Thursday, February 3, 2011

Legislative Update

Dear FWWS Member,

Last Thursday all four of our current bills received a hearing before the Senate Labor, Commerce and Consumer Protection Committee. While this is great news, the Washington Wine Institute, the Washington Beer and Wine Wholesaler’s Association and others testified against three of our bills. Additionally, the WWI has reportedly briefed their membership specifically in regard to their opposition to these three bills. We certainly respect the right of the WWI and others to oppose our bills, and we welcome specific criticism and input. However, we believe many of the points raised by the WWI reflect a fundamental misunderstanding of our bills. To set the record straight and for the benefit of our members, particularly those who are also WWI members, we offer the following information:

SB-5258 Concerning Methods of Payment for Alcoholic Beverages (“Payment Parity Act”)

A winemaker and WWI Board member testified in regard to this bill as follows:

“As I understand it, there are no enforcement mechanisms in this legislation in the event that I was to not receive payment. I have no accounting department; I have no process for tracking down unpaid invoices. Some might argue that this is only five days, but for my husband and I who depend on prompt payment, ‘the check’s in the mail’ just won’t work for us.”

The fact is that under our Payment Parity Act, the status quo remains due-on-receipt. Our bill would give wineries the option of entering into a written agreement with individual customers to allow one business day, not five, to mail a check. The five day period is for completion of the transaction (receipt of the check). These are the existing terms for Electronic Funds Transfers (“EFT’s”) and are not being changed by our bill. We just want the same terms applied to checks as well. Presently, if you choose to leave a case of wine with a customer without receiving payment, you are breaking the law, and you have no recourse for payment whatsoever. Under our bill, if you have a customer who is difficult to connect with on delivery, and if they are mutually agreeable, and if you enter into a written agreement with them, you can receive payment after the fact. If they fail to pay you, they, not you, are in violation, just the same way that they would be in violation if their check bounced, and with the same enforcement provisions. The full force of the liquor code applies, including licensing sanctions. The current law does not change under our Payment Parity Act. The bill does not represent an expansion of credit; it represents an expansion of convenience equivalent to that extended in 2009 for EFT transactions.

Senate Bill 5257 Concerning Craft Wine and Wineries

Critics claim that this bill “Declares that wine made by wineries producing less than 25,000 gallons a year can be declared ’not wine’ and therefore not regulated by state liquor laws, except a handful of laws that are specifically referenced. The bill would create two separate and unequal regulatory schemes for WA wine producers, disturbing our in-state marketplace.”

In fact the bill would allow wineries under 25,000 gallons, at their option, to register as Craft Wineries. Wine produced by such wineries would be defined as “Craft Wine.” Every public safety and tax related regulation in the code remains applicable to Craft Wine. Over-serving, serving of minors, premise and server licensing, tax collection, abatement, and enforcement regulations all remain applicable under the Craft bill. Two classes of wine will be created by the legislation, craft wine and all other wine, but both are still plainly “wine.”

Another criticism was raised by the WWI at Thursday’s hearing to the effect that that small wineries would suffer if there was another class of wineries operating in the marketplace with a separate set of regulations that could foster harmful practices “such as the now-illegal pay-to-play.” In fact so-called “pay-to-play” practices, such as slotting fees and volume discounts not reflecting the cost savings in delivery, are already prohibited by federal law. FWWS welcomes specific suggestions by the WWI to ensure that federal prohibitions could be redundantly applied to Craft Wine under State law. For one example, we would have no objection to a statement that slotting fees are prohibited for Craft Wine.

The WWI has consistently defended the current “Tied-House” and “Money’s-Worth” rules in the liquor code as valuable protections. Many of us at FWWS believe these rules offer no protection at all but rather are hindrances to innovation and marketing. The recent “Corkage free zone” issue is just the latest in an unending stream of good ideas that run afoul of these restrictions. While we do not object to differences of opinion on this point, those who view the current laws as protections simultaneously imply that voluntarily giving up such protections will confer an advantage on those opting out. Both diametrically opposed positions cannot possibly be true. The Craft Winery bill will give small wineries the option of deciding for themselves whether the current laws protect or hinder their business.

Senate Bill 5256 Concerning Wine Shipments

A WWI Board member and winemaker testified that “The bill would allow virtually anyone to ship wine; out-of-state distributors, retailers, importers, wineries, anyone with a liquor license in any state. This would put WA retailers and distributors that currently follow WA laws at an unfair economic disadvantage.”

The bill was written to allow distributors and importers, as well as retailers, to obtain licensure to ship to consumers in Washington. It was our belief that there is no good reason to prohibit such sales. However, in response to comments by the WWI and the Beer and Wine Wholesaler’s Association, FWWS has expressed willingness to amend the bill to eliminate the right of Distributors and Importers to direct ship.

Providing a legal means for out-of-state retailers to ship to Washington residents will not put Washington retailers at a disadvantage. Right now, any such retailers cannot possibly pay Washington State sales tax (since they cannot do business in Washington legally). With a legal method to make sales and to collect and pay taxes, retailers will have a level playing field. The primary beneficiaries will be the public, who will get adult signatures and payment of taxes. Ultimately, Washington wineries and retailers will benefit greatly as this concept spreads to other states that observe the benefits and institute similar laws, thus providing other opportunities for selling Washington wine.

In conclusion, FWWS’s bills will improve the ability of Washington’s small wineries to sell wine and expand their freedom of choice in how to do so. We continue to welcome constructive criticism from our colleagues in the industry. We have already incorporated amendments in these bills to address concerns expressed by the Washington Wine Commission and the California Wine Institute. We stand ready to consider further amendments to incorporate specific changes should such be suggested by other industry stakeholders.

We will keep you posted as these bills proceed through the legislative process.

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