The Washington State Liquor and Cannabis Board recently announced that there are now 1,000 active domestic winery licensees in Washington State. Our state wine industry is growing at several times the rate of Oregon and California, and this announcement validates the growth numbers we’ve been seeing over the past decade. Congratulations to all past and present who’ve been a part of the success story of Washington State wine. As your statewide trade association for our wine industry, we promise to continue our over three decades of work at WWI to protect our industry from harm in Olympia and Washington D.C. while also continuing to responsibly modernize our alcohol laws so all of Washington wine is able to continue reaching new milestones. Cheers!
The Winery General Permit is now effective. Ecology issued the Winery General Permit on May 17th of last year, but delayed the effective date to give potential permittees extra time to prepare for the new regulation. The effective date was also delayed to coincide with the recent adoption of the revised Permit Fee Rule (Chapter 173-224 WAC).
Wineries that meet the applicability requirements outlined in Special Condition S1 of the Winery General Permit have 90 days (until September 30th) to apply for permit coverage using the online permit portal. Wineries under 7,500 cases/produced a year are exempt from permit. Also, wineries in urban areas that have their wastewater system connected to a delegated point-of-treatment system are exempt from permit.
The Washington Wine Institute worked with Ecology and wine industry wastewater experts for more then four years on developing the permit. While still complicated, the final version of the permit is a tremendous improvement from where it started in 2015. Finally, the permit fees are significantly lower then what Ecology originally proposed. We will continue pushing Ecology to lower these costs as they learn how much resource is needed to permit and regulate these new winery wastewater rules.
If you have any questions, please contact the Ecology staff listed on the permit webpage.
With Governor Inslee signing the 2019-2021 Washington State Operating Budget into law, several changes to our current tax law took place. One of specific importance to Washington wineries is the significant change to the nonresident sales tax exemption when a customer from a qualifying state makes a purchase at our winery or tasting room. Below is information on what the changes mean for all tax payers and collectors. Important note: this tax collection change does NOT apply to sales of wine delivered to customers outside the state.
Courtesy of the Washington State Department of Revenue
As you may know, during the 2019 session, the Legislature modified the nonresident exemption. Effective July 1, 2019, the retail sales tax exemption is no longer available at the point of sale. Instead, eligible nonresidents who have paid at least $25 in state sales tax on qualifying purchases may apply for a refund of the state portion of the retail sales tax from the Department on an annual basis.
Sales of wine
Beginning July 1, 2019, wineries in Washington must collect sales tax on their sales of wine and other tangible goods sold to nonresidents when the nonresident customer takes delivery of those goods in this state (i.e. customer takes possession of the goods in Washington at the time of sale.) The exemption will no longer apply at the point of sale, no matter where the customer resides/lives.
Interstate and foreign sales
If a Washington winery delivers wine or other items to a customer at a location outside the state, those sales continue to be exempt from Washington’s retail sales tax and retailing B&O tax as “interstate and foreign sales.” There is no change to the way these sales are taxed or reported. Wineries do not need to start collecting Washington taxes on products shipped for delivery outside the state.
For more information, see our Special Notice on our website.
Support for the Craft Beverage Modernization and Tax Reform Act (H.R. 1175/ S.362) continues to build momentum with 218 members of the United States House of Representatives and 65 members of the Senate supporting the bipartisan legislation. We want to take a moment to say a huge “THANK YOU” to Senator Maria Cantwell, Senator Patty Murray, and Representatives Dan Newhouse, Susan Del Bene, Derek Kilmer, Cathy McMorris Rodgers, and Jaime Herrera-Beutler for being leaders on S.362/H.R. 1175 and supporting their Washington wine industry by agreeing to sign on as cosponsors of the legislation.
Introduced by Representatives Ron Kind (D-WI) and Mike Kelly (R-PA) and Senators Ron Wyden (D-OR) and Roy Blunt (R-MO), the legislation will make permanent reforms enacted in 2017 that create a fair and equitable tax structure for brewers, winemakers, distillers and importers of all beverage alcohol.
Important to Washington wineries within CBMTRA 2019 is both the simplification of the excise tax credit but equally important is creating a permanent change to the federal excise tax rate of $1.07 for wine up to 16% ABV. Prior to 2018, the tax rate unfairly changed from $1.07 to $1.57 on any wine above 14% ABV effectively taxing such higher ABV wine as fortified wine. Finally, CBMTRA 2019 makes permanent the allowance for sparkling wine producers to have access to the improved version of the small producer tax credit, ending a luxury tax rate of $3.44/gallon on all sparkling wine harkening back to the 1930’s and a time when sparkline wine was considered a foreign luxury.
The support for the legislation by the majority of the House and Senate is a unique coalition of alcohol trade associations including the Brewers Association, Beer Institute, Distilled Spirits Council of the United States, American Craft Spirits Association, Wine Institute, WineAmerica and the United States Association of Cider Makers.
