Regulatory Recap: Takeaways from the Mid-Year Beverage Alcohol Compliance Updates Event

May 29, 2018

We had a blast today at the Mid-Year Regulatory Updates event in our office in Paso Robles. A sold-out crowd of 50 people showed up to discuss recent compliance developments at the state and federal levels with our team and with Annie Bones, State Compliance Specialist for Wine Institute. For those that couldn’t make it, below is a summary of some of the key takeaways from the event.

Federal Updates

  • On May 17th, TTB published Industry Circular 2018-1A, which extends the “Alternate Procedure” that was set to expire at the end of June until December 31, 2019. A drafting error in the Craft Beverage Modernization and Tax Reform Act made it difficult for wineries to take advantage of the excise tax credits for wine that was stored at a bonded wine cellar or produced at a “custom crush” facility. The new guidance from TTB extends the workaround through the end of the new law’s 2-year lifecycle. Advocacy groups are now pushing to make the 2-year tax cuts permanent.
  • On May 9th, we attended TTB’s Trade Practices Seminar in San Francisco. A key takeaway is that TTB received a $5 million appropriation to increase enforcement efforts for industry trade practice violations. TTB created a new office of Special Operations under the Trade Investigations Department and this new unit (with 9 investigators) is initiating and currently overseeing multiple trade practice investigations.
  • TTB also recently published Industry Circular 2018-2, which expands the list of allowable revisions to COLAs to include the addition or modification of certain pre-approved claims or statements: A) Instructional statements for serving the product (“Shake well”, “Serve at Room Temperature”, etc.). B) Responsibility statements (“Drink Responsibly”, “Enjoy Responsibly”, etc.). C) Environmental claims (“Sustainable Farming”, “Sustainably Grown”, etc.) D) Food pairing recommendations (“Best paired with”).
  • The Supreme Court heard oral arguments in the case of South Dakota v. Wayfair, Inc. in April. Wayfair” is a significant case that could possibly change the way that states can enforce sales tax on out-of-state sellers and eCommerce businesses. We’re expecting an opinion sometime in June and will be reading the opinion closely. Since wineries already pay sales tax in most states that they ship to, the immediate ramifications will be much smaller for wineries than they could be for most eCommerce businesses.

State Updates

    • Following a legislative fix that addresses some common carrier issues, Oklahoma is now set to become the 45th state to open to direct shipments. We don’t yet have information on when license applications will be available, but we’re hopeful they’ll come in advance of the start date so wineries can hit the ground running on the effective date of October 1st.
    • After rejecting all retailer shipping applications and renewals for several months, New Hampshire has reversed course and is now issuing and reinstating direct shipper permits for retailers.
    • Kentucky passed a new law (HB 400) that allows both wineries and distilleries to ship directly to consumers, but Wine Institute is recommending that wineries not ship there until certain issues are resolved. First, the bill only allows for sales that were made “on-site”, when the customer was physically present at the winery or distillery. This runs counter to a previous opinion in the Cherry Hill case that the on-site provision in Kentucky is unconstitutional. A constitutional challenge on the on-site provision is likely. Second, the issue of taxes is unclear at this point and Wine Institute is waiting for clarification about which taxes apply to direct shipments in Kentucky.
    • In Delaware, House Bill 165 will be heard on the House floor next week. The bill would allow direct shipping, but currently would prohibit shipping wines that are already listed for sale in Delaware. Free the Grapes! is asking consumers in Delaware to contact their legislators and spread the word about removing the prohibition on shipping wines that are already listed in the state.
    • A bill is pending in New Jersey that would remove the 250,000 gallon capacity cap.
    • Minnesota and Alaska considered bills to create a new license system, but both were not successful and remain open as is without a license.
    • Effective July 1st, Virginia will substantially increase their permit fee from $95 to $230 and application fees for all licensees go from $65 to $195.

Wine Compliance Rules Portal

    • Wine Institute and Compli announced their collaboration on the all-new State Shipping Laws for Wineries portal back in March. Attendees got a sneak preview of Phase 2 of this project, which will include a brand new site that includes rules and information on selling wine through the three-tier system for Wine Institute members only. The new members-only site will launch soon!

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