Analysis by Cole Boehler
In the jargon of the beverage alcohol business, Montana is a "control state" since the state itself "controls" spirit manufacture, wholesaling and retailing.
But it appears the controlled flow of the spirits importation pipeline into the state has sprung some serious leaks.
Recent research by the Century Council and the American Medical Association has confirmed that most of the liquor accessed by the underaged comes from sources other than licensed retailers.
Now, in part thanks to a recent U.S. Supreme Court decision, the focus may be shifting to internet alcohol sales.
In the wake of a May court ruling that forbids states from enacting laws that discriminate between in-state and out-of-state producers of wine for purposes of direct shipping to consumers, some authorities have speculated the direct shipping issue is in reality about all alcohol beverages including spirits and beer.
And it clearly is, as the Montana Tavern Times was recently able to order spirits from the internet with no age verification upon order or delivery, no evidence of licensure and no payment of any Montana taxes.
Prior to the court ruling, some states had allowed in-state wineries to ship directly to consumers while forbidding out-of-state vintners the same privilege, and some states had reciprocal agreements with other states to allow producers to ship directly to consumers between reciprocating states.
The court declared both practices discriminatory under the interstate commerce clause of the U.S. Constitution, while strongly reinforcing states' rights to fully regulate production, distribution, sales and consumption of beverage alcohol as guaranteed under the 21st Amendment which repealed Prohibition.
Since the ruling, new legislation and litigation dealing with direct shipping has been spawned in at least 13 states.
Those states arguing against direct shipping contended states needed to strictly control movement of alcohol, partly because of their need to keep alcohol away from the under-aged, but also to assure full tax collection.
Those championing shipping adult beverages directly to consumers--bypassing traditional state control mechanisms which utilize a three-tier system of producers, wholesalers and retailers--said neither allegation has merit; that shipping alcohol to minors and tax avoidance were specious issues. And the court, incredibly, failed to address either angle.
Montana, and likely an increasing number of other states, may be operating blindly on the "e-commerce" front.
At the Montana Tavern Times, we decided to test the validity of the respective positions.
Our questions were:
- Can an internet shopper buy not just wine, but other varieties of beverage alcohol?
- Is there an effective age-verification process in place used by internet alcohol retailers?
- Is there an age verification process in place at the point of delivery?
- And is there a tax reporting and collection mechanism in place?
The answers are yes, no, no, and no.
The first internet alcohol retail site we tried was WineGlobe of San Mateo, Calif. at
. This site advertises wine and a complete selection of spirits, but not beer, although during a subsequent interview, a store employee told us we could get beer too.
Spirits categories were: armagnac, brandy, cognac, gin, liqueurs, rum, single malt, tequila, whisky and vodka.
We were able with ease to order a 750 ml. bottle of Bacardi Gold by simply filling out name and address information, making our selection, providing credit card information, then clicking on an "age confirmation and shipping verification" button. Below that was a policy statement that read:
Age confirmation and shipping verification
Please read carefully.
By checking the "check box" and clicking the "continue" button and proceeding with your order, you agree that you have read and understand the following terms:
1.) You agree that you have read and understand the policies described on our shipping page. If this shipment does not contain alcohol, please disregard this message.
2.) By placing this order you agree that you are at least 21 years of age and that you are not otherwise legally prohibited from purchasing alcohol.
3.) If you are the recipient of this order, you certify that it is legal to ship alcohol into your state and county. If you are not the recipient of this order, you certify that it is legal to ship alcohol into the state and county of the intended recipient; and that the recipient of this shipment is at least 21 years of age and may legally possess alcohol.
4.) You understand that any misrepresentation of age or identity for purposes of illegally purchasing alcohol is a crime and that violators will be prosecuted to the fullest extent of the law.
5.) You acknowledge that title for your purchase transfers in state of origin. WineGlobe will then arrange for shipment on your behalf.
Further, the site provided this information:
How does WineGlobe know that I am of legal age?
You must be 21 years of age to order alcoholic beverages. Additionally, all shipments of alcoholic beverages within the United States require an adult' signature at the time of delivery. $2.75 additional cost of acquiring a signature is included in the cost of S/H. Of course, orders for non-alcoholic items (glassware, wine storage accessories, etc.) are not restricted to certain states and can be shipped throughout the United States.
