September 2008 Issue of Wines & Vines

Curing Compliance Headaches

When to invest in software that helps keep track of shipping regulations

by Tim Patterson
Wine Compliance
The Supreme Court's 2005 Granholm v. Heald decision, ruling that states must have the same regulations for in-state and out-of-state direct shipping, promised to level the playing field for producers across the country. Instead, it has created a minefield.

Where once the answer to the question, "Can I ship there?" was a simple "No," now it's more likely "Yes, but…" Every state has its own set of regulations, its own schedule of permitting fees and its own reporting requirements. (OK, Utah is still easy: no way.) And once a winery penetrates a state, counties have their own sales tax rates and remittance schemes. Any and all of these statutory responsibilities can change in any given month. And if you mess it up, you can be fined, audited or ultimately put out of business.

Granholm may go down in history as the Compliance Attorneys' Full Employment Act.

See Compliance Software Suppliers

Direct-to-consumer interstate shipping can be quite profitable, an extra arrow in a winery's quiver of ways to sell wine at full retail, supplementing the tasting room, wine club and in-state e-commerce channels. Yet it comes with its own set of perils. There are four logical choices for navigating the interstate direct maze:
  1. Ship wherever you have an order, under the radar, and hope you don't get caught.
  2. Handle compliance with in-house staff, ever-more-sophisticated Excel spreadsheets and the occasional shoebox full of Post-It notes.
  3. Turn the whole problem over to a compliance-consulting firm.
  4. Use automated post-production compliance software to handle shipping validation and reporting--preferably integrated with the software that handles wine clubs, inventory management, tasting room sales and so on.
Or some combination of the above. The option that has evolved most dramatically in the post-Granholm era is the use of compliance software, something every winery that wants to get into the interstate-direct business should consider.


  • Direct interstate wine shipping comes with a maze of regulatory hurdles. Compliance software vendors promise to make those hurdles more manageable.
  • The sheer complexity of state and county rules--permitting fees, sales tax rates, reporting requirements--means that compliance requires increased attention.
  • Numerous companies offer tools for generating compliance reporting--and, in some cases, for doing pre-ship compliance checking as well.
Constantly changing environment

Right after Granholm, the number of reciprocal states allowing shipping back and forth in a relatively straightforward manner increased. But since then, the trend has been toward complex, state-by-state systems of permitting and reporting, coupled with various forms of limitation on how much wine any particular consumer can receive from one or several sources in a given time period. Part of how the plaintiffs in Granholm persuaded the court to allow interstate shipping was the argument that the states could provide sufficient regulation--and have they ever. The thicket of direct-to-consumer rules and reports make the three-tier system seem like a model of simplicity.

With the increase in regulation has come an increase in enforcement and audits. Jason Eckenroth of ShipCompliant says, for example, that in surveys the company conducted with Wine Business Monthly and WineAmerica, the number of small wineries reporting some form of contact or query from an alcohol regulatory agency rose from 25% in 2006 to 33% in 2007. In a pro-enforcement environment, trying to fly under the radar is increasingly risky.

Sooner or later, some county in Pennsyltucky will want to collect unpaid sales taxes. Or an ambitious district attorney in Yoknapatawpha will go on a rampage about wine coming into his dry county. The name New Hampshire kept cropping up in interviews for this story. "The tax liability isn't huge," says Rachel Dumas Rey of Beverage Compliance Online, "but the liability associated with not reporting is." Aggrieved states and localities can choose to escalate their complaints to the TTB, and theoretically put a winery's basic federal permit in danger.

The complexity and changeability of state and county regulations also put pressure on the in-house, spreadsheet-based model for compliance tracking and reporting. If a winery's direct shipping is all in-state, fine. If only one or two other states are involved, that can be handled. If only a couple hundred cases of wine get shipped, ditto. But somewhere around three or four states, states that have both direct shipping and wholesale shipping under the three-tier system (which has different rules and reporting requirements), states that have different reporting frequencies and counties with different sales taxes, it starts to be a serious job, one that can be done by dedicating staff time in-house and hoping that the people involved, once trained, don't take other jobs.

