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Out-of-state wine issue still on back burner
Thursday, May 31, 2007

It's been two years since the U.S. Supreme Court ruled that states allowing in-state wineries to ship their vintages directly to consumers must allow out-of-state wineries to do the same -- without creating additional handicaps for out-of-state businesses.

But the Pennsylvania Legislature doesn't seem to be any closer to overhauling the state's shipping laws to create a system that allows for direct shipments while making sure the state gets its cut of tax revenue.

"They don't know what they're going to do," said Joe Conti, the retired state lawmaker who was tapped to head the Pennsylvania Liquor Control Board this year.

They -- the Legislature and Gov. Ed Rendell -- have been pondering the matter since 2005. Because the buyers of Pennsylvania wines make up such a minority of overall wine consumers, and account for such a small percentage of the state's wine and spirits business, the issue isn't on the front burner in Harrisburg.

Instead, the respective House and Senate committees -- the Liquor Control Committee in the House, and the Law and Justice Committee in the Senate -- are dealing with beer-related issues: whether Sheetz and other convenience stores and supermarkets can sell beer to go, and whether distributors can sell 18-packs.

"We've never really come to a consensus on what to do" regarding the wine shipping issue, said Rep. Paul Costa, D-Wilkins, who sits on the House liquor committee. Mr. Costa endorsed a bill last session that would have required wineries interested in doing business here to receive a "direct wine shipper license" for a fee.

His name also appeared on a bill that would have charged the LCB with handling all in-state and interstate wine shipments.

"I thought I had support," he said.

He didn't.

So for now, in-state and out-of-state wineries are both free to ship to consumers, said Francis X. O'Brien, an attorney representing the Pennsylvania Winery Association. In either case, in-state or out, the winery must be in possession of a "limited winery" license, which applies to wineries that produce less than 200,000 gallons a year.

The rules emerged from a series of legal opinions that followed the Supreme Court decision. Pennsylvania law bars out-of-state wineries from shipping their products here, but a November 2005 federal court injunction effectively forbids Pennsylvania from enforcing that law, since it's unconstitutional. Earlier that month, the LCB banned all wine shipments to Pennsylvania consumers, but that ban was soon suspended by a Commonwealth Court ruling, prompted by a challenge from the wineries group.

The wineries aren't in a rush for a legislative solution.

"Right now, status quo is working for the in-state wineries," Mr. O'Brien said.

Rod Diaz, deputy chief counsel for the LCB, said the state is in compliance with the Supreme Court ruling and the federal court directive, and is awaiting any changes from Harrisburg.

Previously, Mr. Rendell had suggested legislation that would permit Pennsylvania consumers to order out-of-state wine as long as all wine, in-state and out-of-state, was subjected to an 18 percent tax. That proposal is in limbo, but still under consideration. The 18 percent tariff on out-of-state wines would mimic the 18 percent "Johnstown Flood Tax" that is applied to wine and spirits sold at Pennsylvania's 628 state stores. The governor, said spokesman Chuck Ardo, still supports direct shipment of wine from both in-state and out-of-state wineries; however, he believes it must be done without loss of revenue to the state.

The May 2005 Supreme Court decision in the case of Granholm v. Heald struck down laws in New York and Michigan, which gave in-state wineries "a competitive advantage over wineries located beyond the state's borders." That competitive advantage violates the Constitution's commerce clause, which gives only Congress the authority to regulate interstate commerce -- even though states have purview over matters related to liquor sales.

About half of the states allow some kind of direct wine shipping, but before the Granholm decision, many states, including Pennsylvania, tried to bolster in-state wineries by forcing out-of-state wineries to ship to state liquor stores. In-state wines, meanwhile, could be shipped directly to the customer's porch, bypassing tax collection, something Mr. Rendell wants to avoid.

First published on May 30, 2007 at 6:49 pm
Bill Toland can be reached at btoland@post-gazette.com or 412-263-2625.
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