Big City Fights May Emerge in the Wine Shipping Game

After years of budget mismanagement that is only getting worse, Chicago decided to expand its tax base by imposing its liquor tax on Direct To Consumer (DTC) winery shipments into the state. The new tax will treat a direct wine shipper like any retailer selling alcohol.

Say that again

Yes, Chicago will now tax a manufacturer of product like a retailer, which somehow blurs the lines between what exactly is a manufacturer and what is a retailer? In other words, Chicago is playing the game of I want to get my hands on the money and damn the legal realities.

The Chicago tax also becomes the first local tax on direct to consumer wine shipping and comes with some dubious traits. Louisiana passed a law where local sales tax applies to wineries but only if economic nexus is established. Under the Louisiana law the seller needs to meet the threshold sales amounts under Louisiana’s Wayfair laws.

There are two distinctions between the Chicago and Louisiana local tax law. First, in Louisiana the state enacted the law, while Chicago’s new taxing regime was imposed by the city.

Second, Chicago’s law goes after sellers without regard for nexus/jurisdictional concepts. Under the State of Illinois’ wine shipping law, the winery and/or the shipper consents to jurisdiction. Admitting that I am not a Constitutional expert on jurisdiction, what occurs if the winery does not meet the Illinois Wayfair threshold for sales of $100,000 per year? Can the city impose tax on a remote seller, or does consenting to jurisdiction with the state automatically equate to jurisdiction with city taxing authorities?

Registration Required

The new law requires a winery making DTC shipments into Chicago to submit a tax registration but does not require them to obtain a license.

Once the application has been approved, the winery is required to complete an Affidavit for Initial Tax Period Form. This affidavit acknowledges the winery is liable for remitting and collecting Chicago tax. The affidavit requirement is not mentioned in the law imposing the new tax. This affidavit seem to be the state equivalent to consenting to jurisdiction.

After this process is done, the winery needs to go to Chicago Business Direct and setup an account.

The tax is due on the 15th of each month starting in August.

Final thoughts

This will start a trend of cities wanting to get their hands into the DTC game. Chicago’s intent shows it wants as many tax dollars as possible and it wants entities taxed as retailers. As many states will introduce bills expanding wine shipping to retailers, will big city mayors become proponents of expanding wine retailer shipping? It would seem so as they are reading the tea leaves of consumer demand and growing markets.

The City blurring the distinction between manufacturers and retailers is troubling. This may be the only law in the country that does so. It is troubling that money grabbing authorities would not follow principles of proper tax policies.