Or it can be done by some combination of compliance outsourcing and software automation. "Their pain is our opportunity," says Leroy Lucas of Wine Compliance Pro, acknowledging the basis for a growth market. Getting into direct shipping can be rewarding, but it isn't a casual step, and it requires devoting real resources to the job, whether in the form of employee time or money for services and software.

Flavors of Compliance

If there's one thing the wine industry has in abundance, it's compliance requirements, starting the minute the first grapes of the harvest hit the crusher.

The most basic distinction is between production and post-production compliance. During production, the main focus of compliance reporting is the Treasury Department's Alcohol and Tobacco Tax and Trade Bureau (TTB), which requires information about the whereabouts of every drop of alcohol, collects appropriate taxation, monitors the use of additives and the levels of certain compounds and controls the label approval process. States also may have production-phase compliance requirements.

Once the wine is bottled, post-production compliance reporting mainly revolves around shipping and involves state oversight bodies. Wholesale shipping within the three-tier system has one set of requirements. Direct-to-consumer shipping--initiated through wine clubs, tasting room sales or Internet sales--has another, more complex array of requirements; and the growing business of direct-to-retail shipping, now an option in several states, has yet a third set of rules.

Each of the many pieces of the compliance puzzle can be aided by automation, but each of the various commercial packages of software and services on the market handles a different sub-set of the overall compliance function.

Software options

Numerous software solutions are out there, most of them tied to compliance consulting services. In various ways and to various degrees, all these providers can help a winery with three things: 1) information, forms and/or assistance in finding out about state permits, fees and reporting requirements, a crucial step in deciding whether to open up a direct shipping channel; 2) checking and validating orders for compliance before they are shipped; and 3) generating monthly and quarterly reports for all relevant states and counties.

Wine Compliance
ShipCompliant uses an online database to run winery compliance checks and reports.
It's important to understand that compliance software assumes a winery already has good, accurate, complete data available. The compliance products don't facilitate order entry or capture Internet sales, they simply check for compliance rules and generate reports. Maintaining reliable data on shipments through wine club software, point of sale (POS) systems, e-commerce platforms and inventory control systems is essential--and not the job of the compliance vendors.

Three companies--Compli (with its Beverage Compliance Online software), Beer and Wine Services (ShipShape) and (WineCompliancePro)--combine software with compliance consulting services. Inertia Beverage has developed its REthink Compliance software to flank its main business, e-commerce strategy and services. In 2007, WSN Systems developed a compliance module to go with its suite of fulfillment, ordering, reporting and tracking (FORT) packages. Six88 Solutions' ShipCompliant product is software, pure but by no means simple.

ShipCompliant, developed by an engineer and an MBA from outside the wine industry, is the current market leader, with more clients, more partnerships within the industry and arguably more buzz. Founders Jason Eckenroth and Jeff Carroll saw the writing on the wall with Granholm and have pursued the goal of interstate shipping compliance and reporting with single-minded devotion ever since. They currently have roughly 800 clients across the country--from very small to very large, two-thirds of them producing less than 20,000 cases per year. ShipCompliant systems checked and double-checked 2 million transactions in 2007, and 2.3 million in the first half of 2008.

What the software does

The core of ShipCompliant is an online rules database, which Eckenroth says has about 6,000 rules in it, and a staff of several people to support it. In the simplest application, wineries can generate data files on their shipments and run them (or have the compliance service person they work with run them) against the ShipCompliant database for validation and reporting. In more advanced implementation, ShipCompliant code is embedded in the systems that capture data--POS systems, wine club software, etc.--and able to connect via web services technology, thus providing the ability to validate or flag a transaction before it is actually shipped. ShipCompliant also generates the numerous reports required for direct shipment and forwards them by e-mail for printing and mailing.

ShipCompliant has been very active in working with industry groups, including the Wine Institute's interstate shipment portal, and with various software partners, as well as in educational efforts at industry gatherings. New software out this summer extends ShipCompliant to handling wholesale, three-tier shipping compliance. Prices start at $150 per month for 500 (total) cases shipped, and go up from there in volume increments. Discounts are available through some industry affiliations.