What if I am not available to receive the package?
It is Customer' responsibility to be present at the time of delivery. If no one is available to receive the package, a subsequent attempt to deliver will be made. Whenever possible, we encourage you to use a commercial business address to assure the fastest delivery time. If subsequent attempts are unsuccessful, your order will be returned to Wine Globe. Customer will be required to incur the cost of shipping and handling, regardless of the Customer deciding to cancel the order.
I will take Full Responsibility. Will WineGlobe ship me wine?
Because of the widely variable and punitive laws controlling the shipment of wine in the United States, we have created this section to help you determine the restrictions and limitations that you may face when buying wine on-line--depending on who you are and where you are shipping to. Any wine sold to you through WineGlobe is sold in California and title passes to you, the buyer, in California. The buyer is solely responsible for the shipment of wine. We make no representations concerning your legal rights to ship or receive wine into any state outside California or any country outside the United States. In fact there are certain states and countries we cannot ship to. By placing this order, you authorize us to act on your behalf to engage a common carrier to deliver your order to your selected designation.
This psuedo-legal gobbledygook invariably refers to wine only, even though the company clearly ships spirits as well. And, of course, the policies are not adhered to.
We ordered our bottle of Bacardi Gold Aug. 9 by credit card and by simply clicking the age verification box. We provided no form of ID to verify actual age. On August 15, when we arrived at our residence for lunch, a FedEx package was on the porch near the door. No one had signed for anything, but there was our liquor.
Very quick, easy, simple and without the "hassle" of producing age verification or signing for a delivery or paying inconvenient taxes (actually, taxes probably were paid to California).
Incidentally, the bottle was almost $2 cheaper than the same bottle on a shelf at a liquor store in Butte, but with a $9.95 shipping and handling charge, the consumer would pay a substantial premium for using the internet.
So why, given the large cost disparity, would someone use the internet to order spirits?
Perhaps a consumer is confined to the home by disability or illness and cannot visit a store. Perhaps a purchaser wants to ship a special bottle to a distant friend as a gift.
Perhaps a purchaser is underage and is willing to pay the premium in order to avoid finding an adult to purchase the liquor, developing a high quality false identification, or shopping around to find an irresponsible retailer that is lax in checking IDs.
According to "B.J," a WineGlobe employee, a consumer might order on-line because he can find a greater selection there, or because service is superior (you can have it shipped "next day").
A recent study for the Pew internet and American Life Project confirms the popularity of the internet among teenagers.
According to the study, nine out of 10 teens are internet users and 51 percent go on-line every day. More importantly, almost half of all teens have made purchases on-line.
"Young people love the internet," said Michigan State Representative Rick Jones, a former county sheriff co-sponsoring legislation in that state that would ban direct shipment to Michigan consumers. "It' too easy," he said.
Unfortunately, this embrace of the internet by young people does have some troubling side effects. internet alcohol stings have consistently found that the under-aged can easily access illegal alcohol.
We contacted Jason Wood, a liquor specialist at the Montana Department of Revenue.
He first told us spirits transactions conducted over the internet are illegal: illegal to order it, illegal to sell it and illegal to ship it. A seller may be punished by up to a $50,000 fine and the purchaser by up to a $2,500 fine.
State citizens are allowed to import by their personal conveyance up to three gallons of spirits at one time.
Beer and wine may be purchased legally over the internet, he said, if the consumer possesses a connoisseur' license issued by the department for $50. Purchases are to be reported and applicable taxes are to be paid to the state by the consumer. Allowable quantities are limited though generous.
The WineGlobe employee told the Tavern Times, after we clearly identified ourselves and explained we were working on a news story about direct shipping, that his company first checks state laws before shipping to a given jurisdiction to ascertain they are in compliance. After hearing Wood, it is apparent WineGlobe is not actually practicing what it preaches.
Further, we were told by WineGlobe, by clicking on the age verification button, a customer is thereby considered of-age and, in addition, the store may call to get verbal verification, which did not occur in our case. The employee said he didn't know if the store could verify age through receipt and use of a credit card number.
