South Dakota warns about age verification, direct shipping enforcement
March 29, 2018
By Kristin Carlton, Vice President of Compliance
The South Dakota Department of Revenue (DOR) is putting wineries on notice that it will begin enforcing multiple provisions of the direct shipping statutes. In a “nice friendly reminder” email to those holding licenses to ship wine to South Dakota consumers, the DOR outlined five different provisions that they will start enforcing over the next month, including age verification, brand label registrations, tax returns, third party fulfillment warehouses, and free wine.
The DOR has already begun random “reviews” of licensees to make sure they are meeting the outlined provisions. If you’re shipping to South Dakota, now would be a really good time to make sure that you’re prepared for a random review by reviewing each of the sections below.
South Dakota law states the following:
Before shipping the wine, the direct shipper shall verify the age of the person placing the order by obtaining a copy of the person’s valid age-bearing photo identification document issued by this state, another state, or the federal government, or by using an age verification service. The direct shipper shall record the name, address, date of birth, and telephone number of the person placing the order on the order form or other verifiable record. The direct shipper shall notify the person placing the order that the recipient of the shipment is required to show a valid age-bearing photo identification document issued by this state, another state, or the federal government upon delivery.
To comply with the age verification requirements, wineries must choose from two different options:
2) Review a photo identification to ensure the individual is of legal drinking age, and store a copy of the identification ( driver’s license or passport). It’s important to note on this option that there are significant privacy concerns surrounding the storage of your customers’ photo identification. If you use this option, it’s essential that you secure these copies fully to prevent identify theft.
On top of verifying the age of the purchaser using one of the two options listed above, wineries must also:
A) Record the name address, DOB, and phone number of the individual purchasing the wine. These records must be stored for a period of three years for audit purposes
B) Notify the person placing the order that the recipient of the shipment is required to show proof of age when the common carrier (FedEx or UPS) delivers the wine.
The penalties for age verification violations are $1,000 for the first shipment in violation, and $2,000 for each subsequent shipment.
Brand Label Registrations
All brand labels being offered for sale to South Dakota consumers must be registered in advance of the sale. The DOR is actively reviewing winery websites to ensure that all products available for sale are registered.
The DOR is reviewing all tax returns for accuracy in reporting. To do this, the DOR is comparing the tracking numbers that are sent to them by the common carriers (FedEx and UPS) to the winery reports, which also must list the tracking number(s) that correspond to each order. If shipments are missing, or the appropriate tracking numbers are not provided, the licensee will go on a “non-compliance report” and will be asked to amend any returns found to be in error.
Third Party Fulfillment Warehouses
In the email, DOR notes that shipments sent from fulfillment warehouses are currently allowed, but only if the fulfillment house is only shipping on behalf of licensed wineries. If the DOR determines that a fulfillment house is shipping on behalf of unlicensed entities, they will ask the common carriers to stop accepting shipments (including from licensed wineries) from that fulfillment house. The email recommends that wineries that use a fulfillment house should provide a copy of their South Dakota license to the fulfillment house to prevent the hindrance of any shipments.
The email from DOR notes that wine shipped to South Dakota consumers can not be sold below cost, and therefore free wine or free bottles included in orders are prohibited. Further, taxes must be paid on each bottle shipped.
In summary, we expect the South Dakota DOR to begin enforcing these provisions of the law in the very near future. Please review your direct to consumer shipping programs and policies to ensure you are complying with each of the provisions outlined above.