Twenty-first century bootlegging: unlawful wine shipments and direct-to-consumer laws

ABSTRACT

Direct to consumer (DTC) shipping has been a burgeoning segment of the wine industry for some time. However, regulatory policy has not kept pace with the growing reach and availability of these wines which has left this sector of economic activity prohibited in states that historically disallowed DTC wine shipping. Using detailed shipping records of wine shipments into the state of Oklahoma, a state that explicitly disallows direct shipping, we describe the nature of illegal wine purchasing in the face of prohibition by linking economic data from the American Community Survey at the zip code level for each purchase. We find that zip codes with 10% higher incomes purchase 7.4–9.3% more DTC wine, and that race is not a useful predictor in DTC demand. Our results have forward-looking relevance as well as more states amend their laws to allow DTC wine shipping. In just a  6-month period, an estimated $186,629 may not have been collected in excise and sales taxes in Oklahoma. This figure is plausibly a lower bound of future tax collections due to DTC prohibition.

KEYWORDS:

• Wine demand
• state regulation
• prohibition
• interstate commerce

JEL CLASSIFICATION:

• D12
• H26
• L66

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Some of these shipments were lawfully made to entities that are permitted to receive them, such as licensed nonresident sellers (brokers) who can lawfully have bottles shipped into their office for purposes of providing samples to wholesalers and/or retailers, and churches, who can purchase sacramental wine outside of the traditional three-tier system.

² Currently, Alabama, Delaware, Kentucky, Mississippi, and Utah all disallow DTC wine shipments.

³ This is typical of some other states’ alcohol policies as well.