Posted on | October 4, 2013
Written by | Keven Danow
On August 19th the New York State Liquor Authority held a second public forum on the issue of internet sales. In April, in response to a request by ShipCompliant for a declaratory ruling, the Authority prohibited relationships in which the licensed entity plays a passive role and/or is subject to no business risk; or allows another person or entity to take over retail functions including setting the price, selecting the inventory or product to be sold, determining the retailer’s profit on the sale, or allowing a third party to control how the funds are collected and disbursed; or allows a third party to participate in a substantial portion of the proceeds of the sale.
The attorney who supported Ship-Complaint’s application in April relied heavily on a California advisory on the same subject. However, Chairman Rosen noted that California requires that all sales must ultimately be controlled by the licensee who must accept or reject the sale and be in control of fulfillment and shipment. The Chairman also noted that the California advisory did not address whether or not a third party is permitted to receive a percentage of a sale as compensation. Nor did it address the related issue of the shift of the business risk away from the licensee. Consequently, Chairman Rosen summarized, California’s position was not at odds with New York’s.
Before taking comments, Chairman Rosen told the assemblage at the August 19th meeting that approximately two weeks earlier, Amazon went live as a third party advertiser of wine. At that time, Amazon only accepted New York wineries as vendors authorized to sell wine in New York. Chairman Rosen explained that prior to selling in New York, Amazon met with representatives of the New York State Liquor Authority, but elected not to seek a declaratory ruling before commencing operations in New York. Then the Chairman called upon Amazon’s attorney to explain the methods of operation adopted by that company for sales in New York.
The Amazon Factor
According to the attorney, any New York
winery that wants to sell on Amazon’s platform must request an invitation. Amazon then confirms the license qualification of the winery. To date, approximately 20 New York wineries have been invited to participate. Each pays Amazon a monthly subscription fee of $39.99 and a referral fee equal to 15% of its Amazon-related sales. The winery selects the products it will sell and uploads onto Amazon’s server information. The winery sets the price for each product as well as its internet sales policies. A customer who accesses Amazon’s site can scroll through a list of wines or search for particular varietal. Consumers who seek to purchase wine are listed in an area accessible by the winery which then determines whether or not to accept the transaction. If the transaction is accepted, the winery is responsible to fulfill the order. Amazon processes the credit cards of customers and remits 100% of the purchase price to the winery every 15 days. Every 30 days, Amazon collects its fees from the winery in a procedure Amazon’s attorney likened to the payment of a telephone bill.
As its attorney noted, currently Amazon only allows New York wineries to use its platform to sell into New York State. However, in the near future, Amazon is likely to include wineries located in other states with reciprocal shipping laws. Chairman Rosen iterated his feeling that it would have been better had Amazon brought its method of operation to the Authority and requested a declaratory ruling. Thereafter, Chairman Rosen suggested that Amazon would be making a mistake if, in the future, it provides fulfillment services within the state without that preapproval.
After hearing from Amazon’s counsel, the Chairman opened the floor for comments from interested parties. Comments touched on a number of issues including:
Interested parties will have to wait for the Authority to publish an advisory with definitive answers to these and other questions related to internet sales.