The CBMTRA 2019 is the Washington Wine Institute’s #1 federal legislative priority. We are fortunate to have the leadership of our national association of American wineries, WineAmerica, working hard every day in Washington D.C. to push this legislation across the goal line. As a WWI member we are grateful for your investment, and we strongly encourage you to also join WineAmerica and invest in this crucial work bringing permanance to our outdated federal excise tax structure and tax savings to every your winery to reinvest and grow.
WWI brought two significant WA wine policy bills to the Legislature this session, and a third was introduced by Rep. Mike Steele (R-Chelan) due to an LCB enforcement situation on recorked wine that needed either statutory or rule clarification. WWI strongly supported and helped push all three bills “to the finish line” and within the past week all three were signed into law!! Each bill has a 90 day wait before becoming law, so expect to be able to utilize these new allowances by August 1.
SB 5394: Concerning liquor licensees’ use of social media and website to promote events
WWI helped draft, introduce, and push SB 5394 to become law alongside our partners at the WA Brewers Guild. SB 5394 does three important things that should simplify and make legal our ability to utilize our social media accounts and winery websites to promote events where our wine is being featured and allow us to help make that event successful. Currently, a winery is not allowed to advertise for a retailer’s event, as current law treats such advertising as “money’s worth” and we cannot give something of value to a licensee in a different tier of our alcohol system. SB 5394 does the following:
• Modernizes state law so a brewery, winery, distiller or distributor may use their websites and social media accounts for online promotion of events held at another retailer’s licensed premise. Ex: brewer nights and tap takeovers, winemaker dinners, distiller nights and special occasion licensed events (non-profit charity events) taking place at a location other than a brewery, winery or distiller’s own premise
• Allows manufacturers and distributors to link to ticket sales for events held by a retailer of their product, including events benefiting non-profits
• Prohibits paid boosts of posts to provide consistency with laws against paid advertising for a retailer
HB 1563: Concerning liquor-related privileges of students enrolled in certain degree programs
Our Class 15 permit (known as taste and spit) exists to allow 18-20-year-old students in our higher education viticulture and enology programs to experience the diversity and complexity of wine through a highly regulated taste-and-spit experience. Those higher education institutions utilizing the Class 15 permit have proven themselves responsible in the use of this privilege and have reached a place where improving the permit can be done in the right way to take our accredited grape growing and winemaking programs to a higher level. HB 1563 improves the Class 15 permit in two important ways:
1) The bill specifies that under the existing Class 15 permit, the enrolled student may taste the alcoholic beverages either: (1) On the premises of the college or university at which the student is enrolled; or (2) While on a field trip to a grape-growing area or production facility so long as the enrolled student is accompanied by a faculty or staff member with a class 12 or 13 alcohol server permit who supervises and all other requirements that normally apply to the Class 15 permit tastings are met.
2) The bill provides that licensees holding a domestic winery license may allow interns who are between the ages of 18 and 21 years old to engage in wine-production related work at the domestic winery’s licensed location, so long as the volunteer is enrolled as a student at a community or technical college, regional university, or state university with a Class 15 permit, and in a required or elective class as part of a degree program identified in the Class 15 permit authorizing statute.
HB 1672: Recorking of wine by a winery or tasting room
HB 1672 simply allows wineries to recork wine-to-go purchased by a customer at both the winery and tasting room locations. Wineries have been doing this for years as a safety and consumer-friendly option, and we are glad to see it going into law within our domestic winery license allowances.
We want to thank our partners the WA Winegrowers, Washington State University, Walla Walla Community College, and Yakima Valley Community College for their support and help this session passing these bills that improve our state’s alcohol laws and help Washington State wineries have the tools they need to be successful. We also want to thank our prime sponsors Senator Curtis King (R-Yakima), Rep. Derek Stanford (D-Maltby), Rep. Bill Jenkin (R-Walla Walla), and Rep. Mike Steele (R-Chelan) for their leadership on these bills during the 2019 session. Thank you!!
We are pleased that our two priorities bills WWI helped craft, introduce, and are pushing have already been voted out of their committees of origin. These bills are HB 1416/SB 5394, our social media/website use modernization bill, and HB 1563 adding field trip and 18-20 year old internships in winery production areas allowances to the current Class 15 permit our higher educational viticulture and enology programs utilize now (commonly known as the “taste and spit” permit).
HB 1416/SB 5394: Concerning liquor licensees’ use of social media and website to promote events
HB 1563: Concerning liquor-related privileges of students enrolled in certain degree programs
We are now working on getting HB 1416 out of House, so the House can vote on the bills moving through the legislative process. SB 5394 and HB 1563 already moved out of their respective Rules committees, and we are optimistic the bills will be voted on by the full Senate and House within the next week or two.
