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Thinking Out Loud…Is Compliance Killing Small Wineries?

A few weeks back I proposed a ‘modest proposal’ – a simple plan for all wineries to pay (yet another) excise tax on every gallon of wine produced in order to free up shipping direct to consumers in every state of the union.  The concept is simple — pay a tax up front to the Federal government for the Feds to disseminate funds to the individual states and eliminate all shipping barriers for wineries shipping to consumers. 

This may be simplistic, but the truth is that small wineries are getting eaten alive by compliance.  The ‘level playing field’ is anything but level.  As a small winery owner, I sincerely want to use the 3-tier system to sell my wines in every state of the union.  But with the proliferation of wineries and the consolidation of distributors, it is almost impossible to find a distributor to take you on, and even if you do, it is folly to think they will pay attention to your wines, and it is highly unlikely they will spend any quality time telling your story.  So you move to sell direct to the consumer, and you are saddled with permits, label registrations, price postings, sales tax collection & reporting, and a host of other duties.  All of these are quite understandable, but as a small winery, you simply don’t have the bandwidth to do it all.  As a result, you have to either hire an employee to carry out these responsibilities, or hire a compliance agency to take it all on for you.  And these services are hugely valuable, but they do have a cost associated with them, which in turn simply erodes already slim margins, and forces prices to the consumer up.

A flat ‘consumer direct’ excise tax paid up front to the government would:

  • give the government funds in advance of any sales rather than post sale
  • enable the government (both federal & state) to reduce bureaucratic spending (something I hear all political parties endorsing) allowing budgets to be reduced & saving taxpayers money
  • allow consumers in every state equal access to all wines giving the power of purchase directly in the hands of the consumer without restrictions
  • empower wineries without distribution the opportunity to freely tell their stories & sell their wines nation-wide

The simple truth is — the system is broken.  When the Granholm decision was handed down a few years ago, we all thought the field of play was being leveled.  But in fact, it has made doing business even more difficult, and will result in some wineries simply giving up and shutting down, ignoring the laws and cheat, or only do business in their own state.  In any case, we’ve made everything so much more complicated than it needs to be, and the consumer is getting a raw deal. 

I don’t know if my flat excise tax proposal is the solution — but I do know that it is an idea — and I haven’t heard of any other possible solutions being floated out there.  If you have heard of any, I’d welcome your comments.  And in this election year with both parties preaching ‘change’, I wonder if either side (there are just two, right?) really can.  

Judd Wallenbrock - Humanitas Founder

Judd Wallenbrock - Humanitas Founder

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  1. Matt Powell wrote:

    Although a great idea, the distributors will never allow a flat tax to overshadow the ability to distribute to the consumer (and to retain their margins). The wine lobby is very powerful which is why we still have a tier’d system. Sadly, the only real approach is consumer education on what they’re buying (i.e. 70% of store brands owned by a single corp) and the eventual hope that the consumer, themselves, will demand a change in business practices.

    Tuesday, November 4, 2008 at 10:23 am | Permalink
  2. Paul Mabray wrote:

    As a member of the wine industry I hope everyone else is watching the FDA case that talks about federal label approval superseding state approval – I think it will have wine industry implications.

    Tuesday, November 4, 2008 at 11:48 am | Permalink
  3. Judd wrote:

    Matt – I agree – this could be a bit Quixotic — but the discussion for solution has to start somewhere. I encourage you to pass this link on to your consumers to help in the education. It will take perhaps, somewhat of a ‘revolution’ of sorts. But again, I don’t cut out the distributor — even if they are cutting out the small winery — I’d even propose they take a % of that flat tax. Whatever it takes to eliminate the bureaucracy!

    Tuesday, November 4, 2008 at 12:13 pm | Permalink
  4. Judd wrote:


    I’d love to read more on this. Do you have some good links — or perhaps an opinion?

    Tuesday, November 4, 2008 at 12:13 pm | Permalink
  5. Paul Mabray wrote:

    It seems strange analogy but two regulated industries with both federal and state oversight that are often duplicate efforts inefficiently. Fascinating.

    Tuesday, November 4, 2008 at 12:17 pm | Permalink

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