The new regulations follow Uber’s upcoming acquisition of Drizly and Vivino’s recent round of new funding. Alcohol e-commerce and on-demand delivery is still largely unregulated in the U.S. The alcohol industry exploited the gaps in laws across the country during the COVID-19 pandemic to drive higher consumption and protect its profits. Statistics show that from early March to June 2020 online alcohol sales grew 309% year over year. Alcohol delivery companies Drizly and Vivino maximized their profits using the pandemic.
Alcohol e-commerce sales are expected to exceed $40 billion worldwide by 2024. The U.S. alcohol industry is expected to be increasing their online alcohol sales by 80% during the pandemic. At this pace, the U.S. alcohol e-commerce industry is set to surpass China and become the largest alcohol e-commerce industry in the world. This means heavy alcohol marketing to drive higher sales by influencing people to buy and consume ever more alcohol during the pandemic, and beyond.
Research studies examining the alcohol industry’s activity during the pandemic already show the negative consequences on communities.
- A study published in JAMA Network found that alcohol sales rose by 14% in spring 2020 compared to the same time period in 2019.
- Another study from researchers at the RAND corporation found that alcohol consumption rose almost 30% during the pandemic, compared to a few months before.
- The effects of this increase in consumption are evident from the increase in alcohol-related liver disease in the U.S. An increasing number of younger people and women – two specific target groups of the alcohol industry – are increasingly presenting with this disease to hospitals.
Marketplace facilitator laws
Online marketplaces sell products to people much like their physical counterparts. They range from large marketplaces such as Amazon to more niche marketplaces such as RekYou.
Most federal states in the U.S. already require marketplace facilitators to collect and remit the sales tax due on third-party sales. There are marketplace facilitator laws in 42 of the 45 states with a general sales tax, and Washington, D.C., and some cities and boroughs in Alaska (where there are local sales taxes but no statewide sales tax).
Florida, Kansas and Missouri are the only states with a sales tax that does not have marketplace facilitator laws. All three are considering marketplace facilitator bills during their 2021 legislative sessions.
Since the U.S. Supreme Court decision on South Dakota v. Wayfair, Inc. in June 2018, states can base a sales tax collection obligation solely on an out-of-state seller’s sales activity in the state, otherwise known as economic nexus.
These economic nexus laws exempt small sellers. The threshold is $100,000 in retail sales or 200 retail sales transactions in the state in the current or previous calendar year. A seller beneath the threshold can’t be compelled to collect and remit sales tax if it has no physical presence in the state.
Marketplace facilitator laws typically base the sales tax obligation on physical presence (e.g., a warehouse or distribution center) or economic nexus. Some small alcohol marketplaces who have neither, are not required to collect and remit sales tax on behalf of their third-party sellers.
Alcohol laws in the U.S.
Currently, a mix of federal and state regulations govern the production, distribution and sale of alcohol in the U.S.
All alcohol sellers must register with the following agencies:
- Federal Alcohol and Tobacco Tax and Trade Bureau (TTB);
- State alcohol beverage control department;
- State tax authority; and
- Local tax authority (where applicable).
Direct-to-consumer (DTC) sellers must have the appropriate direct-shipping license in states where they make deliveries. They are required to use a common carrier for delivery.
The Alcohol and Tobacco Tax and Trade Bureau (TTB) collects the federal alcohol excise taxes due on beer, wine and distilled spirits. There are other state and local taxes. Typically these include state and local excise taxes and sales taxes. DTC sellers must collect all applicable taxes in the destination state and remit them to the proper tax authorities.
Before marketplace facilitator laws the taxes due on sales of alcohol made through a marketplace were the responsibility of the licensed sellers.
Marketplace facilitator laws in California
California’s marketplace facilitator law took effect on October 1, 2019. Under this law, if the marketplace is liable for tax under the state marketplace facilitator law, the marketplace must collect California sales tax on facilitated alcohol sales, while the alcohol licensee (i.e., the marketplace seller) remains responsible for all other applicable taxes. If not the seller is responsible for all taxes.
Other states would likely follow California’s example regarding taxes.
California currently allows third parties to deliver alcohol on behalf of licensees. This has led to increased harm to people and communities, specifically young people.
In June, 2020 the California Department of Alcoholic Beverage Control found that on-demand apps (such as Uber Eats, DoorDash, Postmates) illegally provided minors with alcohol four out of every five times, or a 80% failure rate.
Louisiana authorized the sale of alcohol for off-premises consumption in 2019, if liquor retailers or their employees delivered the alcohol. Marketplace facilitators were only allowed to market, receive and process orders. During the pandemic this law was changed, allowing third-party delivery for beer and wine.
Currently, U.S. federal states have embarked on looking closely at marketplace facilitator laws, their conflicts and gaps, with possible changes to resolve issues on the horizon.
