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Virginia Court of Appeals Clarifies “Place of Business” Licensing Requirement

November 15, 2023

Virginia’s Alcohol Beverage Control (“ABC”) Act provides that an entity seeking to ship wine to Virginia consumers must have a license to do so, and each license must “designate the place where the business of the licensee will be carried on.”  Virginia law further explains that unless an exemption applies, “a separate license is required for each separate place of business.”  A recent decision from Virginia, Virginia Alcoholic Beverage Control Authority v. Zero Links Markets, Inc., (890 S.E.2d 832 (Va. Ct. App. 2023)) demonstrates how challenging compliance may be, given the complex regulatory landscape surrounding alcoholic beverage sales and shipment.

In Zero Links Markets (Zero Links Markets, also known as VinoShipper) utilized a common business tactic—drop-shipping, where the manufacturer, rather than the retailer, ships the purchased goods directly to the consumer—to provide Virginia consumers with their wine purchases.  Id. at 837, n. 7. Specifically, VinoShipper would: (1) receive purchase orders for wine its website, (2) verify the customer’s age, (3) ensure that the customer has not exceeded any per-person volume limits imposed under state law, (4) provide all labels required under state law for the package and shipment of wine, and (5) work with a winery to ship the wine to the customer.  Id. at 837.  As part of the last step, VinoShipper would “buy” the wine from the winery, but the winery actually selected the specific bottles, packaged the wine, affixed the labels provided by VinoShipper, and then shipped the wine via UPS (VinoShipper’s designated carrier).  Id.  Under that system, the Virginia Alcohol Beverage Commission charged VinoShipper with violating the ABC Act.

The decision therefore turned on two questions: (1) what is the “business” of a licensed wine-shipper, and (2) in what “place” was that business performed by, or on behalf of, VinoShipper?  If the “business” of a licensed wine-shipper includes more than what VinoShipper provided, then that “business” would have been performed in a separate “place” from the “place” listed on VinoShipper’s license.

The Court of Appeals carefully parsed the statutory language and concluded that some tasks related to the “business” of a licensed wine-shipper were performed by the wineries.  Specifically, the Court construed the term undefined term “business” to conclude that the wineries performed certain “business” tasks at their respective locations, such as packaging the wine, affixing the requisite labels, and tendering the package to UPS.  Therefore, VinoShipper violated the ABC Act because VinoShipper failed to disclose each winery’s location as a “place of business” in separate licenses. In further support of its conclusion that a violation of the ABC Act occurred, the Court of Appeals explained that the statute separately authorized “fulfillment warehouses” (defined as a warehouse which “provid[es] storage, packaging, and shipping services to wineries”), and “fulfillment warehouses” were not required to be identified as a “place of business” on a wine shipper’s license.  The Court also confirmed that its interpretation here complied with the overall statutory scheme that gave the ABC Board plenary power over licensed entities and the alcohol beverage industry in Virginia.

The Court of Appeals of Virginia acknowledged that VinoShipper had an “innovative and efficient wine-shipping model,” but nevertheless held that model was not properly tailored to comply with Virginia’s Alcohol Beverage Control Act for sales made to Virginia consumers.

Clark Hill’s team has significant experience counseling clients on the various laws covering direct-to-consumer alcohol beverage sales and shipment.  If you have any concerns about your business or want to confirm that your operations comply with the laws and regulations governing alcohol beverages, please reach out to Jason Canvasser or Bryan G. Schatz, or your usual Clark Hill contact.

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