States Seek to Curb Mail-Order Alcohol

As Utah's attempt to regulate industry fails, many worry about lost taxes, underage drinking.

Prohibition may have ended 64 years ago, but Charles Daw is still feeling its effects today.

On Monday, the shipments of wine that the North Carolina resident receives from California three times a year will become illegal. That's because the Tar Heel State is putting its foot down on mail-order alcohol.

Empowered by the 21st Amendment - which ended Prohibition and gave states the right to control alcoholic beverages within their borders - North Carolina, Utah, and 35 other states are getting tough on companies that send alcohol to people's front doors.

As the popularity of such programs grows, with customers ordering alcohol over the Internet and through newspapers and magazines, states are enacting new laws to control alcohol sales. It's an issue of money and public safety, they say, as millions of dollars in tax revenues are lost yearly and minors use the system to skirt age limits. But enacting laws aimed at curtailing this estimated $1 billion-a-year industry has been easier than enforcing them, and states are struggling to hold direct-mail companies accountable.

"There are a whole lot of people ignoring state laws," says James Goldberg, counsel for the Joint Committee of the States in Washington, a group comprising agencies that regulate alcohol. "Over the past couple years, we've become aware of what appears to be a growing illegal trafficking in alcoholic beverages."

Whose jurisdiction is it?

The challenge is catching violators of state laws and figuring out a way to prosecute them. For example, when Utah found that the Illinois-based mail-order club Beer Across America had sent 250 shipments to residents here - one to a 19-year-old boy - authorities charged the company with racketeering and tax evasion. But Friday, a Utah judge dismissed the criminal charges, saying that he couldn't rule on the case because it was out of his jurisdiction.

That has been the problem elsewhere as well. Florida state attorneys filed civil suits under the state's direct-mail shipping laws in both federal and state courts. In both cases, judges said they lacked jurisdiction.

To remedy this, Rep. Robert Earlich (R) of Maryland, has sponsored a bill in Congress that would give federal courts the jurisdiction to rule on such interstate mail-order cases. But his bill appears to be stuck in committee, and the chairman is calling for compromise. Experts say one of the compromises could mean that states can only go to court if they allow some form of direct shipping.

Currently, each state regulates alcohol shipments differently. Some states, like Utah, prohibit direct mail entirely. Others, like California, freely allow for direct mail between consenting states. The remaining states put restrictions on direct-mail shipping. In Louisiana, an individual customer can receive 60 bottles of wine a year.

The compromisers hold up Louisiana as a model, but Utah refuses to back down. "Ours is really a direct frontal assault on [mail-order companies'] existence," says Wayne Klein, Utah's assistant attorney general, who is planning to appeal Friday's decision. "If the courts uphold our ability to determine how liquor is controlled in the state, this whole mail-order industry will be severely restricted, and most will go out of business."

Feeling the sting

Indeed, some law-abiding companies are already feeling the sting of existing laws. Deborah Cahn, owner of the tiny Navarro Vineyards, which produces Mr. Daw's wine, keeps an Internet bookmark on the Wine Institute's legal page to keep up with changing regulations.

"I have shocked customers daily who ask me why I can't ship to their state," she says. Of all her Gerwurtraminer wines, 90 percent, or 25,000 cases, are shipped directly to customers - most in the 11 other states that allow mail orders. Without the Internet and the direct-mail business that comes from it, however, she says her company would fail.

So far, 20 states have prohibited the 1,400 US wineries from shipping direct, and four have made breaking their state law a felony. The issue has evoked impassioned arguments on subjects ranging from free enterprise to the societal value of sin taxes. But that's just the nature of the beast when you're dealing with a potentially harmful product, says Mr. Goldberg: "This is not a free-trade item like buying snow boots from L.L. Bean."

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