House Bill 1641

Dear Member,

We at Family Wineries of Washington State are writing to you out of concern over sweeping winery licensing changes proposed in House Bill 1641. This bill in its present form was introduced on January 24^th, 2012, less than 24 hours before the public hearing on the proposal in the Washington State House of Representatives. 

The justification for this licensing proposal as we understand it is to address a concern among some in the industry that many wineries are not actually meeting the requirements of their federal permits to manufacture wine and therefore may be in danger of losing those permits.  The proposed approach is to extend certain privileges, notably tasting rooms, to such non-manufacturers.  Essentially these are proprietors who are effectively operating as distributors and retailers and are unwilling or unable to meet the requirements necessary to hold a federal basic permit as other than a wholesaler.

We have no objection to the extension of special privileges to a new class of non-manufacturing wholesalers We do however strongly object to the inclusion of wine manufacturers who choose to manufacture wine by means other than fermentation in this new class of non-manufacturers. While in the first case new rights are granted, in the second case existing rights are severely curtailed.

The proponents of this bill have repeatedly and incorrectly asserted federal law requires that a winery must produce wine by fermentation in order to comply with its federal permit and that “production” under federal law is “fermentation.”  This assertion is false. A winery premise and proprietor may be so licensed under federal law that no production by fermentation is required.  Further under federal law any change in the tax class of a wine is considered “production.” Therefore it is also possible to “produce” wine under the federal definition by blending, amelioration, or fortification if any of these actions result in changing the tax class of the wine (for one example from under 14% alcohol to over 14%. See section 1, part A of your federal form 5120.17 “report of wine operations premises). The only reason the federal government distinguishes between fermentation and blending is to extend the small producer’s tax credit to “producers.” The state has no similar credit and hence no reason to make such a distinction between production under the federal definition and manufacture of wine by blending.  We believe this fundamental flaw in understanding of the federal regulations has been used to justify an unnecessary and damaging re-categorization of blending as “non production.”

The proposed licensing revisions would do the following things which concern us for the stated reasons:

• Eliminate the broadly defined word “manufacture” from the domestic winery license and replace this with the presently undefined word “production.” A “manufacturer” is currently defined as “a person engaged in the preparation of liquor for sale in any form whatsoever.”  The proposed definition of “production” is “with respect to wine, the creation of wine by fermentation …” We object to this provision because it limits the ways that a winery may be licensed under federal and current state law for no apparent purpose.
• Under the bill, wineries would be required to “produce” at least 200 gallons per year by fermentation on a “three year rolling average.” In the latest revision of the bill, made on January 26^th, this 200 gallon requirement was amended to allow a winery not meeting the minimum production level in any year to demonstrate to the Liquor Control Board that they are a “viable commercial wine-producing operation” according to criteria to be determined by the Board at a later date. We object to this provision because the federal law currently contains no annual minimum production level by fermentation and no specific minimum threshold at all beyond effectively “more than zero” gallons. The federal standard is designed for maximum flexibility.  The proposed standard appears designed specifically to reduce that flexibility.  Obviously compliance with this provision is much more likely to be an issue for the smallest wineries than for the largest. The alternative to demonstrate a “viable commercial wine-producing operation” according to currently unspecified criteria seems to serve no purpose other than to allow the establishment by the Board of a standard for what constitutes a winery large enough to be considered “commercial.” We believe that manufacturing of wine for sale is sufficient evidence of commercial wine production to negate the need to demonstrate further.
• Domestic wineries would be limited to buying bulk wine only from other domestic wineries (by definition only Washington wineries).  This is completely inconsistent with federal law which provides no such restriction. As far as we are aware this is unprecedented -- no other state has such a restriction.  Inexplicably, no such restriction applies to the proposed new “nonproducing” license which allows “purchase of wine in bulk” without limitation as to origin.
• New language is created defining the relationships between wineries and owners of the brands they manufacture.  We are concerned that this language potentially conflicts with federal trademark law and serves to solve no problem that has been identified to the industry.
• A new category of license is created for “nonproducing wine sellers.” As noted above while this category extends new privileges (for example on-premise wine tasting) to those who can presently only qualify for a federal basic permit as a wholesaler, it requires that other categories of federal licensees (one example a proprietor with a premise licensed as a bonded wine cellar and a federal basic permit to blend wine) be lumped into this category. Such proprietors would be stripped of numerous privileges they currently have including off-premise tasting rooms, off premise warehouses, and the right to ship wine to retailers via common carrier.  Wineries that are not meeting the requirements of their federal basic permits to produce or to blend will need to change to a federal basic permit as a wholesaler to be in compliance with their practices.  We see no reason to require proprietors currently in compliance with their federal basic permits to be re-licensed as federal bonded wineries with a basic permit to produce wine, and further to require these proprietors to produce at least 200 gallons of wine per year through fermentation, just to avoid being lumped into the new nonproducing category and lose privileges in the process. 

