Thursday, June 23, 2011

2011 Legislative Wrap-Up

Dear FWWS Member,

The 2011 Washington Legislative Session ended with the close of the special session on May 27th. There is much activity to report. Based on the huge amount of time and effort your volunteer Board and our contract lobbyists put in, we hope you will take the time to read this lengthier-than-usual posting. There were several laws passed and issues raised during the session that affect the Washington Wine Industry.


Tax Reporting Relief Act

This bill would allow any winery producing or importing into Washington less than 5,000 gallons of wine per year to report and pay their liquor taxes, at their option, annually, rather than monthly. The time saving implications for the State’s smallest wineries could not be more clear.

This is the fourth time we have introduced this bill. Despite facing the same daunting fiscal note (with which we do not agree), this bill could not have come closer to passing than it did. The bill passed out of initial committees in both houses and proceeded through the Senate, where it passed both the fiscal Ways and Means Committee and the Rules Committee before expiring for lack of a floor vote at the last minute. After that point we attempted to have the bill attached to another budget bill as an amendment. This concept was well received, and the effort only foundered ultimately in one case on a matter of legislative protocol, and in another case due to a technicality related to the title of the bill. We are gratified by the broad bipartisan support this bill has received despite the attached fiscal note. We plan to re-introduce it next year and fully expect that it will pass.

Payment Parity Act

This bill would extend exactly the same terms that now apply to Electronic Fund Transfers (EFTs) to ordinary business checks as payment for wine. In other words, a winery could, at their option and with a pre-existing written agreement, allow a retailer to take receipt of wine and put a check in the mail within one business day. If the check is not received within five days, the retailer would be subject to Liquor Board sanction similar to what now applies to bounced checks. Presently, wineries that leave wine without receiving payment at the time of delivery, have no legal recourse to enforce payment, since they have violated the due-on-receipt requirement of the law in doing so.

This bill once again was opposed by the Washington Beer & Wine Wholesalers Association and the Washington Wine Institute. The California Wine Institute withdrew their objections to the bill after a slight modification. We were pleased to have the support of the Washington Grocers Association this year and further pleased that the House sponsor of our bill repeatedly challenged factual errors of opponents’ testimony. These errors included the claim that the bill allows five days of credit for retailers (in fact it allows one business day of credit – same as the provisions recently enacted for EFT payments), the claim that retailers will demand to pay later (in fact it is voluntary to wineries and requires a pre-existing written agreement – same as for EFT payments), and the claim that it is a radical idea in that it creates credit for alcohol where none presently exists in Washington (in fact EFT payments now enjoy the one business day of credit that we are proposing, and further, sales to the Liquor Control Board are not subject to due-on-receipt at all). We believe this bill represents as much compromise as we can offer on credit, reducing it to one day – same as EFTs. This proposal will do essentially nothing for wineries that favor setting their own credit policy, but will at least solve the due-on-receipt problem for self distributed wineries. As long as wholesalers retain the right to ask wineries for any legal credit terms they chose, we will not cease pursuing at least this small fix.

On the subject of payment, it is worth noting that, in a recent broadcast to the industry, the Washington Wine Institute suggested that they would discuss a proposal to require payment for wine by wholesalers on a net thirty basis with Liquor Control Board enforcement. This is the so called “Texas System” that FWWS has long advocated as a compromise solution for all sales channels. While some members undoubtedly will think restriction, rather than expansion, of credit is a step in the wrong direction, this debate at least acknowledges the current grossly unfair situation where wholesalers may ask for any credit terms from wineries that ordinary commercial laws allow, while no credit whatsoever is allowed for retailers. We hope some of the many of you who also are members of the WWI will ask why the credit terms allowable for wholesalers and retailers should not be exactly the same.

Direct Shipping by Retailers

This bill would have allowed out-of-state wine retailers to ship wine directly to Washington State residents. We believe that, in a state with two percent of the nation’s consumers and a growing wine industry that already produces 4.5 percent of American wine, nothing is more important than market access. Given the nationwide efforts by the wholesale industry to block all other channels of sales, and given continued nationwide consolidation in the wholesale industry itself, we believe that Washington should help lead on this issue and join the roughly 16 other states that presently allow direct shipping by retailers. Retailers not only offer higher margins to wineries, but may also have the economies of scale to make the expense of interstate direct-shipping compliance worthwhile where a winery shipping a few cases of wine to a given state cannot justify the cost on its own.

Originally, this bill was drafted to allow importers and wholesalers to ship direct to consumers, as well (since there was no logical or public-interest reason to exclude them). Based on criticism from the Washington Beer & Wine Wholesalers Association, we amended the bill to limit direct shipment to retailers only. What was shocking was not so much that the Washington Beer & Wine Wholesalers Association continued to oppose the bill, but that, even after this amendment was offered, the Washington Wine Institute also opposed the bill. As we understand it, the WWI’s concern relates to uniform pricing. In other words their concern is that Washington Wineries might discount their wines to out-of-state distributors, who will sell the wine to out-of-state retailers, who will then be able ship the wines back to Washington to make a profit and still undercut prices for the same wines at Washington retailers. Whether this rather convoluted, far-fetched scenario is a correct interpretation of the WWI’s concern or not (you may watch the video recording of their testimony for yourself), we believe that the WWI is simply and clearly wrong on this issue. Given the recent court ruling in favor of a Texas law discriminating against out-of-state retailers, it is apparent that the legal system will not open up retailer direct shipping in general any time soon. Such relief may have to come through legislation. In any event we will continue to vigorously support the rights of wineries to sell, and consumers to purchase, wine through every legal channel.

