UNITED STATES OF AMERICA 

FEDERAL TRADE COMMISSION 

WASHINGTON, D.C. 20580 

Office of Policy Planning

Bureau of Competition

Bureau of Consumer Protection

Bureau of Economics

March 22, 2006 

The Honorable Eric D. Fingerhut

Ohio Senate Building

Room #049, Ground Floor

Columbus, OH 43215

Re: Comment on Proposed Direct Shipment Legislation 

Dear Senator Fingerhut: 

The staff of the Federal Trade Commission’s (“FTC” or “Commission”) Office of Policy 

Planning, Bureau of Competition, Bureau of Consumer Protection, and Bureau of Economics1 is 

pleased to respond to your invitation for comments on Ohio SB 179,2 which would allow the 

direct shipment of wine to Ohio consumers from manufacturers inside or outside of Ohio if 

certain requirements are met. 

We believe that, if enacted, the proposed legislation would enhance consumer welfare 

and allow Ohio to meet its other public policy goals. By allowing interstate direct shipping, SB 

179 likely would allow Ohio residents to purchase both a greater variety of wines and many 

wines at lower prices. In addition, by requiring manufacturers to comply with certain regulatory 

requirements, SB 179 would allow Ohio to prevent shipments to minors and to collect taxes on 

direct shipments. 

1 This letter expresses the views of the Federal Trade Commission’s Office of Policy Planning, Bureau of 

Competition, Bureau of Consumer Protection, and Bureau of Economics. The letter does not necessarily represent 

the views of the Federal Trade Commission or of any individual Commissioner. The Commission has, however, 

voted to authorize us to submit these comments. 

2 S.B. 179, 126th Gen. Assem., Reg. Sess. (Ohio 2005) (hereinafter referred to as “SB 179 ” or “the proposed 

legislation”). 
Senator Fingerhut 

March 22, 2006 

Page 2 of 11 

Interest and Experience of the FTC 

The FTC enforces laws prohibiting unfair methods of competition and unfair or deceptive 

acts or practices in or affecting commerce.3 Pursuant to this statutory mandate, the Commission 

seeks to identify and prevent, where possible, business practices and regulations that impede 

competition without offering countervailing benefits to consumers.4 The Commission and its 

staff have considerable experience in analyzing the competitive impact of regulations affecting 

the alcoholic beverage industry. For example, FTC staff has commented in the past on various 

restrictions on the vertical relationships between alcoholic beverage producers and wholesalers.5 

FTC staff also has extensively analyzed the effects of bans on direct wine shipping. In 

October 2002, the Commission held a workshop to evaluate possible anticompetitive barriers to 

e-commerce in wine and many other industries (“E-Commerce Workshop”).6 At the workshop, 

FTC staff heard testimony from several parties with divergent interests, including wineries, 

wholesalers, and state regulators. The staff also gathered evidence from package delivery 

companies, the Alcohol and Tobacco Tax and Trade Bureau (“TTB”),7 and regulators in states 

that allow direct shipping. In addition, as discussed in more detail below, FTC staff conducted 

the first empirical study of a wine market in a state that banned interstate direct shipping. In July 

2003, FTC staff issued a comprehensive report on the competitive effects of bans on direct 

shipments of wine (“FTC Wine Report”),8 and in October 2003, the staff testified at a related 

3 Federal Trade Commission Act, 15 U.S.C. § 45. 

4 Specific statutory authority for the FTC’s competition advocacy program is found in Section 6 of the FTC 

Act, under which Congress authorized the FTC “[t]o gather and compile information concerning, and to investigate 

from time to time the organization, business, conduct, practices, and management of any person, partnership, or 

corporation engaged in or whose business affects commerce,” and “[t]o make public from time to time such portions 

of the information obtained by it hereunder as are in the public interest.” Id. § 46(a), (f). 

5 See, e.g., Letter from FTC Staff to Ohio State Rep. Bill Seitz (Dec. 12, 2005), at 

http://www.ftc.gov/os/2005/12/051212cmntohiolegiswinefranchis.pdf; Letter from FTC Staff to Cal. State Sen. 

