Author Archive
Introduction to CARE Act Series
April 5th, 2011
HR 1161 (The Community Alcohol Regulatory Effectiveness Act)—formerly known as HR 5034, is one of the most important pieces of alcohol-related legislation introduced into Congress in many years…as well as one of the most divisive. If passed, the bill would provide the states with greater authority, granted directly by Congress, to regulate the sale and distribution of alcohol, including beer, spirits and wine.
No piece of legislation, either in the various state legislatures or in Washington, has generated so much discussion (and hyperbole) within the wine industry. Because of the flood of claims, counter claims, misinformation and because of the importance of this issue to every tier, we thought it was important to get all views on the table for the industry to see, evaluate and discuss.
Over the course of the next few weeks, you will hear from people directly involved in helping pass or defeat HR 1161 as well as other industry experts. We believe that the best path to understanding the issues behind HR 1161 is to hear from those that are close to the issues.
If you oppose HR 1161, you are bound to read ideas you disagree with. The same goes for those of you who support the bill. We think that is good and this is in fact our motivation for delivering this series of guest posts by industry leaders involved in the debate over the CARE Act.
We hope that upon reading the coming posts on this issue, you will join into a discussion. Please feel free to contact me if you have any questions about the coming series of posts concerning HR 1161 or have an additional contributor you believe ought to be given the opportunity to be heard on the issue: (jeff) (at) (shipcompliant.com)
To find all posts in this series, please click here.
Son of 5034: C.A.R.E. Act Re-Introduced as HR 1161
March 21st, 2011
If you have been following the debate over the CARE (Community Alcohol Regulatory Effectiveness) Act for the last nine months, it should be no surprise that the bill was re-introduced in the US House of Representatives last week. Proponents of the bill, including the National Beer Wholesalers Association (NBWA) and the Wine & Spirits Wholesalers of America (WSWA) had hinted for months that it would be re-introduced in the 112th Congress after the previous version was heard, but did not move out of the House Judiciary Committee in the 111th. As expected, HR 1161 was introduced just before the NBWA Annual Legislative Conference, which will take place March 27th-30th in Washington, D.C.
When comparing the text (see our redline version) of the current bill to that of the revised version of the original bill (HR 5034) from September, you’ll notice that not much changed in terms of substance. Aside from the assignment of a new bill number (HR 1161), the re-introduced bill was renamed to be the “Community” Alcohol Regulatory Effectiveness Act of 2011 from the “Comprehensive” Alcohol Regulatory Effectiveness Act of 2010. The Purpose (Sec. 2) and Declaration of Policy (Sec. 3a) were also rewritten and are now slightly more concise. However, the meat of the Act lies within the Construction of Congressional Silence (Sec. 3b) and the Amendment to Wilson Act (Sec. 4), both of which were untouched. For additional background on the CARE Act and its potential effects, see our previous post, which was published just before the House Judiciary Committee hearing on September 29th, 2010.
Because HR 5034’s lead sponsor, Bill Delahunt, retired from congress last year, HR 1161 has a new lead sponsor in Rep. Jason Chaffetz of Utah. Rep. Chaffetz was one of the original co-sponsors of HR 5034, which was shelved with 152 total co-sponsors. HR 1161 was introduced with only eight co-sponsors last week, but that number will certainly grow as the lobbying efforts begin to ramp up. The bill has yet to be introduced in the Senate.
And so the battle continues. NBWA and WSWA both applauded the introduction of HR 1161 as necessary to enable “states to defend their alcohol laws from litigation designed to eviscerate state control over alcohol policy decisions.” A coalition of supplier groups, including the Brewers Association, Beer Institute, Distilled Spirits Council of the United States, Wine Institute, National Association of Beverage Importers, and WineAmerica, remain opposed and immediately responded by referencing their preemptive February joint producer letter to Congress urging them to refrain from spending “valuable time wading into an intra-industry squabble and unraveling a successful regulatory structure to the detriment of consumers, the industry, and the federal interest in a fair, competitive, and orderly marketplace for alcohol beverages.”
“Ultimately, this legislation is about who should make decisions regarding alcohol regulation, not what those decisions should be,” said NBWA President Craig Purser in a statement. “Alcohol is different than other consumer products and that’s why the 21st Amendment to the U.S. Constitution created a state-based system of alcohol regulation that effectively balances local community control, tough consumer protections as well as choice and variety. The majority of Americans believe that laws regarding the regulation of alcohol should be made at the state and local level – and so do we.”
Paul Kronenburg, President of Family Winemakers of California, summarized the supplier opposition to HR 1611. “Family Winemakers of California (FWC) remains opposed to efforts at the national level to undermine the Commerce Clause and embolden states to pass discriminatory alcohol laws. Rarely are states reluctant to regulate and they don’t need H.R. 1161 to remind them of their authority. Florida is a prime example where wholesalers recently introduced a production cap bill despite last year’s Massachusetts decision finding caps unconstitutional. FWC will work with others to preserve our national economic union and consumer choice by opposing H.R. 1161.”