WSN's FORT compliance module for direct-to-consumer shipping similarly works as a stand-alone product or in tandem with other kinds of post-production inventory-management software, both its own suite of modules and other standard systems on the market. The repository of compliance rules and report formats lives on the web and can be accessed either from a winery location or by a compliance consultant who handles the winery's reporting. "We have backups of our backups," says CEO Scott Liebman, "and we're even covered for earthquakes"--not a negligible provision for California wineries. The FORT system allows for pre-shipping compliance checks as well as post-shipping reporting.

WSN has established partnerships with a number of major wine fulfillment warehouses up and down the West Coast, which means that wineries that have decided to outsource their shipping can still take advantage of its validation and reporting services. Customers who use WSN's order-management systems get the compliance module free; Liebman says the pricing is competitive for a stand-alone version based on volume. FORT's compliance clients currently number in the hundreds, including many small producers who have significant shipping programs.

Compli, by contrast, is a full-range compliance firm that offers its Beverage Compliance Online software as part of an a la carte menu of services. Compli handles beer and spirits as well as wine, and wholesale shipping as well as consumer-direct. Owner Rachel Dumas Rey says that Compli currently has somewhere between 200 and 300 wine clients, a few running the software entirely at their own facilities, most exporting data to Compli and having the company run reports. Compli maintains its rules-checking database online, so it is always accessible and up to date.

Dumas Rey emphasizes the value of combining compliance expertise and software under one umbrella. Compli, she says, will not only tell you what a permit costs in a given state and where to send the forms, it makes sure the permitting gets done. Customized hybrid arrangements can be developed to allow a winery to do as much or as little of the compliance work as it wishes. Cost structure is based on the number of state licenses and reports. For wineries with all-state access that have Compli do all the reporting, the basic monthly charge is $649.

Beer and Wine Services is similarly a compliance specialty firm with a software component. ShipShape originated as a software package for wholesale compliance, but Beer and Wine Services owner Andrea Anderson, who acquired the product in 1996, has since adapted it to handle consumer-direct, and now is expanding to cover the growing world of direct-to-retail as well. ShipShape is designed for post-shipping reporting to states and counties, though it flags compliance issues in the process.

Shipshape is licensed to several large wineries that run it in-house, but more often it is used at Beer and Wine Services for its roughly 200 clients. In either case, the software and rules/reports databases are located on local machines; ShipShape also has a data feed option that lets users run data against a central database. Most of the clients are in California and, Andersons says, "Many of them are Mom and Pop." Depending on the number of states involved, monthly reporting costs can range from $300 to $1,700.

WineCompliancePro also comes in wholesale and direct shipment versions, can run at the winery or at the home office, and also is housed within a broader wine consulting company. In addition, WineCompliancePro has an order-checking system that can be installed at the winery and used to flag compliance issues on orders before they are shipped. The rules database is installed locally, at individual wineries and the WineCompliancePro home office, and updated remotely as needed; the database is in the process of migrating to a centralized web location.

Company president Leroy Lucas says that most of his firm's current clients are mid-sized wineries producing 50,000-100,000 cases per year, and the company hopes to expand outside California and into both smaller and bigger wineries. Pricing is based on the number of states being shipped to. For an unlimited number of states, wineries that do their own reporting pay $449, wineries that have WineCompliancePro do it pay $649.

Inertia Beverage's REthink Compliance tool wins the pricing derby hands down: It's free. Matt Mann at Inertia says the company's main business is as an e-commerce service provider, assisting clients with direct-to-consumer, direct-to-trade and three-tier strategies. Since the compliance maze has been a major obstacle to the expansion of interstate e-commerce, Inertia decided to develop a checking and reporting tool and make it available to the industry at no charge, with no requirement that a winery sign up for other Inertia services. REthink Compliance currently operates as a standalone product, but Mann says the company is working on ways to integrate it into e-commerce and other systems to provide real-time compliance checking.