Wesley Chesbro (Aug. 24, 2005), at http://www.ftc.gov/os/2005/08/050826beerfranchiseact.pdf; Letter from 

Chicago Regional Office to Ill. State Sen. Dan Cronin (Mar. 31, 1999), at http://www.ftc.gov/be/v990005.htm; 

Letter from Atlanta Regional Office to North Carolina State Sen. Hamilton C. Horton, Jr. (Mar. 22, 1999), at 

http://www.ftc.gov/be/v990003.htm; Statement of Phoebe Morse, Dir., Boston Regional Office to the Mass. 

Alcoholic Beverages Control Comm’n (June 26, 1996), at http://www.ftc.gov/be/v960012.htm. 

6 Public Workshop: Possible Anticompetitive Efforts to Restrict Competition on the Internet, 67 Fed. Reg. 

48,472 (July 24, 2002). The workshop’s homepage is at 

http://www.ftc.gov/opp/ecommerce/anticompetitive/index.htm. 

7 The TTB was formerly known as the Bureau of Alcohol, Tobacco, and Firearms. 

8 

http://www.ftc.gov/os/2003/07/winereport2.pdf. A copy of this report is enclosed herewith. 

P OSSIBLE ANTICOMPETITIVE BARRIERS TO E-COMM ERCE : W INE , FTC S TAFF REPORT (2003) , at 
Senator Fingerhut 

March 22, 2006 

Page 3 of 11 

congressional hearing.9 In 2004, FTC staff commented on proposed New York legislation 

involving the direct shipment of wine.10 

The Proposed Legislation 

Ohio law currently places several restrictions on the ability of its consumers to purchase 

wine directly from out-of-state manufacturers. First, consumers must obtain prior consent for 

such purchases from the Ohio Division of Liquor Control.11 Second, consumers must pay all 

relevant taxes to the state at the time that such consent is requested.12 Third, purchases from outof-state wine manufacturers are limited to fifteen gallons per family household per three-month 

period.13 Finally, consumers are prohibited from purchasing any out-of-state wine that Ohio 

retailers currently are licensed to sell.14 

The United States Supreme Court decision in Granholm v. Heald,

15 issued on May 16, 

2005, held that the laws of Michigan and New York that discriminated against out-of-state wine 

manufacturers and in favor of in-state wine manufacturers in the sale and shipping of wine within 

those states violated the Commerce Clause of the United States Constitution. Shortly thereafter, 

a settlement was reached in litigation challenging Ohio’s direct-shipment restrictions.16 As a 

result of that settlement, and until a legislative amendment or appropriate rule change is effected, 

Ohio consumers may purchase wine directly from out-of-state manufacturers.17 

The proposed legislation, which is designed to bring Ohio law into compliance with the 

Granholm decision, would allow the direct shipment of wine to Ohio consumers from 

9 See Prepared Statement of the FTC Concerning “E-Commerce: The Case of Online Wine Sales and Direct 

Shipment,” Before the Subcommittee on Commerce, Trade, and Consumer Protection of the Committee on Energy 

and Commerce, United States House of Representatives (Oct. 30, 2003), at 

http://www.ftc.gov/os/2003/10/031030ecommercewine.htm. 

10 Letter from FTC Staff to New York State Rep. William Magee et al. (Mar. 29, 2004) (“New York Letter”), 

at http://www.ftc.gov/be/v040012.pdf. 

11 OHIO REV. CODE § 4303.25; OHIO ADMIN. CODE 4301:1-1-22(A), (C). 

12 Id. at 4301:1-1-23(A)(4). 

13 Id. at (A)(5). 

14 Id. at (A)(3). 

15 125 S. Ct. 1885, 1907 (2005). 

