Direct Shipments of Alcoholic Beverages to Consumers are Illegal

The direct shipment of alcoholic beverages from outside the state to consumers in Maryland is a felony. These direct shipment alcohol purchases bypass Maryland's alcoholic beverage regulations and dodge state taxes. Direct shipment sales, especially Internet sales, also give underage drinkers with access to a credit card an easy way to obtain alcohol.

What constitutes a direct shipment?

This is alcohol that is shipped directly to consumers in Maryland, bypassing the state's legal distribution system. This nationwide problem is believed to have grown to be a $1 billion a year business, resulting in potential revenue loss of between $200 million and $400 million a year.

Direct shipment comes from the popular wine or beer clubs or from mail order catalogs. The vintage Cabernet a Maryland resident buys and has shipped home after touring an out-of-state winery is an example of a direct shipment. In recent years, it's just as likely to be alcohol purchased the high-tech way, over the Internet. In almost every case, it is illegal. Many consumers don't know that direct shipping is against the law, but there are good reasons why Maryland doesn't permit direct shipments to the consumer.

What are the penalties for the direct shipment of alcohol?

The violation is a felony punishable by a fine of up to $1,000 and/or imprisonment up to two years for the shipper of the product. The felony penalties do not apply to consumers. However, consumers face charges for possessing untaxed alcohol.

Why is it illegal?

A major problem with direct shipments is that minors can easily order alcohol. Using the Internet, teens only need access to a computer and a credit card to order alcohol. Direct shipments cost Maryland excise and sales tax revenue - taxes that consumers who buy at local stores must pay. This also puts the local Maryland merchant at a competitive disadvantage.

Finally, direct shipments bypass the time-tested system of regulating alcoholic beverages. Like most states, Maryland has a "three-tier" system of alcoholic beverage distribution under which suppliers, wineries, breweries and other manufacturers sell to licensed Maryland wholesalers, who in turn sell to licensed Maryland retailers, such as a local packaged goods store. The retailers, in turn, may sell or deliver to Maryland consumers within the political subdivision in which the retailer is licensed. Direct shipment of alcoholic beverages avoids the legal protections inherent in Maryland's "three-tier" system of suppliers, wholesalers, and retailers.

Is Maryland the only state to ban direct alcohol shipments?

No. Many states have similar laws, and the growth in direct shipments is a concern to regulators and tax administrators nationwide.

How can I legally purchase alcoholic beverages in Maryland?

A consumer may only obtain alcoholic beverages through a licensed Maryland retailer. With the exception of purchases from a Direct Wine Seller's Permit holder, as described below, all consumer purchases must be made from a retailer.

Effective July 1, 2002, the law was amended to allow Maryland consumers to purchase, under certain conditions, wine directly from out-of-state entities that hold Direct Wine Seller's Permits. While the sales transaction is between the consumer and the out-of-state permit holder, the product must physically flow through a licensed Maryland wholesaler and a licensed Maryland retailer.

The law imposes the following requirements and conditions upon the Maryland consumer. The consumer:

• Must be 21 years of age or older.
• Must only place an order with the holder of a Direct Wine Seller's permit.
• Must pay service charges to the Maryland wholesaler and Maryland retailer respectively.
• May not receive more than 108 liters in total from one or more holders of direct wine seller's permits in a given permit year.
• Must pay the Maryland Use Tax to the Comptroller of Maryland in accordance with Title 11 of the Tax-General Article.
• Must promptly pick up an order from the retailer upon notice.

What is the federal government doing about this problem?

Congress has enacted legislation to give states the right to go into federal court under the provisions of the Webb-Kenyon Act, which prohibits the shipment of alcoholic beverages where prohibited by state law. Maryland supported this legislation.

We will keep working to help Maryland consumers find the products they want. But, we must also continue to protect Maryland youth from products they shouldn't have, and assure all taxes due are paid.

For more information, contact:

MATT Regulatory Division
Room 310
Louis L. Goldstein Treasury Bldg.
P.O. Box 2999
Annapolis, MD 21404-2999

410-260-7314 from Central Maryland
1-888-784-0415 from elsewhere in Maryland
Monday - Friday, 8:00 a.m. - 5:00 p.m. EST.

E-mail: att@comp.state.md.us