Although New York touted its efforts last fall to promote the sales of locally-made beers, wines and liquors, the New York State Liquor Authority recently handed down a declaratory ruling restricting third-party sales of wine online.
Our Manhattan liquor license attorneys recognize that this creates a conundrum for many wine retailers in the state. The rules of compliance for liquor store Internet wine sales are somewhat confusing, and even the SLA has said it needs to provide further guidance on the issue.
Declaratory Ruling 2013-01006A holds that online sales of wine through a third party advertiser is a platform of sale that encourages something known as “availing” under NYC ABC Law 111. This law says that a liquor license issued to one party is not transferable to another person or to any other premises except at the discretion of the SLA. It is available only to the person specified therein. To do otherwise is to “avail” your license to someone else.
The question before the SLA came from a company that was seeking guidance on the issue of its third-party wine sales. The company was hoping to get approval from the agency on its business model, which involved retailers, wholesalers, warehousers and fulfillment companies that are licensed by the state to sell their wine through internet advertisers that do not have a license.
The company indicated the retailer would have access to the unlicensed advertisers website in order to display products and conduct sales to consumers across the country and possibly internationally. The firm said the retailer would have the authority to either accept or reject the order and then upon that acceptance, the licensed retailer would fulfill the order. The third-party advertiser would then get a cut of the sale.
In denying the firm’s request for approval, the SLA took a close look at the relationship between the licensed retailer and the unlicensed advertiser. The agency conducted an independent investigation of the practice and procedures used by participants in similar arrangements throughout the state. What they found was that the role of the licensed retailer in the process was “passive.”
For example, in order to approve an order, the retailer did nothing. Not rejecting the order within a certain time frame was deemed approval. In some cases, retailers would respond with a simple “yes” to the order, but none were actually rejected.
Even when the third-party advertiser was charged a bottle fee, it had virtually no effect on the amount the retailer collected from each sale.
Because of the lack of active role played by the licensed party, the SLA concluded that the practice, if not availing outright, significantly encouraged it.
But the door isn’t closed completely. The SLA acknowledged that Internet wine sales are part of a trend that is not expected to fade. For this reason, the agency said it intended to further study the issue and at some point submit more comprehensive guidance on the matter.
In the meantime, the SLA said it’s important for licensed parties to maintain “complete control” over all sales made using its license. It has to be responsible for the determination of which products will be sold when and at what price and it’s got to actively decide whether it will reject or accept a sale. Unlicensed third parties shouldn’t be compensated based on a portion of the sales made.
For help in determining if your business model regarding online beer and wine sales meet the compliance standards of the SLA, contact the Wright Law Firm.
The Wright Law Firm is a business law firm located in Midtown Manhattan. Call (212) 619-1500 for a confidential consultation.
Declaratory Ruling 2013-01006A, April 9, 2013, State of New York: Liquor Authority