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Feature Article from the May 2015 Magazine Issue
California ABC Not Trolling for Miscreants
Department counsel clarifies regulations that pose trouble for wineries
“We don’t employ people to search the Internet for violations,” admits ABC general counsel Matthew Botting. Nevertheless, the ABC learns about many violations, either from people tattling or simply receiving mass emails. “I get a lot of emails from you,” the lawyer noted at the ShipCompliant Direct conference May 28 at the Napa Valley Marriott.
Some of Botting’s remarks to the winery personnel gathered at the meeting were inspired by the recent cancellation of the popular nonprofit Grapescape fundraising wine show in Sacramento, Calif.
Only four wineries signed up compared to 40 in the past. Some believe the remainder were reacting to notices sent by the ABC to some of last year’s participants that their Tweets and other social media about the show violated California tied-house laws that prohibit wineries promoting wine retailers.
It turns out that the organizers of the event had sold naming rights to the Save Mart chain, which sells wine. So if the wineries mentioned the event, they were in effect promoting a retailer.
That’s a no-no. According to Botting, wineries can’t just mention one retailer in any promotion. “It almost became a Save Mart event,” he noted.
An apparently simple solution would be to drop the sponsor, but organizers of the 2015 event hadn’t made any changes from last year.
Nevertheless, Botting stated that the ABC tries to help nonprofit organizations; it licensed 29,000 one-day events last year, for example, but they have to follow the rules. “During Prohibition, it was easy: You couldn’t do anything, though a few exceptions (like home winemaking and sacramental wine) were carved out.”
When Prohibition was repealed, the law stated that everything involving alcohol was prohibited unless it was specifically allowed. The statute even says the law is to be construed literally, though it should be noted that some lawyers disagree and have used that concept in lawsuits.
Botting gave a few examples of violations: A manufacturer of malt beverages wanted to sell a product labeled TGIF, so all promotion would have mentioned the restaurant chain TGI Friday’s, which is licensed. No chance.
On the other hand, private labels sold by one store or chain only are OK.
Likewise, a winery can mention a winemaker dinner featuring its wines at a restaurant, but it can’t mention prices or show photos—though it can provide a link to the restaurant’s website.
Botting seemed to acknowledge that not all of the alcohol laws seem to make sense. “Do we enforce stupid laws to try to get the legislature to change them?” he noted to a question from the audience. “No. So many laws are routinely violated without consequence because we don’t know about it. We usually act only when we are told.”
He emphasized, “We try to encourage people to do the right thing. It sometimes works, and administrative action is intended to encourage them to comply. Changing the laws is not the driving force in our actions.”
In the same session, Susan Evans, executive liaison for industry and state matters of the Alcohol and Tobacco Tax and Trade Bureau (TTB) in Washington, D.C., related efforts the TTB is taking to simplify and speed label approval and other operations.
They include putting all filings into electronic form, which is not yet available, and further modernizing and streamlining label approval. Part of the latter includes adding intelligence and guidance to forms, so applicants understand what to say and prohibiting them from filing incorrect forms.
“In fiscal 2104, we received 142,000 label (COLA) filings but processed 207,000 because so many had errors,” she stated. In California, 28% were returned for corrections.
The most prevalent problem was discrepancy between the label and what the filings say, in fact. “”The correct label may have an incorrect filing.”
Evans also said that the bureau is stepping up enforcement to recover what it believes are billions of dollars in funds.
The bureau is also eliminating filing for some changes, such as alcohol level, though not if it changes the class of wine: If it says ‘table wine,’ it can’t rise above 14% alcohol, for example.
The third panelist in the regulatory session, Matt Walsh, is vice president of tax for Sovos Compliance, the organization that bought ShipCompliant, which focuses on what can be shipped.
He reminded attendees that state tax laws are as complex as shipping laws: There are 12,000 different tax jurisdictions in the United States.
Walsh reported that 24 states have formed a group called Streamline State Taxes and are working to simplify their sales taxes.
One issue, for example, is sales taxes on goods shipped from other states. In general, they are now taxed at the destination, but there’s not always a system set up to collect those taxes unless the shipper has a presence in the destination state. The Internet has made this a big issue, and states are searching for revenue. Expect significant changes to occur as this transpires—and then there are those other 26 states...
DtC shipping
Speaking of states, Steve Gross, vice president of state relations for the California-focused Wine Institute, summarized developments since the Direct conference a year ago. These have been mostly covered in Wines & Vines, but Gross warned that changes in direct shipping laws have led to increased scrutiny and enforcement.
He said that three states—Illinois, Iowa and Michigan—are actively seeking out illegal shipper s. In fact, a group of beer and wine wholesalers in Michigan is seeking to hire a company to investigate illegal shipping.
But among the good news, Gross reminded wineries that Massachusetts was finally open, South Dakota opens Jan. 1, 2016, and direct shipping laws in Arkansas, Iowa, Indiana, Maryland, Wyoming and Delaware have been improved or seem close.
Other changes are under discussion in a number of states, while in Pennsylvania—the only big state market still virtually closed to direct shipping, the practice remains mired in privatization efforts. “At least we now have the support of the PLCB,” Gross said of the Pennsylvania Liquor Control Board.
He also reminded attendees that no direct shipping is allowed to Alabama, Kentucky, Mississippi, Pennsylvania or Utah, and only visitors to wineries can ship home to Delaware and Oklahoma.
And again, he warned that retailers could only ship to 14 states, none of which are major markets except California. That includes “virtual” wineries with California 17/20 licenses. Importers can’t ship to consumers at all.
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