16 See Stahl v. Taft, No. 2:03cv00597 (S.D. Ohio July 19, 2005) (agreed order and injunction). 

17 See Ohio Division of Liquor Control Web site, at http://www.liquorcontrol.ohio.gov/DirectShipping.htm 

(providing relevant information and required tax form). 
Senator Fingerhut 

March 22, 2006 

Page 4 of 11 

manufacturers inside or outside of Ohio if certain requirements are met. First, any manufacturer 

that ships directly to Ohio consumers must have a valid license or permit in at least one state for 

the manufacture and sale of wine.18 Second, the individual ordering the wine to be delivered 

must be at least twenty-one years of age and personally sign a document acknowledging the 

wine’s receipt at time of delivery.19 Finally, the manufacturer must either collect from the 

consumer and pay all applicable taxes or notify the consumer that he or she is liable for the 

payment of such taxes.20 Any violation of these requirements would be a first-degree 

misdemeanor.21 

Competitive Effects of the Proposed Legislation 

Based on extensive research in the area of direct shipping, FTC staff believes that the 

proposed legislation would enhance consumer welfare. By allowing interstate direct shipping, 

SB 179 likely would allow Ohio residents to purchase a greater variety of wines, as well as many 

wines at lower prices. In addition, SB 179 would allow Ohio to meet its other policy goals. 

States that have addressed the direct shipping issue typically cite underage drinking and tax 

collection as the primary concerns raised by direct shipping. By requiring manufacturers to 

comply with certain regulatory requirements, SB 179 would allow Ohio to prevent shipments to 

minors and to collect taxes on direct shipments. 

A. The Proposed Legislation Likely Would Allow Ohio Consumers to Purchase 

a Greater Variety of Wines 

SB 179 likely would substantially increase the variety of wines available to Ohio 

consumers. Through direct shipping, and particularly through the Internet, consumers can 

conveniently purchase many wines that are not available in nearby bricks-and-mortar stores. The 

Internet effectively expands the geographic market by allowing online vendors to compete 

nationally. Further, an individual online store may feature more products than many bricks-andmortar retail locations, as bricks-and-mortar retailers may not have the demand or shelf space to 

justify keeping a large variety of wines in stock.22 Moreover, smaller wineries may be unable to 

distribute their wines effectively through the three-tier (e.g., manufacturer/wholesaler/retailer) 

system that is mandated in most states. As the Supreme Court recently noted in its Granholm 

18 SB 179 § 1, at 1-2. 

19 Id. at 2. 

20 Id. 

21 Id. at 3. 

22 According to a trade association that participated in the E-Commerce Workshop, domestic wineries produce 

approximately 25,000 wine labels, and even in a large market like Illinois, only slightly more than 500 of these labels 

are available through bricks-and-mortar stores. See FTC Wine Report at 24. 
Senator Fingerhut 

March 22, 2006 

Page 5 of 11 

decision, “many small wineries do not produce enough wine or have sufficient consumer demand 

for their wine to make it economical for wholesalers to carry their products. This has led many 

small wineries to rely on direct shipping to reach new markets.”23 

More importantly, the total number of varieties available online likely surpasses the total 

number available in bricks-and-mortar stores that are within a reasonable distance of a particular 

consumer. Consumers are likely to value having a variety of wines from which to choose. One 

of the most popular wine magazines, The Wine Spectator, reviews over 10,000 different wines 

annually.24 Further to this point, a Nobel laureate in economics testified at the E-Commerce 

Workshop that “the value to consumers of direct wine shipments com[es] primarily from access 

to wines that are not available in their communities.”25 Thus, direct shipping can give consumers 

convenient access to many more wines, including popular labels and smaller labels from around 

the country. 

As part of its analysis of the impact on consumers of interstate direct shipping bans, FTC 

staff conducted a study of wine prices and availability in the McLean, Virginia area (“2002 

McLean Study”).26 At the time of the study, Virginia prohibited interstate direct shipping. Using 

the Wine and Spirits annual list of the top fifty most popular wines in America, the 2002 McLean 

Study found that 15% of the wines in the sample were available online but not in retail wine 

stores within ten miles of McLean.27 Moreover, many of these wines were popular labels. 

Approximately 53% of the wines that were unavailable in the McLean area came from among the 

twenty most popular labels.28 As noted in the FTC Wine Report, these quantitative findings 

likely understated the impact on variety of the interstate shipping ban. Because the sample was 

23 Granholm, 125 S. Ct. at 1892 (citation omitted). See also Dickerson v. Bailey, 212 F. Supp. 2d 673, 695 

(S.D. Tex. 2002) (finding that the three-tier system “may lock most [out-of-state wineries] out of any access to Texas 

markets, even if they are willing to take on the additional costs. Such discrimination is especially felt by small, 

family-run wineries with limited production . . . .”), aff’d, 336 F.3d 388 (5th Cir. 2003); Gina M. Riekhof & Michael 

E. Sykuta, Politics, Economics, and the Regulation of Direct Interstate Shipping in the Wine Industry, 87 AM. J. 

AGRIC. ECON. 439, 442 (2005) (“For small wineries seeking to increase their volume, consumer base, and 

geographic market, direct shipment prohibitions represent a significant obstacle to growth.”). 

