Appendix G - Internet Sale of Alcohol
Chapter 10
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1. Nature of the Potentially Unlawful Conduct
Internet sales of alcohol beverages have caused direct shipments of such beverages to consumers to proliferate. Selling over the Internet allows small alcohol producers to reach consumers well beyond their immediate area. These Internet sales of alcohol beverages enable adults - and, potentially, minors - to receive products that are not ordinarily available through traditional distribution channels.
Fifteen states have established reciprocal arrangements that permit the shipment of wine (but not beer or distilled spirits) into their jurisdictions from one reciprocal state to another. Sales by alcohol marketers are not, however, limited to consumers in other reciprocal states. In many cases, these marketers may ship to consumers in other states, a practice that may violate state alcohol control laws. Even if federal excise taxes are paid on these products, direct shipments to consumers across state lines causes a loss of state tax revenue and may result in federal and state regulatory violations. Such regulatory violations may include deliveries to underage persons and the sale of unregistered brands in a state. The sale of unregistered brands results in a loss of state registration fees, state excise tax revenues, and local sales tax revenues.
2. Analysis of Existing Law
Under the Federal Alcohol Administration Act, the Bureau of Alcohol, Tobacco and Firearms ("ATF") issues "basic permits" to importers, producers (except brewers), and wholesalers of alcohol beverages. See 27 U.S.C. § 204. Retailer sellers of alcohol beverages are not required to have a federal permit. The Webb-Kenyon Act, 27 U.S.C. § 122, prohibits the shipment of alcohol beverages into a state in violation of state law. Although the Webb-Kenyon Act has no separate penalty provisions, basic permits are conditioned on compliance with that statute.
As a result, ATF may, depending on the circumstances, take administrative action against a permittee that ships alcohol beverages into a state in violation of that state's law. ATF may also intervene if there is a continuing material adverse impact upon a state by an out-of-state permittee. Many of the entities selling on the Internet are, however, state-licensed retailers that do not hold federal basic permits and, therefore, are not subject to ATF's administrative sanctions against permittees.
Also relevant are the liquor traffic provisions of 18 U.S.C. ch. 59, which require any shipment of alcohol beverages in interstate commerce to have a bill of lading that identifies its contents, and which require deliveries to be restricted to the consignee. Some state laws allow limited quantities of alcohol beverages to be shipped directly to consumers, although in some instances notifications to state alcohol agencies may be required.
3. Investigatory Challenges
The primary issue concerning the sale of alcohol beverages over the Internet is the difficulty sellers have in determining whether a purchaser is underage. Some minors could conceivably seek to use credit cards, legitimately or not, to place an order through the Internet and have alcohol beverages delivered through a shipping company. Several websites require purchasers to "certify" that they are of legal age either by clicking on part of the webpage or by faxing a copy of a driver's license. Restricting the delivery of alcohol beverage to situations where proof of age is obtained and recorded would assist in preventing access to alcohol beverages by underage persons. Currently, however, there is a significant potential for abuse in the sale of alcohol to minors.
A second investigatory issue relates to the broader issue of jurisdiction. An out-of-state seller that sells alcohol beverages through a website is not generally licensed by the state, and state courts often have difficulty establishing jurisdiction over such sellers. Under certain circumstances, as noted above, ATF may take administrative action against a permittee that ships alcohol beverages into a state in violation of the laws of that state. This authority would not reach situations where a retailer in one state ships to a purchaser in another state, because retailers are not required to have basic permits. But if the in-state purchaser resells the alcohol beverages, the out-of-state retailer then becomes a wholesale agent, against whom ATF may take enforcement action.
4. Specific Federal Legislative Initiatives
The Violent and Repeat Juvenile Offender Accountability and Rehabilitation Act of 1999 (H.R. 1501 and S. 254, 106th Congress), as passed by the Senate last year, contained two provisions related to Internet sales of alcohol beverages. Although these proposals were not ultimately passed, they are likely to be advanced again:
- The first provision, sponsored by Senators Byrd and Hatch and Representative Ehrlich, would amend the Webb-Kenyon Act, 27 U.S.C. § 122, to allow state Attorneys General to obtain preliminary and permanent injunctions in federal court against persons who engage in any act that constitutes a violation of state law regulating the importation or transportation of alcohol beverages.
- The second provision, sponsored by Senator Feinstein, would amend the liquor trafficking prohibitions, see 18 U.S.C. ch. 59, to require persons who ship alcohol beverages in interstate commerce to label the packages as containing alcohol beverages and to require shipping companies to obtain the signature of the person receiving delivery and to verify that that person is of legal age for the purchase of alcohol beverages within the receiving state.
In addition, in August 1999, the House of Representatives passed the Twenty-First Amendment Enforcement Act, H.R. 2031, which would amend the Webb-Kenyon Act to permit state Attorneys General to obtain injunctions in federal court (an approach similar to the first provision in the juvenile crime bill noted above). The bill provides that nothing in it permits state regulation or taxation of Internet services or authorizes injunctions against interactive computer services or electronic communications services.
5. Conclusions
As existing laws address the legality of shipping and selling alcohol beverages in interstate commerce, the primary issue concerning the sale of alcohol over the Internet is the potential anonymity of the buyer. The anonymous nature of the Internet makes its difficult, using current technology, for a seller to verify at the time of sale whether a prospective purchaser is of legal drinking age. In addition, the Internet facilitates direct shipments of alcohol beverages to consumers across state lines, resulting in a loss of state registration fees and state excise and local sales tax revenues and possibly resulting in federal or state regulatory violations.
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