He didn't know where the state taxes were paid, but he assured us we didn't have to pay the Montana tax to him.
He said the delivery person would always get a signature and check an identification because the package clearly says on its exterior, ""adult signature required.' Otherwise, (it cannot be delivered) without that."
When it was pointed out that the package we received had no such markings, he said, "I don't know. We'll have to check that. Sometimes it happens. We have a new guy helping..."
The alcohol received by the Tavern Times was in an unmarked box. The shipping label said the package was from "Cole Boehler (Tavern Times publisher), 25 43rd Ave. San Mateo, CA," which is in fact the address for WineGlobe; the package was shipped to "Cole Boehler" at his home address. There was no exterior label information or markings to indicate the contents was liquid, a bottle or beverage alcohol.
When asked if his company was licensed to sell liquor in Montana, once more he was at a loss. "I don't know," he said, now quite anxious to get off the phone.
By way of clarification, when we first called WineGlobe, we spoke with a man with a thick east Asian accent. We asked to speak with the store manager. The person who then came on the line also spoke with a similar accent. The speaker may have had some difficulty in precisely understanding our questions and we often repeated or rephrased them; and we often asked the speaker to repeat himself when we experienced difficulty in deciphering the response.
Montana Tavern Association attorney and lobbyist Mark Staples said, "You know, every time we testify in support of "control state mechanisms,' someone pooh-poohs that, saying internet access is a myth. Well it' not. And I think we should have legislators see for themselves the dangers of untaxed, unregulated internet sales.
"It' insane," Staples continued, "that we are throwing 100s of thousands of taxpayer dollars at "stings' on licensees where so little of the under-age access is, when we have wide-open mail order and internet access.
"That' not to mention local authorities that turn their backs on "bring-your-own-booze' places which have no hours restrictions, are uninsured for alcohol liability, have no age limits or license fees and against which the state has no recourse like fines and license revocation," Staples said.
He concluded, "The alcohol control system is more warranted now than ever; it just needs to be actually controlled."
Wood said the department is focusing much of its tax enforcement attention and resources on stemming illegal tobacco sales and importation, as opposed to illegal alcohol shipping, justifiable since potential tobacco tax collections amount to six or seven times more than alcohol taxes.
Further, Wood said, enforcement would be a difficult proposition. The statute says any person providing alcohol to a minor is in violation. "Any person" could be construed as the seller or the delivery person, Wood said.
"You would have to show that the shipper knowingly delivered alcohol," he said.
Wood says he is unaware of any prosecutions for illegal direct shipping, but said he has heard of college students getting beer and wine through direct-shipping beer and wine clubs. Further, he said he is unaware of specific department policy meant to deal with internet ordering of spirits.
The department is cooperating with the attorney general' office to stem the flow of illegal untaxed tobacco by working with credit card companies and shipping companies to prohibit "knowing" purchases or shipping of tobacco.
"Alcohol is not as big a concern," Wood said, as there is more "public awareness on tobacco." Strict enforcement of tobacco laws is requisite under the Master Tobacco Settlement which brings $30 million annually into state coffers.
Wood also noted Montana has the fourth highest tobacco tax in the nation. There has been one arrest in northeastern Montana for illegal possession of 37 cartons of untaxed cigarettes.
There is plenty of anecdotal evidence that low-tax out-of-state tobacco is being illegally imported into the state. Recently a woman told this writer she buys cigarettes by the case from Georgia at about half of Montana' taxed retail prices.
This is not a story about WineGlobe; remember, it was the very first internet site we visited with the intent to purchase alcohol. Rather, this is about new challenges that arise for society and our regulators with the rise of new technologies.
While the internet has opened up a "Brave New World" to Montanans and consumers everywhere, it has also created the means to bypass traditional forms of regulation and taxation of any controlled substance including alcohol and tobacco.
Is the anarchy of the internet true progress? Can we truly control "controlled substances"? Though it is clear our traditional regulatory mechanisms have been outpaced by technology and are relatively archaic, perhaps even newer technology--and a new social resolve--will provide the answers.
Source: The Montana Tavern Times, Sept, 2005, published monthly by Continental Communications, 125 W. Granite St., Suite 102, Butte, MT 59701.