FTC Staff: Proposed Florida Legislation to Allow Interstate Direct Shipping Would Benefit Consumers and Competition, Lead to More Variety and Lower Prices

Staff of the Federal Trade Commission’s Office of Policy Planning, along with its Bureaus of Competition, Consumer Protection, and Economics, have filed comments with Florida State Senator Paula Dockery at her request regarding Senate Bill (SB) 282, which would allow residents to buy wine directly from manufacturers both inside and outside the state. While the comments state that the bill as drafted would benefit both consumers and competition, the staff cautions that a proposed amendment to the legislation that would limit direct shipping by larger wine producers likely would significantly reduce these benefits.

Florida SB 282 would allow direct wine shipping to the state’s consumers from manufacturers both inside and outside of the state, if certain requirements are met. It would require winemakers to comply with regulations designed to prevent shipments to underage consumers and to allow Florida to collect taxes on direct shipments. The proposed legislation is designed to bring Florida into compliance with a May 2005 U.S. Supreme Court decision, Granholm v. Heald. In that case, the Court ruled that the laws of Michigan and New York that discriminated against out-of-state wine manufacturers and in favor of in-state manufacturers violated the Commerce Clause of the U.S. Constitution. An amendment to the bill currently being considered would prohibit direct shipping by manufacturers producing more than 250,000 gallons of wine per year.

“SB 282, as drafted, would give Florida wine consumers greater choices and lower prices,” said Maureen K. Ohlhausen, Director of the FTC’s Office of Policy Planning. “Amending the bill to prohibit direct shipping by the larger wineries would be a mistake.”

According to the staff’s comments, based on its extensive experience in analyzing the effects of bans on direct wine shipping, the proposed legislation:

• Likely would allow Florida consumers to purchase a greater variety of wines by substantially increasing the number of wine choices available to consumers. Through direct shipping, and particularly via the Internet, consumers can buy many wines that are not available in nearby bricks-and-mortar stores. It also allows for competition by smaller wineries that otherwise might not be able to distribute their wines effectively through state-mandated distribution systems.
  
  
• Likely would allow the state’s consumers to buy many wines at lower prices. Depending on a wine’s price, the quantity purchased, and the method of delivery, consumers can achieve substantial savings by buying online, according to the FTC’s 2002 study on online wine sales.
  
  
• Would allow Florida to satisfy its legitimate interest in preventing underage alcohol access without impeding competition or unduly burdening interstate commerce.
  
  
• Would allow Florida to collect taxes on direct wine shipments. In the FTC’s experience, states that permit interstate direct wine shipments generally report few or no problems with tax collection.

In concluding the comments, the staff wrote, “Based on our review, [we believe] that, if enacted, SB 282 would enhance consumer welfare and allow Florida to meet its other public policy goals.” The staff cautioned, however, that if the bill is amended to prohibit direct shipping by wineries that produce more than 250,000 gallons of wine a year, as is being considered, “such limitation likely would significantly reduce the benefits to competition and consumers that SB 282 otherwise would provide.”

The Commission vote to file the staff comments with Florida State Senator Dockery was 5-0. A copy of the comments can be found on the FTC’s Web site as a link to this press release