Lawmakers slow to resolve in-state, out-of-state shipping for wineries

Monopoly Money: The control of wine and spirits in Pennsylvania / Last of four parts


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NORTH EAST, Erie County -- The southern shores of Lake Erie provide a natural nursery for growing grapes.

During winter months, the lake's frozen waters act as an enormous ice cube, delaying the spring buds well into spring, after winter's last frosts.

In summer's heat, the lake's temperature will reach 85 degrees, so the breeze from the north continues to send mild air inland well after Pittsburghers have pulled their sweaters out of storage.

The grapes love it.

Nearly 40 years ago, Doug Moorhead was among the first grape growers in the area to take the first tentative steps into post-Prohibition winemaking. Today, there are a half dozen wineries near the Erie County shore.

"We're not known as a great wine region yet," said Mr. Moorhead. But his expression says it's only a matter of time. Presque Isle Wine Cellars, which Mr. Moorhead co-owns, has three of its wines offered at the five-star Le Bec-Fin restaurant in Philadelphia.

In all, Pennsylvania has about 120 wineries, with at least one in 41 of its 67 counties. Most are small operations, producing under 10,000 gallons yearly. A few, like Chaddsford Winery near Philadelphia, are major enterprises.

Together, Mr. Moorhead said, they represent $660 million in commercial activity.

But it could be Harrisburg legislators, and not the enterprising spirit of people like Mr. Moorhead, who determine the future success and growth of Pennsylvania wineries.

Two weeks ago, a bill was introduced that would require Pennsylvania wineries to send their direct shipment sales through the state store system.

For years, Pennsylvania has allowed Pennsylvania wineries to ship directly to Pennsylvania residents while requiring that California and other out of state wineries go through the state store system.

Then, in 2005, the U.S. Supreme Court ruled that states cannot discriminate against out-of-state wineries when it regulates direct sales. A few months later, a federal court in Philadelphia underscored that. In response, Pennsylvania's Legislature did ... nothing.

For nearly three years, Pennsylvania wineries have continued to ship directly in-state. Out-of-state wineries have not, out of fear they'd run afoul of state laws. For the same reason, Federal Express and UPS won't deliver their wine to private homes here.

"We've approached the PLCB on numerous occasions to ask what we needed to do to be in compliance with the judge's order," said Steve Gross, director of state relations for the Wine Institute (www.wineinstitute.org), a trade association for California wineries.

"The PLCB had for two years not answered that question. They said, 'We're waiting for the Legislature to deal with this.'"

The new bill is an attempt to do just that, says the legislator who introduced it.

"This bill is a vehicle to get the subject out there and move it along," said Rep. Paul Costa, D-Wilkins. "If we could get away with doing nothing, that would be great. But I don't think that's realistic."

The reluctance to act is because any change likely will not favor Pennsylvania wineries, although Mr. Costa and other legislators say they don't want to hurt the industry.

"The bottom line to the whole thing is that the court ordered that it has to be a level playing field," said State Rep. Robert Donatucci, D-Philadelphia, who chairs the liquor control committee.

While many specifics are still to be worked out, the bill would mean in-state Pennsylvania wine orders would be routed through a state store or distribution center. A state store employee may then deliver it to your home for an extra fee.

This would be available only to wineries that produce a limited amount of wine, with the limit set to include Pennsylvania wineries but exclude major out-of-state wineries.

Because of the need for a level playing field, the same process would be available for Pennsylvanians who want to order from limited wineries in other states.

In both cases, however, the purchase will carry the 18 percent Johnstown Flood Tax instituted in 1936, which doesn't currently apply to in-state wineries -- a change that Pennsylvania wineries fear could price their wines out of contention with inexpensive California wines.

While Pennsylvania could opt to open up direct shipping to everyone, that seems to have been ruled out.

"Whatever we do is definitely going through the system," said Mr. Donatucci, who believes that step is critical to ensure taxes get collected and that no liquor gets delivered to minors.

But Pennsylvania wineries see that extra step eating into their sales and, perhaps more importantly, the industry's potential.

"Internet and direct delivery sales is the one area where we have the greatest chance to grow," said John Kramb, owner of Adams County Winery and president of the Pennsylvania Winery Association.

Typically, direct shipping might account for about 10 percent of a Pennsylvania winery's sales. Hindering that would be a cost and an inconvenience to both wineries and their consumers, Mr. Kramb said.

Because of their location, Erie County wineries already deal with some aggravating regulations.

Lake Erie doesn't care about borders, and offers its bounty to all working within three miles of its southern shoreline.

State governments, however, do care. So Pennsylvania vintners cannot ship into New York, even if they could easily walk there, because our state prohibits New York wineries from shipping directly to consumers in Pennsylvania. For the same reason, Pennsylvania wineries are effectively barred from participating in New York wine festivals, many within two hours' drive.

Down the road from Mr. Moorhead, Nick and Kathy Mobilia operate Arrowhead Wine Cellars at their 200-plus acre fruit farm along Lake Erie that has produced sweet grapes for three generations, with a fourth already working the fields.

When the bottled grape juice market slumped a decade ago, they decided to start a vineyard and, after spending $65,000 on their first wine press, Arrowhead Wine Cellars was born.

Within three years, the winery was making money and today, three of its 20 lines of wine are available in 55 state-run Wine and Spirits stores throughout Western Pennsylvania.

But if tourists from nearby New York like a variety they tasted at Arrowhead last summer, they can't get a shipment for Christmas because Arrowhead doesn't have a limited wine license for New York, he said.

Now, if the bill currently in the House Liquor Control Committee becomes law, they won't be shipping directly to Pennsylvanians, either.

"How is that helping us?" asked Mrs. Mobilia.

Her husband agreed. "This just makes it hard on our customers, and they may go to a state store and buy someone else's wine," he said.

"If they're going to stop direct sales, the state should be mandated to handle all our wines."


Steve Twedt can be reached at stwedt@post-gazette.com or 412-263-1963.


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