24 See David Sloane, E-Commerce W orkshop W ritten Statement 1, at 

http://www.ftc.gov/opp/ecommerce/anticompetitive/panel/sloane.pdf. 

25 Daniel L. McFadden, E-Commerce W orkshop W ritten Statement 2, at 

http://www.ftc.gov/opp/ecommerce/anticompetitive/panel/mcfadden.pdf. 

26 The 2002 M cLean Study, which is attached to the FTC W ine Report at Appendix A, has been published as 

Alan E. Wiseman and Jerry Ellig, Market and Nonmarket Barriers to Internet Wine Sales: The Case of Virginia, 

BUS. & POL., Vol. 6, No. 2, Art. 4 (2004). 

27 FTC Wine Report at 18 (excluding wines that could not be found either online or offline, 12 of 79 wines in 

sample available only online). 

28 Id. (8 of 15 wines unavailable offline among 20 most popular wines in Wine & Spirits poll). 
Senator Fingerhut 

March 22, 2006 

Page 6 of 11 

limited to the most popular labels, it excluded thousands of lesser-known labels that bricks-andmortar stores may not have carried, as well as those that may not have been known to 

consumers.29 

Subsequent research by the authors of the 2002 McLean Study confirms the negative 

effects on variety caused by interstate direct shipping bans. Following the statutory repeal of 

Virginia’s direct shipping ban in July 2003, the study’s authors conducted an analysis in 2004 to 

determine the impact on availability and prices of such repeal (“2004 McLean Study”),30 using 

procedures identical to those used in the 2002 study. The findings of the latter study with respect 

to availability were similar to those of the previous study. That is, 12.5% (as compared to 15%) 

of the wines in the sample of popular wines were available online but still not in bricks-andmortar wine stores within ten miles of McLean at the time of the data collection.31 As 

demonstrated by these empirical analyses, online sources provide consumers with access to 

wines that local retail stores do not carry. Adoption of SB 179, therefore, likely would provide 

Ohio consumers with access to a greater variety of wines. 

B. The Proposed Legislation Likely Would Allow Ohio Consumers to Purchase 

Many Wines at Lower Prices 

Depending on the wine’s price, the quantity purchased, and the method of delivery, 

consumers can achieve substantial savings by purchasing wine online. The 2002 McLean Study 

found that, excluding shipping costs, wines in the sample cost on average 16% less if purchased 

online.32 Because shipping costs do not vary with the wine’s price, consumers can save more 

money on more expensive wines, while less expensive wines may be cheaper in bricks-andmortar stores. The 2002 McLean Study also found that if consumers use the least expensive 

shipping method, they can save an average of 8-13% on wines costing $20 or more per bottle and 

an average of 20-21% on wines costing $40 or more per bottle.33 In addition, direct shipping lets 

consumers avoid the cost of spending time to travel to bricks-and-mortar stores.34 

Moreover, even if consumers choose to buy wine from bricks-and-mortar retailers, 

29 Id. at 22. 

30 See Alan E. Wiseman & Jerry Ellig, Legislative Action and Market Responses: Results of Virginia’s 

Natural Experiment with Direct Wine Shipment (Dec. 15, 2005) (Mercatus Center working paper), at 

http://www.mercatus.org/pdf/materials/1481.pdf. 

