Will SB 118 PROHIBIT wine shipments?

[Really Nice!]

I got this through the K&L Wines newsletter. This action might be coming to your state soon.

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Special Interests Attempting to Limit Your Selection and Pocket Your Money

SB 118 (Chesbro) is a bill in reaction to the US Supreme Court direct wine shipping decision that prohibited discriminatory legislation. The bill originally would have created a permit that could be applied for by anyone licensed to sell wine to consumers (wineries and wine retailers) in any state. The permit would require registration with the California ABC, payment of California taxes, the same protections against delivery to minors that currently exist for CA wineries and retailers, limitations on shipment volume and would give the ABC the authority to regulate the shipments.

However, the mega-wholesale distributor interests in CA (Southern Wine and Spirits and Young's Market Company) have called in their political muscle in order to remove out-of-state retailers from the permit system. Under the version of the bill approved on June 14th, only a select few retailers outside of the state of California may even apply for a permit.

This is WRONG. The proposed permit system MUST provide for the ability of all retail licensees (wherever located) to participate freely. If retailers outside of CA are excluded from the CA market system, other states would retaliate by excluding California retailers from their markets. The goal of the bill was to encourage the creation of a national system of permits and licenses that provides the opportunity for every licensed merchant to participate, no matter where that merchant is located. This would be in the interest of all consumers, whether in CA or elsewhere.

Retailers in all states invest significant sums of money in inventory from multiple winery and importer sources. Retailers hold that inventory (often for years) and make it available in a convenient way to consumers who know and trust the merchant. Those customers could be across the street or across the country. That is the reality of the current market, especially for the expensive, limited production and usually allocated, collectible wines from California and the rest of the world. Requiring these wines to go back up through the three-tier system after they have already traversed it once (if they even could, currently they would just be unavailable outside of California, or unavailable to California if they are located in another state) would give the wholesalers a double profit margin; certainly good for the wholesalers, but not very good for the retailer or for the consumer. Who pays? You bet that the consumer pays.

The Supreme Court in the Granholm case condemned state laws that discriminated against out-of-state interests in favor of identically situated in-state interests. This statute would perpetuate discrimination WITHIN the California market by attempting to keep retailers from outside of California OUT of the market. While we think that any such effort would be unconstitutional as to retailers outside of California under Granholm, we do not want to fight the statute after it is written. Our goal is to make sure that the statute doesn't get passed with that flaw in the first place!

The interests of the wholesale tier, by proposing to take retail licensees out of the statute, is NOT to benefit California retailers by keeping them safe from competition from outside of the state. It is aimed at PREVENTING California retailers from servicing customers outside of California unless the transaction is run through the wholesale tier at a significant cost. Their goal is to have this bill emulated throughout the US. If California creates a discriminatory licensing or permit scheme, the wholesalers will use that example as a bludgeon in every other legislature in the US to keep those markets closed to California retailers.

The proposed bill can be found online at:

http://www.aroundthecapitol.com/bills/SB_118

There is a link on that page for you to take action and contact legislators about the bill, or you can go directly to:

http://www.aroundthecapitol.com/act/billle...AL+ORGANIZATION

Most importantly - spread the word about this proposed bill. For a wine lover or wine retailer this is special interest politics at its worst.

[JohnL]

I agree!

is the fourteenth ammendment to the constitution (I hope I got this right) that gives the states the right to regulate alcohol needed anymore-I know it ended prohibition but is it serving any purpose other than promulgating the current mess of laws etc that are really anti consumer?

(maybe someone with a better legal background can help here).

If you sell wine you should be able to sell it to whomever and wherever conversely if you want to buy it........

[eje]

I received a note from a local wine merchant about a bill currently before the California Assembly. Is this information really accurate?

"The CA Senate passed a bill on June 17th (SB 118) that is now before the Assembly and soon will go to the Governor. The new law will PROHIBIT direct shipment of wine from California retailers (and retailers anywhere) to California consumers."

