On April 7, 2020, Kentucky became the latest state to adopt rules clearly permitting the direct-to-consumer (DtC) shipping of alcoholic beverages. As established in HB 415, Kentucky residents will soon be able to purchase and receive shipments of beer, wine and spirits from licensed producers across the country.
That this bill includes all types of alcoholic beverages is a notable change from most other states’ DtC shipping laws, which generally only apply to wine.
As set out in HB 415, shipments of beer, wine or spirits will only be permitted under the following conditions:
- The shipper must personally hold a Direct Shipper License issued by the Kentucky Alcoholic Beverage Control (ABC) agency. The license will have an annual cost of $100, and will only be granted to suppliers that can demonstrate they hold an active license to manufacture alcoholic beverages in their home state.
- Only products sold under a brand name owned by or exclusively licensed to the shipper will be permitted. The products must be produced by or produced explicitly for the shipper.
- Shipments may not exceed:
- 10 liters per individual per month of spirits,
- 10 cases per individual per month of wine,
- 10 cases per individual per month of beer.
- The shipper must confirm the purchaser and recipient of the shipment is of age both at the time of purchase and the time of delivery.
- The package must be conspicuously labeled with “Contains Alcohol: Signature of Person Age 21 or Older Required for Delivery.”
- The shipper must provide a quarterly report to the Kentucky ABC that provides for each shipment made:
- The total amount of alcoholic beverages shipped,
- The name and address of each consumer,
- The purchase price and amount of taxes charged to the consumer, and
- The name and address of the common carrier used.
- The shipper must agree to pay to Kentucky all relevant sales/use taxes, excise taxes, and a “wholesale tax equivalent,” which the state imposes on three-tier distributions in the state. This “wholesale tax” is a 10% tax on the wholesale price, which should be calculated at 70% of the retail price of the alcoholic beverages.
- Kentucky does not maintain any local city or county sales tax. Therefore all sales to the state will apply a single 6% rate.
- The shipper must submit to the jurisdictional authority of the Kentucky ABC, maintain records of their shipments to the state, and allow the Kentucky ABC to conduct audits at the agency’s discretion.
- Currently, the shipper may only ship alcoholic beverages from their licensed premises. However, efforts are being made to include a shipper’s licensed fulfillment partners in the scope of their licensed premises.
In addition, shipments will not be permitted into any area in the state where alcoholic beverages generally may not be sold or received, or “dry” regions. However, unlike previous laws that Kentucky had for DtC shipping of wine, the liability for a shipment to a dry region will fall on the consumer. A consumer who intentionally has alcohol shipped to an unlawful address will be fined $250 for a first offense, and $500 for each subsequent offense, while the shipper and carrier will be held harmless. DtC shippers, though, may want to warn their Kentucky consumers of this provision and require their Kentucky consumers to positively affirm they are in an area in the state that allows the sale and receipt of alcoholic beverages.
(Unlike other states, Kentucky establishes its dry/moist/wet regions based on election districts, which do not conform to other boundaries, such as city, county or ZIP designations. This makes it extremely difficult to catalogue and check which addresses in the state lie in a prohibited area.)
While this bill was enacted into law on April 7, it will not become effective until a later, as yet undetermined date, which will likely be in late June or July. This interim time, therefore, will enable the Kentucky ABC to develop the application process and set out clearer instructions on how DtC shippers should abide by the state’s reporting and tax requirements. As these are determined, Sovos ShipCompliant will provide updates.
It is extremely gratifying to see Kentucky clearly open up to DtC shipping of alcoholic beverages. Previously, the state had enacted laws that seemed to permit DtC shipping, but that in fact failed to establish a system for manageable compliance, which kept the state effectively closed. This new bill seems to relieve those compliance burdens (in particular the risk of felony conviction for shippers and carriers who shipped to a dry area), so there is reason to hope that Kentucky residents will soon be able to receive shipments of alcoholic beverages directly from their favorite producers across the country.
Learn how Sovos ShipCompliant Direct can help DtC shippers with compliance, tax and license management.