31 Id. at 12 (9 of 72 wines in sample available only online). 

32 FTC Wine Report at 19. 

33 Id. 

34 See, e.g., Clifford Winston, Conceptual Developments in the Economics of Transportation: An Interpretive 

Survey, 23 J. ECON. LIT. 57, 75-77 (1985) (discussing costs of travel time). 
Senator Fingerhut 

March 22, 2006 

Page 7 of 11 

direct shipping still encourages price competition between online and offline sources. In states 

that allow direct shipping, the Internet allows wineries and other merchants35 across the nation to 

compete with local bricks-and-mortar retailers. The Internet also helps consumers comparison 

shop and lets suppliers compete in geographic markets that otherwise may be closed to them, 

perhaps due to the three-tier system or franchise laws.36 This competition likely forces down 

prices. One court found that the ban on interstate direct shipping constituted “economic 

protectionism, negatively impacting Texas consumers because of more limited wine selection 

and higher prices.”37 An economist who participated in the E-Commerce Workshop observed: 

[C]onsumers benefit from free markets operated with the minimum government 

regulation required for consumer protection. . . . The restrictions on direct 

purchase of premium wines and their interstate shipment that have been adopted 

by a number of States are, I believe, another example of abuse of the regulatory 

process to protect concentrated economic interests, going far beyond the minimum 

regulations needed to maintain the integrity of State taxation and to protect minor 

consumers.38 

By allowing direct shipping, SB 179 would increase competition and allow Ohio 

consumers to find lower wine prices. In fact, that conclusion was confirmed in the case of 

Virginia, which recently repealed its ban on interstate direct shipping. The 2004 McLean Study 

found that, following the statutory repeal, online prices were on average 9% lower than offline 

prices, excluding shipping costs.39 More importantly, the study found that legalization of direct 

shipping resulted in a reduction in the differential between online and offline prices, as bricksand-mortar retailers became more competitive. The differential between average online and 

offline prices fell by nearly 40% between 2002 and 2004, by one estimate, while the spread 

35 The 2002 McLean Study found that “the lowest online prices overwhelmingly come not from wineries, but 

from out-of-state retail outlets that have web-accessible inventories.” FTC Wine Report App. A at 25 n.22. It 

appears that SB 179, which limits the privilege of direct shipping to “manufacturers” (see SB 179 § 1, at 1-2), would 

not permit such retail outlets to ship directly to Ohio consumers. As FTC staff indicated in its March 2004 letter to 

New York legislators (see New York Letter, supra note 10, at 7), allowing out-of-state retailers, as well as wineries, 

to ship directly to consumers would provide additional competition that likely would lead to even lower prices for 

such consumers. New York ultimately enacted legislation permitting (interstate and intrastate) direct shipping of 

wine to its consumers. See N.Y. Alco. Bev. Cont. Law §§ 79-c, 79-d (McKinney 2005). 

36 See generally American Bar Association, Section of Antitrust Law, E-Commerce W orkshop Public 

Comment (describing various state statutes that may restrict e-commerce), at 

http://www.ftc.gov/opp/ecommerce/anticompetitive/comments/aba.pdf. 

37 Dickerson v. Bailey, 87 F. Supp. 2d 691, 709 (S.D. Tex. 2000). 

38 Daniel L. McFadden, E-Commerce W orkshop W ritten Statement 1, at 

http://www.ftc.gov/opp/ecommerce/anticompetitive/panel/mcfadden.pdf. 

39 2004 McLean Study at 15. Consistent with the 2002 findings, online savings were smallest for wines priced 

below $20 (7.6%) and largest for wines priced at or above $40 (21%). Id. 
Senator Fingerhut 

March 22, 2006 

Page 8 of 11 

between the lowest online and average offline prices fell by 26% during that time, according to 

another estimate.40 

C. States That Permit Interstate Direct Shipping of Wine Generally Report Few 

or No Problems with Direct Shipments to Minors 

Although direct shipping can provide consumers with important benefits, policymakers 

have expressed concern that direct shipping might exacerbate the problem of underage drinking. 

As FTC staff has recognized in its Wine Report and in other documents, underage alcohol use is 

a significant national concern.41 In the context of the direct shipping of wine, however, the 

evidence shows that states that permit such shipping generally report few or no problems with 

shipments to minors. 

