Wine bottles. (Richard Vogelsong for the Virginia Mercury)
The Virginia Court of Appeals ruled Tuesday that wine shippers who buy wine from different wineries that then box and ship orders on to Virginia customers must get a state license for every location involved in the chain.
The decision overturns an earlier ruling by Richmond Circuit Court that found California-based company VinoShipper only needed a state license for its home office.
VinoShipper engages in what’s known as drop-shipping — a practice where a company doesn’t keep inventory in its own warehouse but instead contracts with third parties to fulfill orders.
In VinoShipper’s case, when customers buy wine through the company’s website, it verifies they are 21 or older and that their order doesn’t violate any state laws governing how much wine can be shipped to them. (Virginia law only authorizes wine shippers to send a Virginian up to two cases of wine per month.) It then buys the selected wine from the winery, sends it a shipping label and a state-required notice that someone 21 or older must receive the delivery and directs UPS to pick up the shipment from the winery and deliver it to the customer.
Following “inquiries from other licensees” about VinoShipper’s business model, ABC has argued that because state law requires shippers to obtain a separate license for “each separate place” where business occurs, VinoShipper must get licenses for every place that selects, boxes and transfers packages to UPS on its behalf.
VinoShipper, however, contended shipping is a “process” rather than a single act.
The company “insists that the only legally significant step in that process is when VinoShipper tells UPS to pick up the shipment from the winery for delivery to the customer in Virginia,” the appeals court Judge Stuart A. Raphael wrote. “And because VinoShipper directs that activity (and all other activities) from its office in Windsor, California, it says that the ‘shipping’ takes place there and there alone.”
The court rejected that argument Tuesday, ruling the company was violating state law.
“Shipping,” Raphael wrote, includes “(1) receiving the customer’s order; (2) purchasing the wine from the wineries; (3) selecting and packing the wine in boxes for shipment; (4) affixing the shipping and over-21 labels; and (5) tendering the package to UPS for delivery to the customer.”
“That VinoShipper delegates the third, fourth, and fifth steps to the wineries does not mean that VinoShipper does not perform those essential selling and shipping functions; it just does them through entities without their own Virginia license, using those entities’ employees,” he continued.
While Raphael noted VinoShipper “may have developed an innovative and efficient wine-shipping model that is ideal for a ‘just-in-time digital economy,’” he concluded “that model does not currently comply with Virginia law.”
“The General Assembly has amended the ABC Act to account for technological innovations,” he said. “Whether the ABC Act should be amended again to accommodate VinoShipper’s business model is the General Assembly’s choice, not ours.”
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