"California law currently allows ANYONE (including the anti-alcohol forces and the wholesalers) to ENFORCE the prohibitions of the ABC Act, which would include the new law. This new law endangers the ability of every merchant in the state (over 70,000 retailers) to sell wine for shipment to consumers and could in one fell swoop send the industry back to 1935. It cuts off consumer wine shipments from licensed and respected wine merchants all over the United States; that is as anti-consumer and anti-business as one can get. The recent amendment to SB 118 seals off California from interstate commerce in wine from the retailer tier of the industry."

[Mayhaw Man]

This is almost unstoppable in most states. The liquor wholesale lobby, coupled with the beer leagues (or whatever they are called in their respective states) HATE this decision ( the recent decision by the Supreme court allowing direct shipment to homes is what is spurring all of this stuff, it scared the hell out of the wholesalers). These guys have bottomless budgets and are perfectly willing to spend it to get what they need.

I live in Louisiana, a state where, for years, it has been legal to have wine delivered by mail from about anywhere, anytime. There was a bill passed, just before our otherwise do nothing legislature retired for the Spring, to make ALL of this kind of business illegal-much like the law in California. You can look for this to be happening in state after state. It's easy for them to pass, as almost no one is for it, industry wise, because this recent decision basically allows all of the middle men to get shut out of the chain. No one likes getting shut out and these guys have some serious stroke in almost every state that has private sales.

To a very large degree, especially here in Louisiana and in a few other states, liquor, beer and wine sales are subject to more local regulation than statewide. Hence dry precincts, different closing hours for different parishes, etc. It's kind of crazy but it usually works out for the best.

In this case, probably not so much. They don't want vintners to have the ability to direct ship, so consequently they see this decision not as a negative, but as a wake up call- a call to action, if you will- to go after something that has bothered them for a long time. No middle men is not something that they want to see. Ever. If there are no middle men, they have a hard time making a buck.

I could be wrong here, but I believe that the point of this California statute is not to cut off retailers or to cut down on the variety of offerings-the point is to make it so that retailers HAVE to buy their stock from wholesalers. It's all about the wholesalers wanting to get control over something they don't already have in California (but do in most other states).

I hope it fails, but it will take a miracle I suspect.

[Rebel Rose]

Here is the actual text of SB 118.

It says, in essence, that states which already offer California reciprocal shipping privileges may ship wine--up to two cases per person, per month. Producers or retailers in non-reciprocal states may apply for a shippers' permit for a whopping $10 a year.

It looks pretty innocuous to me, except for this one thing: I don't recall that previously there was a maximum shipment to residents of California. However, that's a pretty standard clause for some other states. Two cases a month is nearly a bottle a day. So I would assume that this clause is merely intended to prevent retailers from "secretly" ordering inventory direct from the winery.

Who was this wine merchant?? Where did they get their information? Why would they print something so alarmist?

[Rebel Rose]

From the actual text of SB 118:

This bill would eliminate the requirement that an unlicensed adult apply and be issued a permit to receive a shipment of wine. Additionally, this bill would allow a retail licensee to ship no more than 2 cases of wine per month.

And:

Notwithstanding any other law, an individual or retail licensee in a state that affords California retail licensees or individuals an equal reciprocal shipping privilege, may ship, for personal use and not for resale, no more than two cases of wine (no more than nine liters each case) per month to any adult resident in this state.

However, I just noticed this:

(a) Notwithstanding any law, rule, or regulation to the contrary, any person currently licensed in this state or any other state as a winegrower who obtains a wine direct shipper permit pursuant to this section may sell and ship up to 24 nine-liter cases of wine annually . . .

Before sending any shipment to a resident of California, the wine direct shipper permit holder must:

(1) File an application with the department.

(2) Pay a ten dollar ($10) annual registration fee if the winegrower is not currently licensed by the department.