FTC staff contacted officials from several states that allow interstate direct shipping and 

asked them whether they had experienced problems with shipping to minors. These states 

generally reported few, if any, problems with direct shipping to minors.42 Most of them did not 

believe that interstate direct shipment of wine to minors was a serious problem, although 

several of them believed that it is possible for minors to buy wine online.43 None of the states 

reported more than isolated instances of minors buying or even attempting to buy wine online.44 

State regulators uniformly expressed greater concern about underage access to alcohol through 

traditional avenues.45 

The state officials offered many possible explanations for their experiences. New 

Hampshire concluded that minors are less likely to purchase wine online because of the extra 

expense of ordering over the Internet.

46 This conclusion is consistent with the 2002 McLean 

40 Id. at 17-19. This latter comparison reflects the assumption that, given available Internet search 

capabilities, a consumer can more readily find the lowest online price for a particular wine than the lowest offline 

price for such wine. See id. at 18 n.38. 

41 See, e.g., FTC Wine Report at 26-38; FTC, Self-Regulation in the Alcohol Industry: A Review of Industry 

Efforts to Avoid Promoting Alcohol to Underage Consumers App. A (Sept. 1999), at 

http://www.ftc.gov/reports/alcohol/alcoholreport.htm. 

42 See FTC Wine Report at 31. 

43 See id. 

44 See id. at 33. 

45 See id. at 32-33 (chart summarizing state responses). 

46 Id. App. B (New Hampshire letter). See also Editorial, The Carafe is Half Full, WALL ST. J., July 3, 2003, 

at A10 (arguing that teenagers are not interested in expensive wines, and that “[t]hirty states allow wine shipments 

within their borders without a surge in teen drinking”). 
Senator Fingerhut 

March 22, 2006 

Page 9 of 11 

Study, which found that when transportation costs are included, lower-end wines – those most 

likely to be purchased by minors, to the extent that they seek to purchase wine – are more 

expensive when purchased over the Internet than through offline stores.47 Similarly, several state 

officials also commented that, based on their experience, minors were much more likely to buy 

alcohol through offline sources than over the Internet.

48 Further, in Granholm, the Supreme 

Court rejected the arguments of New York and Michigan that their interstate direct shipping bans 

were justified by their concerns over underage drinking. Citing the FTC Wine Report, the Court 

found it unsurprising that “[s]tates currently allowing direct shipments report no problems with 

minors’ increased access to wine,” reasoning that (1) minors are less likely to consume wine, as 

opposed to other forms of alcohol; (2) minors who decide to disobey the law have more direct 

means of doing so; and (3) direct shipping is an imperfect avenue of obtaining alcohol for 

minors, who generally want instant gratification.49 

Of course, efforts should be made to prevent underage purchases of alcohol, both online 

and offline, and SB 179 incorporates safeguards against direct shipping to minors. SB 179 would 

require the recipient of any direct wine shipment to be at least twenty-one years of age and to 

sign personally for the product when it is received. Any violation of such requirement would be 

a first-degree misdemeanor. As a result, SB 179 would allow Ohio to prevent the direct 

shipment of wine to minors. 

D. States That Permit Interstate Direct Shipping of Wine Generally Report Few 

or No Problems with Tax Collection 

SB 179 would require either manufacturers or consumers to pay all applicable taxes on 

direct shipments of wine to Ohio consumers. Of the states permitting direct shipping and 

collecting taxes therefrom, most report few, if any, problems with such tax collection. Nebraska, 

47 See FTC Wine Report at 19, 21. 

48 See id. App. B (California testimony; letters from New Hampshire and Wisconsin). 

49 Granholm, 125 S. Ct. at 1905 (citing FTC Wine Report at 12, 33, 34 & n.137). Of course, the fact that 

states have received few complaints about direct shipments to minors does not establish that minors are not 

purchasing wine online. FTC staff cannot rule out the possibility that minors are buying wine online undetected by 

state officials. Nevertheless, the staff is aware of no systematic study assessing whether direct shipping increases 

alcohol consumption by minors. FTC staff has found only one study that addresses the impact of “home delivery” of 

alcohol on underage drinking. See Linda A. Fletcher et al., Alcohol Home Delivery Services: A Source of Alcohol 

for Underage Drinkers, J. STUD. ALCOHOL 61: 81-84 (2000). This study, however, examines the impact of home 

delivery of keg beer and other alcohol on underage drinking from such traditional retailers as local liquor stores. 

