Monday, November 29, 2010

Wine Industry News

FWWS Tax Reporting Relief Act Becomes Reality – In Idaho

The State of Idaho recently adopted rules allowing wineries, at their option, to report and pay their liquor taxes annually as long as they have less than $600 in quarterly tax liability. The Idaho rules actually allow qualifying wineries to report monthly, quarterly, semi-annually, or annually, at their option. The rules save time and money for both the wineries and the state – an important virtue in these recessionary times. The Idaho law is very much like what FWWS has been proposing to the Liquor Board and in the Washington Legislature for three years. The Washington Wine Institute has thus far declined to support this legislation citing a “lack of safeguards” similar to federal annual reporting. It is not clear to us what such safeguards might be since Washington has no tax bond requirements even for the largest wineries, but we are hopeful that in future the Wine Institute will join us in supporting our proposal for this positive change. As Idaho has clearly demonstrated, this sort of reform is achievable.

Governor Suspends Agency Rulemaking

On November 17, Governor Gregoire signed Executive Order 10-06 “Suspending Non-Critical Rulemaking and Adoption.” The stated intent of Governor Gregoire’s order is to relieve the burden on small business of implementing and adopting agency rules. FWWS has contacted the Governor’s office to express thanks for her recognition of the adverse effects of such burdensome regulation, and noted that advocating for such regulatory relief is one of the founding purposes of our organization.

An immediate effect of this rule on our industry was to table rulemaking on five topics, including rules proposed by the Washington Beer and Wine Wholesaler’s Association that would have allowed distributors to charge fees for split cases (ironically a form of volume pricing). As noted in a Memo from the Governor’s office, rulemaking may continue for various reasons including implementation of laws or court orders, public safety emergencies, and “negotiated rule making or pilot rule making that involved substantial participation by interested parties.” The grocery store sampling program is proceeding through rulemaking under the latter noted exception. The alcohol energy drink and chronic alcohol impact area rulemaking processes are proceeding under the public safety exception.

What is a Winery, Northwest Style

Much has been heard lately under the subject heading of “What is a Winery?” The Washington Wine Institute (WWI) has been speaking out about this issue for well over a year. FWWS learned this past summer that the Washington State Liquor Control Board (WSLCB) has been working with the WWI since at least June on this issue and apparently shares some of the concerns of the WWI with regard to definition. Since the WSLCB’s involvement clearly makes this an industry-wide issue, we asked for a copy of the bill. We were referred back to the WWI which has repeatedly claimed that the bill is “not yet drafted.” Repeated requests to the WSLCB for an outline of their specific issues of concern that would be addressed by the expected bill have thus far gone unanswered. At this point it is unclear to us what current business models may be in violation of current State statute, and we believe it would be unproductive to speculate on that topic. We are concerned that if not carefully drafted, such a bill could theoretically infringe on business privileges and practices currently enjoyed by Washington wineries. We are presently seeking clarification of this issue via a meeting with the WWI, the WSLCB, and a key legislator. We will present further information on the specifics of this proposal and FWWS’s position when such becomes available.

Interestingly, there is a current proposal in Oregon on the subject of defining a winery. This proposal, by the Oregon Beer and Wine Wholesalers’ Association, has as one central feature a requirement that wineries “produce” at least 75% of the wine they sell. Depending on how the term “produce” is defined, this could result in a severe limitation on “negociant” wines produced under license at facilities owned by others. We believe this is a serious concern given that using the economies of scale inherent in larger facilities is a proven way for small wineries to become larger wineries. We believe negociant wine to be a simple matter of brand ownership and/or alternating premise designation. We are not aware of any Federal law that presently precludes such a practice.

As stated above, we do not wish to speculate on what may or may not be in any eventual bill put forward by the WWI. We stand ready to support any bill which makes legal currently used winery business models that are not presently allowed under State law. Since FWWS has never opposed a proposal of the WWI, and since it would be preferable to have our concerns addressed ahead of time to avoid such an opposing stance, the WWI’s lack of communication on this matter is regrettable. We will keep you posted and hope to be able to report shortly that our concerns in this regard have been satisfactorily answered.

Texas Shipping Ban Survives Another Challenge

In a very unfortunate result, the State of Texas shipping policy, which discriminates against out-of-state retailers, has won another round in court. The Second Circuit Court of Appeals held that Texas’ ban on direct shipments by retailers was constitutional despite the clear violation of the commerce clause. This is a rather stunning result in that it goes completely against the grain of the Granholm decision which found such discrimination in the case of wineries (i.e., discriminating in favor of in-state wineries and against out-of-state wineries with regard to shipping regulations) to be in violation of the commerce clause of the US Constitution. As you are probably aware, the wholesalers have responded to Granholm in the US congress by proposing HR-5034 to have congress give up its exclusive right to regulate interstate commerce with regard to wine, thereby allowing states like Texas to openly and brazenly discriminate against wineries such as yours. Incredibly, the Circuit Courts seem to be suggesting that the commerce clause does not protect wine retailers in interstate commerce the same way that the Supreme Court has ruled it protects wine producers. The Specialty Wine Retailer’s Association, an FWWS affiliate member, has made appeal of this case its highest priority. Since FWWS believes that retailers are in the best position to navigate the myriad state shipping regulations, and since sales margins to retailers are vastly higher than those to wholesalers, we feel this issue is of vital importance to Washington wineries. We will be following this issue closely. Stay tuned!

HR-5034 Becomes Zombie - Stalks Halls of Congress

HR-5034 is the current attempt by the beer and wine wholesalers to have Congress abdicate its right to regulate interstate commerce, and allow states to enact laws which once again openly discriminate against out-of-state wineries in shipping. Despite more than 100 co-sponsors in the House of Representatives, HR-5034 was apparently too blatant to survive intact. Its sponsor, Massachusetts Representative Delahunt, offered changes to the bill in September that gave lip service to concerns about discrimination, yet provided virtually no barrier to the effective overturn of the Granholm decision. So the bill is not dead but lives on like a zombie. Its future is uncertain. While Representative Pelosi’s loss of the House Speaker’s chair removed a potentially overpowering opponent hailing from California, the Country’s largest wine-producing state, Democratic Representative Delahunt, perhaps sensing the same tide that took Speaker Pelosi’s seat, chose not to seek re-election in 2010. Rest assured that the wholesalers’ lobby will not cease their dousing of congress with their large diameter money hose. This issue will require constant vigilance.

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