South Carolina Off-Premises Retail Caps, Part II

August 01, 2018

Last year, we covered the South Carolina Supreme Court case that ruled the state’s prohibition against an entity holding more than three off-premises retail liquor licenses was unconstitutional. The court held that the South Carolina law was enacted to protect small retailers, and that economic protectionism was not a sufficient justification for the law. Read our previous blog on that March 2017 decision in Total Wine v. South Carolina DOR here.

The South Carolina legislature recently passed a law that reenacts limits on the number of off-premises retail liquor licenses that an entity may hold. Act 147 was signed by the South Carolina Governor in April, and it went into effect immediately. In an attempt to distinguish the Act from the law previously ruled unconstitutional by the South Carolina Supreme Court, the legislature listed a variety of health and safety policy arguments in favor of the legislation, in addition to the economic goals of spurring competition and reducing monopolization of the alcohol market. The legislature asserted that harms related to excessive alcohol consumption are tied to liquor retailer density, and cited statistics involving alcohol-related deaths, traffic fatalities, as well as binge drinking rates.

The new law, S.C. Code § 61- 6-141, provides that an entity may only obtain three off-premises retail liquor licenses in the state. However, an entity may obtain three additional off-premises retail liquor licenses, if the new retail liquor licenses are obtained in counties with more than 250,000 residents. Furthermore, an entity seeking any of the three additional off-premises retail liquor licenses may not operate more than two stores in a county with more than 250,000 residents. However, if the entity already operated three off-premises retail liquor licenses in a
county with more than 250,000 residents as of March 21, 2018, then the entity may obtain two additional off-premises retail liquor licenses to operate in that county. Currently, only seven counties have a population larger than 250,000 residents.

The issuance of the three additional off-premises retail liquor licenses is staggered under the new law. Entities may obtain only one additional license between now and May 31, 2020, a second additional license between June 1, 2020 and May 31, 2022, and the third additional license will not be available until June 1, 2022.

If you have any questions about retail liquor licensing or chain limitations, contact one of the attorneys at Strike & Techel.


Federal Excise Tax Reform Updates: Imports and Wine Transferred In Bond

May 22, 2018

The Alcohol and Tobacco Tax and Trade Bureau (“TTB”) has issued a revised industry circular regarding the alternate procedure for wineries to claim the excise tax credit on wines that are stored at a bonded wine cellar or bonded winery. Per Industry Circular 2018-1A, that alternate procedure is now available through December 31, 2019, rather than expiring on June 30th as originally determined. Thus, the alternate procedure is available for the entire term of the federal excise tax revisions, which are set to expire on December 31, 2019, although industry groups are working to get the excise tax revisions extended. Furthermore, the alternate procedure is available for wines stored untaxpaid at a bonded winery as well as at a bonded wine cellar. The prior industry circular had only specified bonded wine cellars. For more information on the excise tax changes, production requirements, and the alternate procedure relating to claiming the excise tax credit, we have previously blogged on these subjects here and here.

Those following our blog will be aware that the tax changes that took effect in January apply to beverage alcohol products produced outside of the United States, as well as domestic production. Having said that, it is still not possible to claim the tax credit for wine, or the reduced beer and distilled spirits tax rates, for products coming into the US from overseas. The TTB issued preliminary guidance through its FAQ page back in February that it was working with Customs and Border Protection to establish procedures and issue guidance for importers. Based on recent public statements from TTB, we expect those procedures and guidance to issue in June. Until then, imported products continue to be subject to tax payment at the full excise tax rates for each product category. Once the new procedures take effect, importers will be eligible to claim retroactive credits and lower tax rates for products brought in since January 1st of this year.

If you have any questions about how the recent excise tax changes may affect your business, contact one of the attorneys at Strike & Techel.


Florida Clarifies Permissibility of Delivery by Third Party Providers

April 23, 2018

Earlier this month, Florida House Bill 667 was passed and signed into law (effective July 1, 2018), which clarifies and expands delivery and third party provider rules for Florida retailers (known as “vendors” under Florida law). The bill amends Florida Statute § 561.57 to clarify that vendors can take orders online, and delivery can be made by a vendor in its own vehicle “or in a third-party vehicle pursuant to a contract with a third party with whom the vendor has contracted to make deliveries, including, but not limited to, common carriers.”.

This amendment clarifies prior ambiguity over whether third party providers can deliver alcoholic beverages on behalf of vendors. The new law thus should provide comfort to both vendors and third party providers that third party providers can deliver in their own vehicles if they have an agreement with the vendor that makes the sale. Delivery vehicles are subject to search by law enforcement or employees of the Division of Alcoholic Beverages and Tobacco without a warrant to ensure compliance with the law.

The new law makes a couple of additional changes relating to delivery. It expressly prohibits brewpubs (i.e., a Florida manufacturer with a vendor license under Florida Statute § 561.221(2)) from delivering alcoholic beverages. And, a new section was added to § 561.57 which requires that proof of identification must be produced by the customer and checked by the delivery person upon delivery.

If you have any questions about delivery or third party providers, contact one of the attorneys at Strike & Techel for guidance.