A copy of the latest version of the bill is attached.  When reading this proposal please be advised that some of the changes in the current version, including all of the changes in sections 6 and 7, are useful changes to implement I-1183 and other non controversial updates to the law such as changes to farmers market sales language.  Regrettably the inclusion of this language in the bill will make it slightly harder to follow the proposed licensing revisions which occur in sections 3 and 4, and proposed new section 5. The new definition of wine “production” occurs in section 8 at item 35. 

We believe a much simpler and less complicated approach to achieving the stated objectives of this proposal is to amend this proposal to restore wine manufacturing as the basis of the domestic winery license in RCW 66.24.170 and to replace the currently undefined phrase “wine of its own production” with the phrase “wine of its own manufacture” throughout sections 3 and 4. We further propose elimination of the new definition of “production” in section 8.  Since this would return us to the present situation where “production” is not defined, we propose to change the name of the new “nonproducing license” to “negociant license.”  We chose the term “negociant” to avoid use of the word production which we believe, as noted above, is confusing.  Finally we propose the deletion of sections 3.(3), 3.(4), 4.(3), and 4.(4) which include the minimum production language, buying bulk wine only from Washington wineries, and the dangerous brand restriction language.

With our proposed amendments (which are also attached) we believe the new concept of a nonproducing/negociant license is beneficial to some in the industry and harms none.  We are opposed to the proposal in its current form because, as noted above, it will require needless re-licensing of wineries for federal purposes, restricts currently legal practices, creates unprecedented production minimums, and moves wine law in Washington in the direction of more complexity, not less.

We urge you to contact your legislators with your concerns at your earliest convenience.  For more information on our proposed revisions please contact us at board@familywineriesofwashington.org.

Thank you for reading and considering our concerns in this regard.

Sincerely

The FWWS Board

FWWS Year-End 2011 Update

FWWS YEAR-END 2011 UPDATE

Dear FWWS member,

This posting provides you with a year-end summary of events, accomplishments, some important industry developments in 2011, as well as a look forward to 2012.

FWWS Progress in 2011

Initiative 1183

We won!

We are very excited about the success of Initiative 1183. We believe that the relationship we built with industry stakeholders including Costco since the disappointing outcome of the Joint Select Committee process four years ago led directly to the affirmative inclusion of wine in the distribution process reforms covered in I-1183, and consequently some of the most important economic reforms for the Washington wine industry since prohibition. However, I-1183 was not as sweeping as I-1100. I-1183 does not for example change the current one way credit ban in our industry that allows wholesalers to ask wineries for credit while denying wineries the right to offer credit to retailers. Nor does it end the almost entire ban on co-advertising and co-promotion between wineries and their retailer customers. What it does do is eliminate uniform delivered pricing and reform distribution restrictions on wine so that you will:

·       Now be able to charge for delivery of your wine if you so choose (or be recognized for your customer service if you do not!).

·       Charge different prices to different customers based on class of business or other tangible or intangible economic reasons (for example the PR value of a restaurant or glass pour program placement).

·       Recognize the inherent economies in multi-case delivery by offering volume discounts (or the inherent value, if you so perceive, in treating all your customers the same should you choose to do so). We have heard from several members that they have already benefited from this change by selling multiple cases to accounts that used to buy only a few bottles at a time.

·       No longer be limited to uniform post-offs and close-outs as incentive pricing for your wine.

·       Deliver wine to central warehouses of grocery store chains rather than individual stores (should you choose to make this option available for a given customer).

