Archive for September, 2010
H.R. 5034 Update: Revision Reignites Debate, Important Hearing Set for Wednesday
September 28th, 2010
When H.R. 5034 (also known as the Comprehensive Alcohol Regulatory Effectiveness, or “CARE” Act) was introduced on April 15, 2010, the opposition responded quickly and forcefully. Supplier organizations were united in their opposition to the bill, referring to it as the “wholesalers monopoly protection bill”. Even the California State Legislature issued a resolution, SJR 34, that urged Congress not to pass H.R. 5034.
Proponents of the bill, including the National Beer Wholesalers Association (NBWA) and the Wine & Spirits Wholesalers of America (WSWA) claimed the proposed legislation was necessary to protect state-based regulatory systems from “attack” (i.e., legal scrutiny under the U.S. constitution), claiming that “25 states have faced challenges in federal courts to their authority to regulate alcohol and their ability to maintain a licensed system of alcohol controls” since 2005.
Following months of intense debate, heated rhetoric, and an incredible amount of public relations and lobbying activity on both sides, the House Judiciary Committee did not schedule the bill for a hearing until after the August congressional recess. During the recess, Representative Bill Delahunt, lead sponsor of H.R. 5034, sent a letter to House Judiciary Committee Chairman John Conyers Jr., introducing new text in an what he terms effort to “perfect the language”, following “concerns about unintended [sic] consequences of the language as written”.
To help clarify the changes from the original version of H.R. 5034, we put together a redline document that highlights the revisions. The main change is the removal of section 3c, which established the presumption of validity and shifted the burden of proof in legal actions involving the regulation of alcoholic beverages. Like the original bill, the new version would immunize state laws that effect non-facial discrimination, such as capacity caps and in-person purchase requirements, if the discrimination were not proved to be “intentional”.
To better understand the revisions and the corresponding responses, we spoke with individuals from each of the tiers (the “three-tier system” includes suppliers, wholesalers and retailers) that are on the front lines of the debate.
Wholesaler organizations laud the new version as meaningful change. “While the proposed changes to the legislation address a narrower set of deregulatory concerns than the original legislation, it is certainly a step in the right direction,” says Karin Moore, Vice President and Co-General Counsel at WSWA. “The new version clarifies that the Granholm holding prohibiting facial or intentional discrimination against out-of-state producers remains the law of the land by incorporating the exact language used by Justice Kennedy in that landmark decision. The new language clearly and unequivocally confines itself to dormant Commerce Clause challenges, and addresses many of the concerns raised by opponents of the bill.”
Cary Greene, Chief Operating Officer & General Counsel at WineAmerica, sees broader implications. “There are many cases other than Granholm that elucidate how states can regulate interstate commerce in alcohol. As revised, 5034 would undermine or reverse dozens of court decisions. By scrambling settled case law, 5034 will cause years of re-litigation to try and figure out exactly what the new limits are. The fact is courts have not done anything to jeopardize core Twenty-first Amendment powers. State laws run into Constitutional trouble when they try to do something underhanded like fix prices or give an unfair market advantage to certain licensees or products. 5034 allows states to blatantly discriminate against out-of-state products without any concern for Twenty-first Amendment core purposes. From a policy standpoint, I’m not sure why that would ever be a good thing.”
“The problems with HR 5034 remain significant, despite the changes to the language,” says Tom Wark, Executive Director of Specialty Wine Retailers Association. “Discrimination against out of state products would still be allowed on a number of levels and consumers are bound to be hurt by this legislation. Significantly for retailers, HR 5034 would strip wine retailers and merchants everywhere in America of their protection under the Constitution’s Commerce Clause from discriminatory state laws. It has happened only one other time in American history that an entire industry lost its Constitutional guarantee of free and open markets based on the constitutional principle of non-discrimination. Wine merchants would be catastrophically disadvantaged by H.R. 5034.”
A hearing in the House Judiciary Committee will take place at 11:00 ET this Wednesday, September 29th. This is an important hurdle in the process of moving legislation through Congress. Expert witnesses will testify in front of the full committee on Wednesday, and many parties will also provide written testimony to debate both sides of the bill. Barring technical difficulties, the hearing should be available via live webcast. Click here to watch the webcast (RealPlayer required).
So, what are the chances that H.R. 5034 will pass? Well, it’s important to note that the bill has 146 (not an insignificant number) co-sponsors from both parties in the House. On the other hand, supplier organizations continue to be unified in their opposition (Click here to view the joint opposition letter issued by the Brewers Association, WineAmerica, Distilled Spirits Council of the United States, Wine Institute, Beer Institute, and National Association of Beverage Importers on the revised 5034). We hope to learn a lot more in the hearing on Wednesday.
If H.R. 5034 moves through both chambers of Congress (no companion bill having yet been introduced in the Senate) and is signed by President Obama, not much would change overnight. Despite numerous reports that it would mean the end of direct shipping, it would not change current state laws that allow direct shipping. It would likely be an uphill battle to completely repeal existing direct shipping laws in most states. However, H.R. 5034 would open the door in states like Florida, New Mexico, and Massachusetts, where the direct shipping laws are in flux because of court cases and Granholm issues, for new state laws that introduce non-facial discrimination such as caps on production capacity (proposed for the last several years in Florida and recently nullified as unconstitutional in Massachusetts) or in-person purchase requirements. It would also provide discriminatory options for the remaining holdout states, such as Maryland, if their resident consumers’ support for direct shipment should become effective. With potentially greater long-term significance, it would tilt the field decidedly against extension of Granholm’s nondiscrimination principle to interstate retailing by non-producing shippers and to interstate wholesaling.