(3) Provide the department its California alcoholic beverage license number or a true copy of its current alcoholic beverage license issued by another state.

(4) Obtain from the department a wine direct shipper permit.

(5) Obtain a valid seller's permit pursuant to Article 2 (commencing with Section 6066) of Chapter 2 of Part 1 of Division 2 of the Revenue and Taxation Code.

But then at the bottom it says:

The issuance of any manufacturer's, winegrower's, wine blender's, distilled spirits manufacturer's agent's, rectifier's, wholesaler's, importer's, customs broker's license, or wine direct shipper permit under Division 9 (commencing with Section 23000) of the Business and Professions Code shall constitute the registration of the person to whom the license or permit is issued as a taxpayer under this part.

It appears the language restricts shipping rights only to winegrowers, but in the list of requirements, it could be interpreted that anyone with an ABC license could apply. I suspect the language is simply not completely tweaked yet. I can't imagine California turning up its nose at the related taxes and fees. If only 500,000 people order 1 case of wine from California retailers at $200, that's (at 7.25% sales tax here) revenue of over $7 million.

Edited because I'm getting confused. . .

[eje]

Who was this wine merchant?? Where did they get their information?  Why would they print something so alarmist?

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They are a small chain with stores in San Francisco and Redwood City.

I will email your egullet address with their original message. It is too long to post in the forums.

Their take on the bill is very similar to Mayhaw Man's. That this is an attempt by very large Wholesaler distributor interests to prevent, "California retailers from servicing customers outside of California unless the transaction is run through the wholesale tier at a significant cost."

Erik

[Rebel Rose]

(a) Notwithstanding any law, rule, or regulation to the contrary, any person currently licensed in this state or any other state as a winegrower who obtains a wine direct shipper permit

On giving this passage a little more thought, I believe it's just meant to be a sub-part that makes the rules excessively clear for wineries--with their large inventories they would be more apt to overstep the legal parameters than a retail wine shop.

[Rebel Rose]

Good news

I just spoke with Mike Falasco, who handles California legislation for the Wine Institute, regarding this matter, and he went over the situation with me slowly and clearly, allowing me to repeat it to confirm my understanding.

On June 27, the date of my last post above, and the date I first attempted to contact Mike via email, further language changes were made to SB118. The changes are small yet will hopefully clarify the matter somewhat.

The first part of SB118 is simply a reference to existing reciprocity law. Nothing has changed. Any California retailer with an ABC (Alcohol Beverage Control) license may ship, as they do now, to California consumers and consumers in reciprocal states.

The second part of SB118 states:

"Notwithstanding any other law, an individual or retail licensee in a state that affords California retail licensees or individuals an equal reciprocal shipping privilege, may ship . . ."

This part addresses the requirements for individuals, retailers, and wineries outside of California shipping to consumers here.

The third part addresses the special reporting and tax requirements due from wineries, and language was changed on June 27 to clarify that.

Some of the alarm generated by this bill may be due to a minority opinion published on the Granholm decision. However, according to Mike the ABC and the California attorney general have both stated that the rights of California and reciprocal retailers will not be affected by SB118 (in so far as substantive change--I'm not sure if the $10 registration is new or not.)

I asked Mike what the purpose of Bill SB118 is, then, if there is no real change. The answer is that the purpose of the bill is simply to conform with the new Supreme Court decision, as well as a minority complaint that the language of the Supreme Court decision only affects wineries, whereas in all fairness, it should affect any shipper. Chesebro's SB118 intended purpose is to expand and clarify the rules regarding in-state and reciprocal shipping to comply in language and intent with the new ruling. The bill will go into effect on January 1, 2006.

On Friday, I also received a copy of a letter from UPS which states in bold:

For this reason, UPS will no longer accept shipment of alcoholic beverages or tobacco products from any retail shipping location . . .

That also sounds alarming, but to clarify--this letter refers only to third-party shippers: mail franchises, MailBoxes Etc. and other shipping centers. It is unclear whether or not, and it probably does not, apply to UPS and Fedex distribution centers at airports.

