Drop-Shippers Need Virginia License for Each Shipping Location
Drop shipping just took a body blow in Virginia. Drop shipping is a practice where a business sells a product it does not carry in stock but rather contracts with another firm to actually box and ship the order to customers.
In a case involving California-based VinoShipper, the court agreed with the Virginia ABC that because state law requires shippers to obtain a separate license for “each separate place” where business occurs, VinoShipper must get licenses for every place that selects, boxes and transfers packages to UPS on its behalf.
When customers buy wine through VinoShipper's website, it verifies they are at least 21 years old, and that their order doesn't violate any state law governing how much wine can be shipped to them. It then buys the wine from a winery, sends the winery a shipping label and a state-mandated notice that someone 21 or older must receive the delivery, and directs UPS to pick up the order from the customer and deliver it to the customer.
VinoShipper contends that shipping is a "process" rather than a single act and therefore "the only legally significant step in that process is when VinoShipper tells UPS to pick up the shipment from the winery for delivery to the customer in Virginia,” appeals court Judge Stuart A. Raphael wrote. “And because VinoShipper directs that activity (and all other activities) from its office in Windsor, California, it says that the ‘shipping’ takes place there and there alone.”
The court rejected VinoShipper's argument, explaining shipping includes "(1) receiving the customer’s order; (2) purchasing the wine from the wineries; (3) selecting and packing the wine in boxes for shipment; (4) affixing the shipping and over-21 labels; and (5) tendering the package to UPS for delivery to the customer.”
“That VinoShipper delegates the third, fourth, and fifth steps to the wineries does not mean that VinoShipper does not perform those essential selling and shipping functions; it just does them through entities without their own Virginia license, using those entities’ employees,” he continued.
Raphael conceded VinoShipper “may have developed an innovative and efficient wine-shipping model that is ideal for a ‘just-in-time digital economy,’” but “that model does not currently comply with Virginia law.”
“The General Assembly has amended the ABC Act to account for technological innovations,” he said. “Whether the ABC Act should be amended again to accommodate VinoShipper’s business model is the General Assembly’s choice, not ours.”