·       Deliver an unlimited amount of your wine to retail licensees via common carriers.

·       No longer be required to keep records of prices charged for your wines (price filing eliminated).

Furthermore, though not a direct benefit to wineries, retailers will now be able to sell and ship wine through central warehouses, providing additional sales channel access by Washington wineries to consumers in the (sadly somewhat limited) number of states that allow direct to consumer shipping by retailers. 

Another indirect benefit is the ability of retailers holding grocery store licenses to sell wine direct to restaurants and other retailers (less than 24 liters per transaction). Though probably somewhat marginal, in part because a federal basic permit as a wholesaler is required,  the effect of this provision could provide some economies of scale as well as a win-win situations such as restaurant owners being able to find wines at retail stores and keep them on their wine lists even though the wine is sold out at the winery.

Implementation

The effective date of Initiative 1183 was December 8, 2011. Uniform delivered pricing, price filing and the bans on central warehousing and retailer to retailer sales ended that day. On March 1, 2012 distillers and craft distillers will be allowed to begin selling directly to restaurants. The Washington State Liquor Control Board (WSLCB) adopted several emergency rules to implement 1183 including provisions for retailer to retailer license endorsement for wine, retailer distributor licenses for craft distillers, etc. The state liquor stores will not be closed until June.

Legal Challenge

Two lawsuits have been filed against I-1183, both alleging that it violates the state constitutional ban on initiatives covering more than one subject. Plaintiffs, including unions representing public employees, liquor store operators and others have alleged that the initiative covers changes in liquor distribution law, franchise law and wine distribution law which are different topics. A request for an injunction against implementation of 1183 was denied in one of the suits filed in Cowlitz County. The plaintiffs in the other suit did not request an injunction. The motion on the constitutionality of the initiative is scheduled to be heard on March 16^th of 2012. Filing such appeals is not uncommon in Washington. Your FWWS all-volunteer legal team believes that the claims of the plaintiffs are incorrect, that one subject only -- alcohol regulation -- is involved, and that changes in franchise and distribution laws are logically required to remove the state from the position of exclusive distributor and retailer of liquor in Washington. FWWS has been granted intervenor status in this lawsuit to allow us to submit information to the court in defense of the initiative. The two cases are expected to be consolidated soon.

FWWS LEGISLATIVE AGENDA 2011/2012

In 2011, we put forward an ambitious legislative agenda. Included were the following bills:

• Payment Parity Bill, to end the controversy over the credit ban by extending exactly the same terms to business checks that are now applied to EFTs, namely allowing wineries to leave wine with a retailer and receive a check in the mail provided they so choose and have a voluntary pre-existing written agreement with the retailer (otherwise wine would still be due on receipt). This bill was opposed in 2011 by the Washington Beer and Wine Wholesaler’s Association and the Washington Wine Institute. In 2011 we did gain support from the State Grocer’s Association. We have asked the Washington Restaurant Association to support the bill this year.

Based on the support for the credit ban (wineries and distributors to retailers) among some wineries, we have made this voluntary payment parity bill our proposed policy solution compromise to the credit controversy. More wine would be sold, and more wine shops and restaurants would stay in business, if the credit ban was completely eliminated, but at least you would be able to drop off wine and not have to wait for a check when you deliver to your favorite customers. While we remain open to further discussion of the issue, we find the current situation where wholesalers may ask wineries for credit but prevent wineries from offering it to their retailer customers discriminatory and unacceptable. We will be running this bill again in 2012.

• Tax reporting Relief Bill, to allow wineries selling less than 6,000 gallons of wine per year in Washington to report and pay their wine taxes, at their option, annually. This bill has been hampered for the last two years by a large fiscal note by the WSLCB for computer improvements to implement the bill. Despite the fiscal note, this bill advanced through the Senate Ways and Means Committee, all the way to the Rules Committee where time ran out before it could receive a floor vote.

A welcome and unexpected benefit of Initiative 1183 is that the WSLCB has told us they believe the tax reporting changes can now be implemented at no significant fiscal impact as part of the computer system changes needed to accommodate reporting for liquor distributors and retailers under I-1183. We understand that the WSLCB fiscal note will therefore be removed. At this time, we are not aware of any opposition to the bill. We will be pushing the bill, which currently remains alive in both the House and Senate, vigorously this year.