Craft Winery Act

This bill would have allowed wineries producing less than 25,000 gallons per year to voluntarily opt out of most of the tied house money’s-worth and advertising restrictions in Washington state liquor laws while leaving these wineries subject to all public safety regulations. In an effort to move this bill, which we have introduced previously, we explicitly left the ban on credit in place. Despite these significant compromises, the criticisms remained, and the bill did not receive a hearing. Many of the legislators we have approached about this concept have been uncomfortable with the broad range of restrictions removed by this bill in the face of continued opposition. While the FWWS Board would strongly prefer not to make a career out of solving these many issues, and to fix them all at once, we must heed the advice of our friends in the legislature. We will, therefore, be talking to you in our regional meetings this summer about which elements of tied-house restrictions are the most problematic to you, and revising the Craft Winery proposal accordingly.


The following bills affecting the wine industry passed the legislature last session:

Restaurant Corkage-Free Zones

The Washington Restaurant Association sponsored a bill allowing restaurants to selectively waive corkage fees for regional wines. While we wholeheartedly supported this bill, that it was even necessary serves as the best poster child imaginable for illustrating exactly what is wrong with Washington’s tied-house laws. Recent enforcement actions by the Liquor Control Board were predicated on their determinations that “corkage-free zones” established by regional winery associations in Yakima and Spokane were illegal gifts of money’s-worth (promotional consideration) by wineries to another tier. This bill fixes the tied-house/money’s-worth issue with yet another narrow exception in the statute.

Sampling at Farmers Markets

The farmers market folks ran and passed a bill establishing a pilot program to allow tasting of wine in farmers markets where winery sales previously have been allowed. Presently, such sales are allowed in a limited number of farmers’ markets based on the percentage of vendors selling produce, among other factors. We enthusiastically supported this bill and believe that the allowance for sampling will greatly increase the value of farmers markets as a venue for wine sales.

2011 “Omnibus” Wine Bill

The multi-party 2011 “Omnibus” wine bill provided an annual laundry list of technical corrections to the RCW, two of them related to wine. The first fixed a rather bizarre interpretation of the word “agent” in the law regulating wineries’ sales agents. Contrary to the normal definition of an agent as an unrelated party acting on behalf of an individual or company, the previous statute allowed only sole proprietors to represent their wine to buyers. A literal interpretation of the statute would have required that a winery obtain agents’ licenses for company officers, employees, and even, incredibly, owners, if the winery was organized as a corporation, partnership, or LLC. This technical fix, which was unopposed, corrects the definition. The practical effect is nil. You will still need agents’ licenses for non-distributor, non-employee representatives, in other words, for the people you probably already have agents’ license for.

The second technical fix allows payment for wine sold at Special Occasion licensed events to occur at the end of the event and eliminates the prepayment or temporary check (due on receipt) at such events. It further allows charities or their event organizers to charge “reasonable” promotional or “booth” fees to participating wineries. We have lingering concerns about four elements of the language adopted in this fix. First, we are concerned about the inclusion of the word “reasonable” in relation to booth fees. We believe this is essentially a throw-away word, but that its inclusion will require the WSLCB to establish and administer rules for the arbitration of what constitutes “reasonable” fees. It remains to be seen whether and to what extent this will be an issue, but we believe that, based on past experience when such fees were routinely charged, a reasonable fee is simply what participants are willing to pay to participate. Our second concern was to clarify that the fee could be paid directly to a promoter (who, unlike a charity, probably has the means to take such a fee online by credit card). The Liquor Control Board testified previously that this was their interpretation, and we will follow up during the rule-making process to see that this is clarified. Our third concern is with timing of payment. We had earlier proposed that charities be allowed to send a check after the event, both for “humanitarian” reasons, given that checks are now cut at the end of the event, late at night when participants and organizers alike are exhausted, and to allow larger organizations with rigid accounting rules to process checks during their work week. It is our experience that such groups avoid running wine stores at Special Occasion events because their controllers are not available on weekends or at night to write checks. We finally sought to clarify that the checks may be issued once at the end of multi day Special Occasion events rather than at the end of each day. The current law is quite clear that a separate Special Occasion License and fee is required for each day of a multi-day event. We proposed an amendment to the sponsor of the bill to address these concerns, and, when this proposal was rejected, we chose to accept the bill as-is rather than potentially offend this legislator by offering an unsolicited amendment. We will attempt to address all of these issues in the rulemaking process. Otherwise, we will work to correct them in future omnibus bills.

As always we welcome your questions and comments.

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