment Yet? Because of the tight three tier structure in Virginia, the Code and subsequent regulation has made the practice pretty restrictive i.e. the agricultural cooperative requirement. So, currently, the real effect of this license is not known, because we do not have any licensed in Virginia… Yet... Any takers?

21. All Fulfilled? Questions/Comments? J. Neal Insley, Esq. (804) 788-7756 | ninsley@eckertseamans.com