Posted on | February 20, 2014
Written by | Keven Danow and Arielle Albert
On January 14th, 2014, the New York State Liquor Authority (SLA) approved a liquor license for a package store to L18 Holdings Inc. (Lot 18). The approval of Lot 18’s license is significant because Lot 18 will be engaged in Internet sales from the retail package store.
The current application is Lot 18’s second attempt to operate in the New York market. In April of 2013 the SLA issued Declaratory Ruling 2013-01006A, responding to a request from ShipCompliant, a technology compliance provider. ShipCompliant sought guidance on Internet sales through unlicensed third party advertisers.
Before responding to ShipComplaint’s request, the SLA conducted an independent investigation into the actual procedures used by unlicensed Internet advertisers already operating in New York State. At the time the investigation commenced, Lot 18 was acting as a third party advertising company facilitating in the sale of wine by another retailer over the Internet. However, the SLA found that Lot 18 was more than a mere facilitator and criticized the company for playing a proactive role in the sale of alcohol while the licensed retailer remained passive. At the time, Lot 18 was selecting the wines sold on the website, receiving a fee for each bottle sold and paying the retailer a flat fee per bottle. Following the 2013 Declaratory Ruling, Lot 18 ceased operating in New York and sought the advice of the SLA on how to legally enter the New York market.
After extensive discussions with Counsel to the Authority, Lot 18 purchased an existing package store and obtained an off premise license. As a retail licensee, Lot 18 operates a bona fide brick and mortar store, sells wine via its website and relies on its third party “marketing partners” to help advertise the company.
Of paramount importance to the SLA was the method by which Lot 18’s marketing partners are compensated for services. The Members of the Authority sought assurances that these advertisers are not actively engaged in the sale of wine or availing on Lot 18’s license. Before approving its license, the Chairman asked Lot 18’s representatives to address these issues before the Full Board.
Lot 18’s representatives characterized their three compensation methods as a “per customer” system but not per revenue or per profit. First, certain vendors like Facebook are compensated for the number of times a consumer clicks a Lot 18 advertisement posted on Facebook. Second, Public Relations vendors receive a flat fee per month for services. Lastly, other vendors, such as media companies, are compensated on a fixed customer basis when individuals register for Lot 18’s mailing list through an advertisement on the vendor’s website.
None of Lot 18’s marketing partners will receive any profit from the wines sold, or have an impact on the online wine offerings. Lot 18 representatives explained that vendors have the opportunity to receive “bonus” payments for providing “high quality customers” but made certain to clarify that the bonus payments are not conditioned on the purchase of alcohol; They are made when a customer maintains a Lot 18 membership for a specified period of time.
The approval of Lot 18’s liquor license clarifies the type of relationships retail licensees may establish with third party marketers that are considered legal by the SLA. Furthermore, it gives insight into the SLA’s position. It seeks to encourage business and economic growth, but only within New York’s legislative scheme.
Sell Untaxed Alcohol, Lose Your License
The manager of a Brooklyn package store was arrested for selling untaxed and illegally purchased alcoholic beverages. The individual was accused of receiving over 1,000 liters of untaxed alcohol, imported from New Hampshire. If the charges are proven, his license will be revoked.
With the exception of private collections, New York law forbids a retail licensee from purchasing alcoholic beverages from anyone who does not have a supplier or wholesale license. In addition, section 427 of the New York Tax law requires the retail licensee to obtain an invoice from that wholesaler attesting to the payment of the excise taxes. If the retailer cannot produce such an invoice, there is a presumption that the taxes have not been paid. If it cannot prove they were paid, the retail licensee becomes liable to pay that tax. Moreover, if the SLA determines that the retailer intentionally purchased untaxed beverages, it may revoke that retailer’s license.