• Craft Wineries bill, to allow small wineries to opt-out of the arcane and burdensome tied house rules in the RCW. Due to the success of I-1183 and the elimination of uniform delivered pricing, some of the major goals of the Craft bill have already been achieved. Therefore, we are evaluating some changes to the bill and plan to amend it before taking it back to the legislature.

• Retailer Direct Shipping bill, to allow out-of–state retailers the same right to ship to Washington consumers currently enjoyed by in-state retailers. We originally drafted this bill to allow direct shipping by wholesalers and importers, but amended the bill to include only retailers when it became clear that the Washington Beer and Wine Wholesalers Association vehemently opposed the out-of-state wholesaler provisions. Much to our surprise, even after the bill was limited to retailers, both the Washington Beer and Wine Wholesaler’s Association and the Washington Wine Institute testified in opposition.

We believe this form of discrimination against out-of-state retailers is much of the reason for the disparity in the number of states that allow direct to consumer (DTC) shipping by wineries (about 40) versus by retailers (about 15). We further believe that retailers such as FWWS Industry Member VinoShipper.com are uniquely positioned to provide regulatory compliance in DTC shipping that is daunting to small wineries and that retailer DTC shipping is a vital market channel for small wineries. However, given the need to prioritize, and the fact that this bill provides a strategic rather than a direct benefit to Washington wineries, we have decided not to pursue this bill in 2012. We will continue to discuss this issue with industry stakeholders on the local and national levels, and to support the efforts of FWWS Affiliate Member the Specialty Wine Retailer’s Association to fight this discrimination around the country.

 OTHER WASHINGTON STATE ISSUES

“What is a Winery?” or “The Ban on Blending”

For several years the Washington Wine Institute and the WSLCB have proposed that the definition of “winery” in Washington State should be changed. At state wine forums last fall a written policy proposal in this regard was revealed for the first time by the WSLCB.

FWWS is extremely concerned about this policy proposal. We believe that, as drafted, this proposal is not only counter productive to the stated goal of regulatory clarity, it more importantly severely restricts the present right of Washington State wineries to make wine wholly or in part by blending. We therefore oppose this proposal as drafted.

FWWS contacted the WSLCB to ask whether this proposal will be submitted to the Legislature this year. We were told that the necessary requests have not been made by WSLCB to allow such a proposal to be put forward this year. A full analysis of this proposal is beyond the scope of this post but will be broadcast to FWWS members and other industry stakeholders soon. We stand ready to assist the WSLCB in drafting language to meet any clearly necessary and appropriate regulatory changes but we are prepared to vigorously resist the drastic curtailment of our member’s rights contained in the current draft proposal. 

WSLCB Business Advisory Committee

FWWS Board members began regularly attending WSLCB Business Advisory Committee (BAC) meetings in 2011. We believe our attendance will provide a closer dialogue with WSLCB staff and, equally importantly, with other industry stakeholders. In December we formally requested membership on the BAC. Given the stated purpose and membership makeup of the Committee, we see no logical reason why FWWS membership would be withheld.

OTHER NATIONAL DEVELOPMENTS

Son of HR 5034

House Resolution 5034, the rather ironically named “CARE Act” that would overturn the Granholm decision and allow states to legally discriminate against out-of-state wineries in DTC shipping, is still kicking in the US House of Representatives. Fortunately this bill, now called HR 1161, did not make much headway in 2011 as Wine America, the Coalition For Free Trade, Free the Grapes, FWWS and others continue to educate legislators on this nefarious proposal.

Threat to Continued Existence of TTB

A proposal to fold the functions of the TTB into the Internal Revenue Service is being floated in Congress as a cost saving measure. We share the concerns of others in the industry that the TTB has specialized knowledge and regulatory skills that would not transfer well to the IRS.

New York Adopts Annual Tax Reporting For Out-of-State Wineries

Wineries shipping small amounts of wine direct to consumers in New York State will now be able to apply for permission to report their wine taxes annually rather than monthly. We applaud this move and hope that, with passage our Tax Reporting Relief bill, Washington will soon join New York and Idaho at the forefront of reform on DTC shipping reporting.