"We see HR 1161 as a radical departure from the principles of a single economic union laid down in the Constitution," said Tom Wark, executive director of the Specialty Wine Retailers Association. "This bill would revoke all Commerce Clause protections against discriminatory state laws that wine retailers currently enjoy and would undoubtedly lead to protectionist laws that hurt retailers and consumer access to wine, beer and spirits."
In a previous post, we discussed how the CARE Act would not change anything overnight, despite hyperbole to the contrary. Effectively, it would allow states the ability to pass new laws that include non-facial forms of discrimination such as capacity caps, in-person purchase requirements, and limits on production capacity. One certainty is that the hyperbole and rhetoric on both sides will escalate as the industry associations dig in and make their case for (and against) federal legislation. Wholesaler groups are going out of their way to say that this is not an “intra-industry” squabble, but the battle lines are currently drawn with wholesalers united on one side, and suppliers united on the other.
Further Reading:
HR 5034 Bill Summary and Status
HR 1161 Bill Summary and Status
NBWA Press Release
WSWA Press Release
Beer, Wine and Spirits Producers Press Release
Viewpoint: Back to the Future with HR 5034 (June 2010)
H.R. 5034 Update: Revision Reignites Debate, Important Hearing Set for Wednesday (September 2010)
Marylanders for Better Wine Shipping Laws
January 30th, 2011
Following a very favorable report from Comptroller of Maryland Peter Franchot, and years of efforts by the constituent group Marylanders for Better Beer & Wine Laws, bills to allow direct shipments from wineries inside and outside of Maryland were introduced in both chambers of the General Assembly on Friday. According to Free the Grapes!, 83 delegates and 32 Senators have signed on as co-sponsors of the legislation, and the bill is also endorsed by Maryland Wineries Association and Wine Merchants Association of Maryland. Maryland is a felony state and currently one of the 13 states that prohibit offsite wine shipments.
House Bill 234 and Senate Bill 248 follow closely the recommendations of Franchot in his Direct Wine Shipment Report. The new $100 Direct Wine Shipper’s Permit that renews annually at $50 would allow licensees to ship no more than 24 9-liter cases of wine annually to any one consumer in Maryland. Licensees would be required to submit to the jurisdiction of the Office of the Comptroller and remit quarterly sales and excise tax reports. An interesting feature of the bill, as recommended by Franchot, is a prohibition on delivery of wine shipments on Sundays. Licensees would be able to ship wine via common carriers, who must also get a $100 Common Carrier Permit and file quarterly reports of shipments.
Based on the broad sponsorship and many endorsements, it seems likely that Maryland consumers will have access to direct wine shipments this year, although stranger things have happened in the legislative process. Winery direct shipping marketers might want to get to work on a business plan for opening up a brand new market for wine direct shipments in 2011.
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.
The Lone Reciprocal State
August 5th, 2010
New Mexico Stands Alone
In 2004, 13 states had wine shipping reciprocity provisions. Essentially, reciprocal states allowed any winery to ship into their state as long as that winery’s state allowed an equal reciprocal privilege. The Granholm decision of 2005 effectively declared reciprocity unconstitutional (pop quiz: would reciprocity provisions be beyond challenge if HR 5034 passed?). Since then, 12 of the 13 reciprocal states have adopted permit systems that allow wineries from any state to ship in as long as they stay in compliance with the direct shipping rules. Now that Iowa’s new permit system is live, New Mexico stands alone as the only remaining reciprocal state. Previous attempts to bring New Mexico into compliance with Granholm have to date been unsuccessful, so the reciprocity statutes remain in effect.
Don’t Forget to Remit Iowa Excise Taxes
Speaking of Iowa, effective July 1st wineries from any state (previously the reciprocity provision restricted the states from which wineries could ship into Iowa) can ship into Iowa so long as they are actively licensed as a "Wine Direct Shipper". Licensed shippers are required to remit excise tax monthly to the Iowa Department of Commerce – Alcoholic Beverages Division (ABD), and the first excise tax report is due this month. Each monthly report should be postmarked by the 10th of the month.
Although it’s possible that electronic filing may be available in the near future, for now the ABD is requiring that licensees complete the Report of Wine Shipments to Iowa Consumers spreadsheet, print it out, and mail it to:
Iowa Dept. of Commerce, Alcoholic Beverages Divisions
ATTN: Tax Division
1918 S. E. Hulsizer Road
Ankeny, IA 50021.
The form is fairly self-explanatory. For each shipment, licensees fill out the name and address of the recipient, the date of shipment, invoice number, total gallons of wine shipped, the shipping company (UPS, FedEx Express, or FedEx Ground), the amount of wine tax owed (multiply total gallons by $1.75), the permit number of the shipping company (UPS=AC0000003, FedEx Express=AC0000002, and FedEx Ground=AC0000001), and the tracking number of the package(s) that shipped. Reporting the tracking number and shipping company is not new to wineries as New York, Missouri, and Virginia all require one of the two data points.
Once you have completed filling out the spreadsheet, print out the completed form and make your payment out to “Iowa Alcoholic Beverages Division”. Stuff your envelope with the form and the check, and make sure it is postmarked by August 10th!