It’s a Chemical World – California’s Prop 65 List Expands Again, Plus Developments on BPA

March 15, 2018

California’s Prop 65 (officially the Safe Drinking Water and Toxic Enforcement Act of 1986) requires businesses in the state to inform Californians about exposure to chemicals identified by the state as causing cancer or reproductive toxicity. Inconveniently, though the obligation is on the producer of the product to ensure that the consumer is warned, it is the retailer that must display a notice sign at the point of sale to comply with the law. The Act provides for reimbursement of attorney fees to claimants who bring suit based on missing notice signs, leading to watchdog lawsuits calling out different consumer goods producers. To address the responsibilities of alcoholic beverage suppliers, whose products often include a number of chemicals from the list, three key trade bodies, the Beer Institute, the Wine Institute, and the Distilled Spirits Council, set up the Prop 65 Sign Management Company in 2014. This group distributes signs to retail licensees free of charge, on behalf of all members of the alcohol industry. These signs generally indicate that the consumption of alcoholic beverages may expose drinkers to Prop 65 chemicals, but do not name specific chemicals. This means that when new chemicals are added to the list, such as the impending August 2018 addition of a common ingredient in caramel color, the signs do not need to change.

One of the main aspects of Prop 65 is that chemicals are added to the list if the State of California identifies them as potentially harmful. This means that the California list does not always correlate with guidance from other regulators. As an example, in 2015, the state added Bisphenol A (BPA) to the Prop 65 list of chemicals, for warning to be provided where it is “intentionally added” (which can include where it is present in materials that consumer goods are exposed to – BPA is a common ingredient in linings of lids and beverage cans, and is often used in equipment such as hoses at production facilities). Although the regular Prop 65 warning doesn’t have specific language, in the case of BPA, California created emergency regulations in 2016 with a special safe harbor warning notice. That regulation ran out in January, meaning that sign is no longer mandatory until the regular regulations take effect in August, but it is recommended by trade bodies to keep distributing it in the interim. Prop 65 Sign Management Company distributes a safe harbor warning, but only on behalf of identified suppliers (who are encouraged to add their affected products directly at the site).

The Food & Drug Administration (FDA) allows the use of BPA, and opposed California’s addition of BPA to the list in 2015, indicating the FDA’s research did not indicate it caused reproductive toxicity. A draft report released by the National Toxicology Program (NTP) this month also found only minimal effects on persons exposed to BPA. On the other hand, a new Regulation passed by the European Commission (EU 2018/213) in February introduces stricter measures for BPA use in food contact materials in Europe from September this year, and the European Food Safety Authority (EFSA) is re-evaluating its impact after it originally cleared its use in 2015, in the face of many health bodies calling for a complete ban on its use. Despite the differences of opinion among regulatory agencies, both in the US and abroad, BPA remains on the Prop 65 list and suppliers whose products or packaging are exposed to BPA are subject to the California signage requirements.

Any businesses selling alcoholic beverages in California should be aware of the impact of Prop 65 on their activity. If you have any questions, contact one of the attorneys at Strike & Techel.


Federal Excise Tax Reform Update: More on Beer and Wine Production Requirements

March 12, 2018

Back in December, we wrote about the new Tax Cuts and Jobs Act of 2017 (the “Act”) and the 2018-2019 excise tax reform for the alcoholic beverage industry. The TTB has since issued additional guidance on the changes to federal excise taxes, including more information on the production requirements for beer and wine to be eligible for reduced excise taxes.

Wine: To be eligible for the new wine excise tax credit, the wine must have been produced by the winery claiming the tax credit. The TTB’s guidance states that in addition to fermentation, the following activities constitute “production” for purposes of claiming the new tax credit:

  1. Sweetening (adding sweetening material)
  2. Addition of wine spirits (adding brandy or other authorized wine spirits)
  3. Amelioration (adding water or sugar to adjust acidity)
  4. Production of formula wine (wines with added flavoring or treating materials that require formula approval)

The TTB’s recent guidance also states that activities listed in 24 C.F.R. § 24.278(e) will constitute “production” for the purposes of claiming the new tax credit, but only fermentation and the four activities listed above are specifically listed in the TTB guidance. It is unclear whether the production of sparkling wine constitutes “production” for the purposes of claiming the new tax credit, as that activity is listed in 24 C.F.R. § 24.278(e), but is not listed in the TTB’s recent guidance on this topic.

The activities above must be undertaken “in good faith in the ordinary course of production, and not solely for the purpose of obtaining a tax credit.” The entire volume of wine that has undergone one of these production activities would be considered “produced” for purposes of applying the new tax credit. Blending that does not involve one of the operations listed above is not considered production.