Whether to take the plunge

Naturally enough, compliance software providers would like everyone to sign up for installation today. Compliance firms, even those with no direct connection to interstate compliance or to software, tend to agree.

Cathy Watson provides a range of services at Westar Compliance in California's Sierra Foothills. She caters mainly to small wineries, those producing less than 10,000 cases, and reports that most of them still handle their TTB reporting in Microsoft Excel. But once they get into the interstate trade and spend money on wine club software, link that to their point-of-sale system and link all that to the logistics company that actually does the shipping--at that point, most of them have started using ShipCompliant. Watson logs into their accounts and runs the various reports and checks.

Alex Heckathorn at Compliance Service of America (CSA) doesn't get involved in routine shipping compliance issues, but he says that CSA has plenty of smaller winery clients that do need help with interstate issues. "It's so easy to make a mistake," he says, "so easy to lose the person you've trained. For small operations, automation is the only cost-effective way to do it that makes sense and stays profitable."

Jeannie Goshgarian at Carmel and Naccasha in San Luis Obispo, Calif., isn't so sure. Her experience has included several clients who tried software solutions, but she remained nervous about trusting their potential liability to a computer and wanted to make sure a real, live attorney was somewhere close at hand. Goshgarian thinks that if the software providers could persuade her they had centralized, accurate rules, the concept would pass muster.

There's one more feature of this wave of automation that bears investigation. Several of the compliance software vendors provide on their websites calculators to examine the potential return on investment (ROI) of shipping to various states, balancing the costs of permitting and of ensuring compliance against the potential profits from sales. It's the right place to start in deciding whether to join the Granholm generation.

Feature sets

Wine Compliance Software
Compli helps wineries apply for state shipping licenses and adhere to local regulations.
Once a winery decides that its direct-to-consumer shipping operations are too complex to handle comfortably with spreadsheets and yellow sticky notes, the various software alternatives on the market should be evaluated. Besides reading promotional materials, it's worth investing time in detailed demonstrations, quizzing the vendors and following up references at other wineries that use the products. As with any piece of software, advertised capabilities may not be as robust as promised, and other features that work perfectly well may not be applicable for a particular winery.

Things to look into include:


Will the software, or the portion of the software designed to run at the winery, work on the current computer equipment--i.e., PC or Mac, Internet access speed?

Are the compliance rules and report formats maintained on the web in a centralized database that can be quickly updated whenever requirements change, or must they be updated manually on a local computer?


Does the software cover all the state, county and city reporting and tax calculations that the winery's business needs?

How and how well does the software integrate with other winery systems that track inventory and facilitate shipment--wine club software, point of sale and so on?

Does the software integrate with other systems in a common screen interface, or do the different systems communicate externally through data export and import files?

Does the software allow for compliance checking at the time of a prospective sale--in the tasting room, on the web--or only after the wine has been shipped?

When a potential compliance violation is identified, does the software offer alternative ways of dealing with the issue--for example, shipping less wine to a particular customer, shipping later, etc.?

Does the software offer checks beyond the basics--things like age verification, address validation, weather forecasts for shipping, etc.?


Does the software provider offer support for set-up and installation and for training staff in the use of the software?

Does the provider offer technical support when problems are encountered during a reporting cycle, and during what hours?

Does the provider offer compliance guidance on legal and financial issues in addition to the software, and at what pricing?


Are there significant one-time costs--set-up, installation, etc.--in addition to the basic monthly fees?

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Shipping Compliance Providers

Beer and Wine Services / ShipShape
(707) 942-6911
Compli / Beverage Compliance Online
(805) 239-4502
Inertia Beverage Group / REthink Compliance
(800) 819-0325
Microworks Technologies / Microworks Wine Solutions
(707) 224-9620
New Vine Logistics
(707) 226-9400
Six88 Solutions / ShipCompliant
(888) 449-5285
WSN Systems Corp. / FORT Compliance
(415) 981-9130 / WineCompliancePro
(707) 242-4725
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