Although the study raises important issues of concern, it provides little information upon which to assess interstate 

direct shipping of wine. The study does not specifically address online sales, interstate direct shipment via package 

delivery companies, or wine. Moreover, the study itself states that “data presented here do not reveal the frequency 

of delivery use or whether delivery purchases served as a primary source of alcohol,” and the study does not assess 

whether home delivery or direct shipping increases underage alcohol consumption above the level that would occur 

without those channels. Id. at 84. 
Senator Fingerhut 

March 22, 2006 

Page 10 of 11 

for example, reports that they “have also not, as yet, had any problems with the collection of 

excise tax[es].”50 North Dakota reports that “[t]axes are collected. [There are n]o problems to 

date that we are aware of.”51 To the extent that states have problems with out-of-state suppliers, 

they have addressed such problems in less restrictive ways than banning all interstate direct 

shipping.52 

Furthermore, as discussed in both the FTC Wine Report53 and the Granholm opinion,54 to 

the extent that out-of-state manufacturers fail to comply voluntarily with tax (or any other) 

regulations, states can report problems to TTB, which has the authority to revoke a 

manufacturer’s federal license – necessary to operate in any state – for violating state law, or 

utilize the Twenty-First Amendment Enforcement Act,55 which provides state attorneys general 

the power to bring civil actions in federal court for injunctive relief against out-of-state 

manufacturers that violate state liquor laws. 

Finally, regardless of whether a state permits or prohibits interstate direct shipping, there 

is no reason to believe that legalizing direct shipping would increase tax evasion. It is unlikely 

that states would increase illegal interstate direct shipping by creating procedures that would 

allow out-of-state suppliers to ship legally and pay taxes. If suppliers who currently ship illegally 

continue to ship illegally, then the level of tax evasion would remain unchanged; however, if 

some suppliers who currently ship illegally decide to ship legally, then tax evasion would fall. 

Moreover, if interstate direct shipping increases overall commerce in wine, overall tax revenue 

likely would rise.56 

Conclusion 

The Internet lets consumers purchase an unprecedented array of goods and services from 

50 FTC Wine Report App. B (Nebraska letter). 

51 Id. (North Dakota letter). 

52 See, e.g., id. (New Hampshire letter) (“[New Hampshire] collects an 8% fee on all shipments into the 

[state]. When the NH Liquor Commission discovers an improper shipment we contact the company and inform them 

of the laws in NH. Once the company learns of NH laws they normally get a permit or stop shipping into NH. The 

NH Liquor Commission is working with out-of-state supplier[s] and encouraging them to obtain a permit.”). 

53 See id. at 39. 

54 See Granholm, 125 S. Ct. at 1906. The Supreme Court in Granholm found the states’ tax collection 

justification for banning interstate direct shipping as unconvincing as the proffered underage drinking justification. 

See id. at 1906-07. 

55 27 U.S.C. § 122a (2000). 

56 See FTC Wine Report at 39-40. 
Senator Fingerhut 

March 22, 2006 

Page 11 of 11 

the convenience of their homes. Consumers can find thousands of goods, from thousands of 

suppliers around the country, and have those goods delivered to their doors. State bans on 

interstate direct shipping represent the single largest regulatory barrier to expanded e-commerce 

in wine.57 In states that ban interstate direct shipping, the bans prevent consumers from 

conveniently and less expensively purchasing wine from suppliers around the country. 

Based on our review, FTC staff believes that, if enacted, SB 179 would enhance 

consumer welfare and allow Ohio to meet its other public policy goals. By allowing interstate 

direct shipping, SB 179 likely would allow Ohio residents to purchase both a greater variety of 

wines and many wines at lower prices. In addition, by requiring manufacturers to comply with 

certain regulatory requirements, SB 179 would allow Ohio to prevent shipments to minors and to 

collect taxes on direct shipments. We urge the Ohio Legislature to take into account these likely 

effects on consumers when considering SB 179. 

Respectfully submitted, 

Maureen K. Ohlhausen, Director 

Office of Policy Planning 

Jeffrey Schmidt, Director 

Bureau of Competition 

Lydia B. Parnes, Director 

Bureau of Consumer Protection 

Michael A. Salinger, Director 

Bureau of Economics 

Id. at 14. 57