It is common practice for wineries to store untaxpaid wine under bond at a bonded wine cellar (“BWC”). Under the “small producer tax credit” in effect prior to 2018, a winery was able to “transfer” its tax credit with the wine to a BWC, and the tax credit could be claimed when the wine was removed from bond at the BWC. Under the excise tax changes in effect for 2018 and 2019, because a BWC has not “produced” the wines by one of the methods above, the BWC may not claim the excise tax credit on wines removed from its bond. The TTB recognizes that wineries may need time to change operations in order to take advantage of the 2018-2019 wine tax credits. Accordingly, Industry Circular 2018-1 sets out an alternate procedure for wineries to claim the excise tax credit on wines stored at a BWC through June 30, 2018. This alternate procedure enables a winery to “receive” its untaxpaid wine back in bond from the BWC, and then “remove” it taxpaid by invoicing it back to the BWC. The process is completed entirely on paper, and does not require a winery to physically receive the wine and re-transport it back to the BWC. This alternate procedure is only available for a limited time, and thus wine producers should review their off-site untaxpaid wine storage and plan to coordinate the documentation to take advantage of the new tax credits while they can.

Beer: There is also a production requirement for beer in order to be eligible for the new reduced tax rates. The recent TTB guidance provides that, in addition to fermentation, the act of “addi[ng] water or other liquids during any stage of production” constitutes “production” for purposes of claiming the reduced tax rates, if the activity is “undertaken in good faith in the ordinary course of production, and not solely for the purpose of obtaining a tax credit.” The TTB confirmed that simply bottling or blending beer does not constitute “production.” Further, the TTB confirmed that, like wine, the reduced excise tax for beer cannot be “transferred” with beer transferred in bond. However, unlike wine, there is no alternate procedure for obtaining the reduced tax credit via documentation on beer that has already been transferred to another brewery under bond.

There are still some outstanding questions regarding the excise tax changes on which the TTB has not yet issued guidance, including how the excise tax reform applies to imported products, as well as when two or more producers will be considered to be a controlled group or a single taxpayer. If you have any questions about how the recent excise tax changes may affect your business, contact one of the attorneys at Strike & Techel.


New Third Party Provider Shipping Reports Due In Illinois

January 29, 2018

In 2016, we blogged about a new Illinois law that created a requirement for licensed winery shippers to disclose to the Illinois Liquor Control Commission (“ILCC”) all third party providers (“TPPs”) authorized to ship the licensee’s wine into Illinois, excluding common carriers. That law also imposes a new annual reporting requirement for all TPPs appointed to ship wine into Illinois on behalf of winery shipper licensees. The first report for TPPs shipping wine into Illinois is due on February 1, 2018. The report must provide details regarding each shipment made in 2017 to an Illinois resident on behalf of a winery shipper licensee. The ILCC has not drafted a form for this report, but the Wine Institute explains that the following specifics must be included in the TPP report to the ILCC:

  • Name and address of the licensed winery shipper;
  • License number of the winery shipper;
  • Name and address of the wine recipient;
  • The shipment tracking identification number from the common carrier;
  • Date of shipment; and
  • Number of bottles.

If you have any questions about direct winery shipping or third party providers, contact one of the attorneys at Strike & Techel for guidance.


ABC Issues Guidance on Use of Cannabis on ABC Licensed Premises

January 18, 2018

On January 1, 2018, adult use cannabis became legal in California, raising questions for many alcoholic beverage licensees about their ability to hold cannabis licenses and to sell or serve cannabis products on their alcohol licensed premises. The Department of Alcoholic Beverage Control (“ABC”) responded to several of these questions on January 18, 2018, by way of an Industry Advisory. First, the ABC confirmed that there is nothing in the ABC Act or the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”) that prohibits ownership in both alcohol and cannabis related licenses. However, licenses cannot be held at the same location and the premises need to be sufficiently separated so that a person going to a licensed cannabis establishment will not be required to pass through a licensed alcohol establishment and vice versa. The ABC also clarified that cannabis cannot be sold or consumed on ABC licensed premises and that infusing alcohol with cannabis products is strictly prohibited.

Contact one of the attorneys at Strike & Techel if you have questions about cannabis under MAUCRSA or the ABC Act.


End of 2017 Review: Winery Direct to Consumer Shipments

January 08, 2018

Previously, we blogged about the 2017 changes to the landscape of interstate retailer direct to consumer (“DTC”) wine shipments. This past year did not see any changes with respect to the permissibility of interstate winery DTC shipments, but there is one change on the horizon in 2018. Currently, winery DTC shipments are permissible and available in 43 states (including Washington, DC). The following eight states have laws prohibiting interstate winery DTC shipments, or have laws or other circumstances that effectively prevent interstate winery DTC shipments in most situations (such as laws limiting winery DTC shipments to on-site sales, or common carriers not servicing the state, etc.):

  • Alabama
  • Arkansas
  • Delaware
  • Kentucky
  • Mississippi
  • Oklahoma
  • Rhode Island
  • Utah

In 2018, the list above will be narrowed to seven states and winery DTC shipments will be permissible and available in 44 states, as Oklahoma opens up to direct winery shipments. As part of Oklahoma’s sweeping alcohol reform that was passed in 2016, a Direct Wine Shipper’s Permit was created (effective October 1, 2018), which will allow shipments by out-of-state wineries to Oklahoma consumers.

Contact one of the attorneys at Strike & Techel if you have questions about your winery’s operations or direct to consumer wine shipments.


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