Reciprocal System Down to One State

With Iowa’s adoption of direct shipping permit requirements, New Mexico is now the last state still remaining in the former 17 state reciprocal system of “don’t regulate us and we won’t regulate you.” A one-state "reciprocal system" is obviously a non-sequitur.

Stay tuned and Happy New Year!

Your FWWS Board

Welcome New Member Kitzke Cellars

I am pleased to welcome our newest member, Kitzke Cellars, to the FWWS. Here is some information on them:

The Kitzke family has long been part of the bountiful harvest of Columbia Basin agriculture. Farming in the area since the 1970s, we have gradually transformed our orchards into vineyards. As a small boutique winery, we have developed an impressive array of wines.

Kitzke Cellars features a Cabernet Sauvignon, Cabernet Franc, Syrah, Sangiovese and two Red Blends. Our red blend, Janaina Sensação, is named after our lovely daughter from Brazil; Sensação means “sensational” in Portuguese, which perfectly describes our wine. Our Upsidedown blend label is an image of our son flipping on his snowboard. This is truly a wine to flip for!

Stop by the tasting room and enjoy a glass of wine and the view from Candy Mountain. From our home to yours, “blessings”, as you embrace treasured memories and fine wine.

http://www.kitzkecellars.com

Welcome to the org!

Welcome New Member Cranberry Road Winery

I am pleased to welcome our newest member, Cranberry Road Winery, to the FWWS. Here is some information on them:

Cranberry Road Winery started with friends making cranberry wine in their garage. After years of fine tuning and friends telling us we should make this available to the public, we did. Brookside Cranberry Vintners LLC. was formed in early 2009 and we have been growing ever since.

This year we made the decision to expand the winery and move to Grayland / Westport, Washington. We recently purchased 10 acres of land with a 4200 Square foot building. We are in the process of remodeling the building to fit our production needs and will be building a tasting room and restaurant for customers to enjoy.

http://www.cranberryroad.net

Welcome to the org!

Washington Wine Technical Group

Washington Wine Technical Group

The Washington Wine Technical Group improves the quality of Washington State wines through education, fosters fellowship and understanding between wineries, aids members in technical problem-solving, and encourages enological and viticultural research

 

Fall 2011

Dear Colleague:

Will you join us? 

Do you have training or experience in enology or viticulture?  A bachelor’s, graduate or equivalent degree?  Professionally employed in commercial production, technology, or research or have experience in commercial production, technology or research?  If so, the WWTG wants you!

If this sounds like you (and we think it does), please join today.  We need your support to put on our educational events and networking opportunities. 

The Washington Wine Technical Group exists to improve the quality of Washington State wines through education; foster fellowship and understanding between wineries; aid members in technical problem solving; and encourage enological and viticultural research.   

Based on your input, the Washington Wine Technical Group is planning an active and educational calendar for 2012. Take a look at this line-up:  

 

JANUARY

Base Camp

FEBRUARY

Participation at WAWGG Convention

            -Education Committee

  -Session Manager(s)

  -“Friends” booth

MARCH

Tasting Event (Syrah)

Held at Kestrel, Prosser

APRIL

Workshop on 2011 Vintage

JUNE

Annual Seminar

AUGUST

Tasting Event (Riesling)

Held at Long Shadows, Walla Walla

NOVEMBER

2013 Planning and Board election

We’ve got a great year planned so please help us help you by joining the WWTG for 2012!

As a bonus, if you join before January you’ll save $30 off the regular 2012 membership rate!

Thanks for your support,

Chair, Kendall Mix, Goose Ridge Vineyards

Vice Chair, Katie Nelson, Ste Michelle Wine Estates

Treasurer, Marie-Eve Gilla, Forgeron Cellars

Board Member, Paula Eakin, Columbia Crest

Board Member, Gordy Hill, Coventry Vale

Board Member, Katy Perry, Tildio Winery

PS - We’re looking for committee members to help out with the events listed above…let us know if you’re interested in playing a part!

Washington Wine Technical Group  |  PO Box 745, Cashmere, WA  98815  |  Phone: 509-782-1200  |  Fax: 509-782-1203