Kansas Issues Revenue Ruling and Amends License Term
September 20th, 2010
Governor Parkinson of Kansas signed SB 452 into law, changing the license term for a Special Order Shipping License from one year to two years. The legislation became effective on July 1, 2010. The fee for a new Special Order Shipping License was adjusted to $150 to reflect the new two-year license term. Current holders of a Special Order Shipping License are now required to renew their license for a period of two years and pay a $110 fee. Wineries applying for a new license have two options. Option 1) Pay the two year license fee in full. Option 2) Pay half of the license fee plus the registration fee with their application and pay the remaining half of the license fee plus a 10% surcharge within one year of the date the license was issued. It should be noted that a failure to pay the remaining license fee and 10% surcharge by the due date will result in the automatic cancellation of the license.
On August 23, 2010 the Kansas Department of Revenue issued Revenue Ruling, No. 19-2010-03 which states that taxpayers are not required to remit alcoholic beverages gallonage tax due and owing for the reporting period, if the amount is less than $5. The change in policy was made due to the administrative costs associated with processing payments of less than $5. The ruling does not exempt a licensed direct shipper from any reporting requirements. The reporting period for Special Order Shipper Licensees is one calendar year. Gallonage reports are due no later than January 15th of the following year.
The Special Order Shipping License is required for all offsite shipments to consumers in Kansas and requires wineries to use an approved age verification service and to pay enforcement tax and gallonage tax when applicable. The shipping license is not required for on-site sales. Any winery may ship to a Kansas consumer that purchases wine when visiting their tasting room. Applications and additional direct shipping information is available on the Wine Institute website.
-Annie Bones, State Relations, Wine Institute
Massachusetts Remains Elusive for Direct Shippers
September 16th, 2010
On 1/14/10 the First Circuit Court of Appeals in Boston ruled in favor the plaintiff in the Massachusetts FWC v. Jenkins litigation. The ruling affirmed the lower court’s order that struck down the capacity caps and wholesaler exclusions which are included in the Massachusetts direct-to-consumer shipping statute and prevented over half of the wineries in the United States from being eligible to ship to MA consumers. On 4/12/10 the state announced that they will not be seeking an appeal to the Supreme Court, thus leaving this decision as the final law in the 1st Circuit. Despite the favorable ruling, obstacles continue to make shipping to consumers in MA problematic.
One very serious problem with the existing law not addressed during the FWC v. Jenkins litigation is an aggregate volume limit of 240 liters (26.67 cases) per household per year. The 240 liter volume limit refers to the total amount of wine each household can receive from all licensed direct shipper each year. It is not possible for a winery to track the amount of a wine each household receives via direct-to-consumer shipments, yet the licensed shipper is liable for any shipments that cause a household to exceed the 240 liter volume limit. The Massachusetts Alcoholic Beverages Control Commission (ABCC) has not provided any guidance on how to comply with this rule.
The licensing requirements for common carriers (FedEx and UPS) pose a second problem for direct shipping to MA. MA has extremely onerous licensing requirements that are difficult for common carriers to comply with. At this time, NO common carriers have approved MA for INTERSTATE* direct-to-consumer shipping. Only FedEx Ground services MA on a limited basis, and has a license for INTRASTATE** direct-to-consumer wine shipments. The common carriers provide updates on their wine shipping status on the respective websites www.fedex.com/us/wine and www.ups.com/wine.
Legislation was drafted and introduced during the 2010 legislative session that to address the problems with common carrier licensing requirements and direct-to-consumer shipping. However the legislature was primarily focused on election year issues and adjourned without passing the bills. It is anticipated that similar legislation will be introduced in 2011.
*INTRASTATE -Commerce having an origin, destination and entire transportation within one state
**INTERSTATE-Commerce that involves transportation of goods from one state to another
–Annie Bones, State Relations – Wine Institute
Controlled Shipping: HB 1352 Will Make Some Changes to New Hampshire’s Direct Shipping Laws
September 1st, 2010
HB 1352, a bill that includes changes to volume limits, permit fees, reporting requirements, and common carrier requirements, was signed by Governor John Lynch on July 15, 2010. Direct shipping is already available for wineries and retailers in New Hampshire, but the changes that will take effect on January 1, 2011 will have an impact on wineries, retailers and also on common carriers.
Consumer volume limits for wine will increase from the current 60 individual “containers” (none of which can exceed 1 Liter in size) per household per year, to 12 nine-Liter cases per consumer per year. Additionally, the Commission may provide allowances for more wine to be shipped to an individual consumer if the product is not otherwise available within the state. Direct shipping permits, previously free for both wineries and retailers, will now cost $100 for wineries and $500 for retailers, annually. Monthly “markup” (8 percent of the retail price for shipments of liquor, wine, beer, or beverage) tax reports will need only be filed if there are shipments to report, whereas previously, monthly reports were due even if shipments were not made.
If a permittee ships more than 600 Liters (previously set to 1,200 individual containers) of any particular liquor or wine, the permittee must offer to sell a matching amount to the state at the lowest price delivered into New Hampshire, if they want to ship more than the 600 Liter limit.
Effective January 1, 2011, common carriers (FedEX, UPS, etc.) will be required to cease shipments from wine shippers that do not hold valid shipping permits in the state of New Hampshire. An “unauthorized shipper” list will be provided by the Commission to the carriers on a monthly basis. This is a unique requirement for the common carriers to be responsible for maintaining a “do not ship from” list, blocking shipments into New Hampshire from unauthorized shippers.