I spoke with the owner of a shipping center in Cambria, California, and while he regrets the fact that he must turn away a steady stream of customers asking him to ship wine, the packaging and reporting requirements are simply beyond his ability to track and perform anyway.

In other related news, the Wine Institute staff have heard legislative grumblings that a few states with a limited number of wineries, namely Michigan and Rhode Island, may ban wine shipping altogether.

And an additional note: the executive director of the Wine Institute is Bobby Koch (pronounced Cook, as he frequently reminds us), George W. Bush's brother-in-law. He has a strong legal team working for him, particularly on the direct shipping front.

[Rebel Rose]

The bill originally would have created a permit that could be applied for by anyone licensed to sell wine to consumers (wineries and wine retailers) in any state . . .

However, the mega-wholesale distributor interests in CA (Southern Wine and Spirits and Young's Market Company) have called in their political muscle in order to remove out-of-state retailers from the permit system. Under the version of the bill approved on June 14th, only a select few retailers outside of the state of California may even apply for a permit.

I should also probably clarify a few things about reciprocal legality. I am so accustomed to this from having dealt with it for ten years that I sometimes forget that consumers are not aware. . .

First of all, the original bill proposal DID NOT and would not open shipping to anyone. Although the Supreme Court decision will affect many states, those states must individually change their own legislation first. California cannot decide what is, or is not, legal for shippers in other states.

The "select few" referred to here implies that California's SB118 is restrictive, which is not true. At this time there are only 12 reciprocal states, and a few more that permit shipping after special registration. SB118 merely says that commerce must be restricted (for now) to those states that declare shipping and receiving wine to be legal.

**And, please be aware that the above quotes are not directly from ReallyNice! He was simply kind enough to begin the thread and post the information that he received.

[Capaneus]

I think you lucky few will stay lucky. My concern is that given the "All ship/None ship" alternative implicit in Granholm, many states - particularly those without a vocal winegrowing industry - will opt for the latter. I cannot see Pennsylvania giving up its State monopoly on wine sales without a fight (and in fact I'm not sure I'd want them to, but that's another thread).

[Rebel Rose]

I think you lucky few will stay lucky. My concern is that given the "All ship/None ship" alternative implicit in Granholm, many states - particularly those without a vocal winegrowing industry - will opt for the latter. I cannot see Pennsylvania giving up its State monopoly on wine sales without a fight

That would be a shame. While it's ominously possible, the issue is a little more complex that simply allowing wineries and stores to ship to consumers. Apparently there was a recent fracas between Washington State and California (which are both reciprocal) caused by Walmart and another very large retailer (I can't find the link right now, sorry) trying to use their purchasing muscle to have truckloads of wine delivered directly to the stores, without going through distribution channels.

Hence, most states that allow direct shipping have a clause that allows consumers to receive no more than 2 cases per month--which would make huge shipments like the above illegal. And a number of states that are not currently open-reciprocity states are willing to allow wineries to register, and collect, report, and pay sales tax on direct ship sales.

Also, PLCB chairman Jonathan Newman states here [visit the Pennsylvania forum for the full Conversation] that he will recommend decriminalizing direct shipments to consumers, while perhaps not allowing shipments directly to homes. In several registration-only states that allow shipments, the wine must be sent to a licensed store or center for consumers to pick up (in order to prevent delivery to minors, ostensibly).

So it is possible for a state to allow direct shipments, while still choosing from a number of options to control delivery and tax collection.

::side rant:: I am continually annoyed by the "protecting our minors" argument. Let's assume a couple order a case of our $42 Cabernet--with shipping, that's about $510. Even if a teenager accepted the box, do you think he's going to open his dad's box of expensive, tannic wine and guzzle it? And still retain rights to the car keys? And common carriers simply will not deliver wine to a minor anyway. What a numb argument. ::side rant/over::