Beyond these bills, there are a myriad of other bills introduced this session that either directly or indirectly impact our industry. For example, we are helping guide a bill through that puts in statute language allowing wineries to recork wine purchased onsite so a customer can take it home. This is a common practice in wineries now, but the bill exists because of an enforcement issue and a general sense that it’s better to have this important privilege spelled out within our domestic winery license.
Overall, the themes of this legislative session revolve around labor regulations, environmental impacts, and most importantly whether Senate and House leadership have the votes and the public support to raise taxes, create new taxes/fees, and what industries will be impacted. Alcohol taxes are often an “easy” target when these conversations heat up in Olympia, so we continue to be on high alert throughout the session.
As always, we will keep all of our members updated on this work!
HB 1389 is a bill supported by the national wholesalers that would require common carriers (like UPS/FedEx and local carriers) that ship alcohol to file monthly reports with the Liquor and Cannabis Board and Department of Revenue on all details (many very sensitive) of each shipment. WWI worked aggressively with the prime sponsor, Chair of the committee, and Republicans on the committee to alter the bill into something entirely different that might be more effective in getting at how we curb illegal alcohol entering our state. We are excited to share that we succeeded in amending the bill so our wineries’ ability to use common carriers to ship wine will not be harmed. As amended, the bill does the following:
• Removes the entirety of the underlying bill and directs the LCB to investigate illegal alcohol shipments made to Washington consumers and liquor licensees;
• Requires the LCB to include, as a part of its investigation, the extent of the illegal alcohol shipment problem in the state;
• Authorizes the LCB, if necessary, to: (1) work with stakeholders and determine the most effective means to address the problem; and (2) develop legislative proposals to stop illegal shipments of alcohol and enforcement against making such shipments; and
• Requires the LCB to submit a report with its findings to the Legislature by December 31, 2019.
We are excited to announce that the hard work of WineAmerica as well as the national beer and spirits associations led to the long anticipated re-introduction of the Craft Beverage Modernization and Tax Reform Act. The new bill will be known as the Craft Beverage Modernization and Tax Reform Act of 2019, or CBMTRA, and is the formal beginning of our united effort to make permanent the federal craft beverage excise tax reform our wineries are currently enjoying via signficant tax savings. The lead Senate sponsors are once again Senators Ron Wyden (D-OR) and Roy Blunt (R-MO). The lead House sponsors on the bill are Representatives Ron Kind (D-WI) and Mike Kelly (R-PA).
The bill includes all of the provisions from the amended two year version currently in place but set to expire 12/31/19. It makes all of the new credits permanent and includes an extra $15 million for the TTB. The language of the bill also retroactively fixes two of our three implementation issues from the last year. The new language will allow for credits to be taken on bond to bond transfers, which will eliminate the “alternate procedure” that was implemented by TTB last year to mitigate the issues with bonded wine cellars. Additionally, bulk wine transfers from winery to winery will be eligible for the credits. Because of the retroactive aspect of the bill, anyone that was forced to pay a higher tax due to the transfer issues will be able to see retroactive savings.
The bill as introduced does not correct issues with wine produced at a custom crush facility, but WineAmerica is working with the Washington Wine Institute and many other wine associations on strategies to amend this unfortunate error in the bill. Our lobbying efforts will ramp up immediately, and WWI leaders will be making several trips to Washington D.C. this year to help get this bill to the finish line. We will keep all of our members up-to-date as this work continues throughout this year.
Early this month the Trump Administration announced a new free trade agreement between the United States, Canada and Mexico. This new trade agreement replaces NAFTA with a new name “The United States-Mexico-Canada Trade Agreement” (USMCA) and includes significant changes to free trade between the three countries. Most importantly, this new trade deal results in trade doors remaining open for the American wine industry with our partner countries both to the North and South. There are many issues within the USMCA for wine that did not get resolved; however, one very significant issue did get resolved in this agreement that may be extremely beneficial for Washington wine sales; British Columbia grocery store shelves.
Contained within the new USMCA agreement is the removal of British Columbia’s discriminatory practice of only allowing BC wines on grocery store shelves. WWI, along with our partners in California and Oregon wine industries, and with the leadership of WineAmerica, pushed our Congressional leaders to have the United States take British Columbia to WTO court to resolve this issue. Assuming the USMCA trade agreement is ratified by all three countries, BC grocery store shelves will open up for non-BC wines on November 1, 2019.
To read the official letter of agreement between Canada on the United States on the “wine in B.C grocery stores” issue you can click here.
All wineries with 10 or more employees shipping wine direct to California consumers, including Washington wineries, must comply with the health warning statements required under California’s Safe Drinking Water and Toxic Enforcement Act of 1986, known as Proposition 65 (“Prop 65”). As of August 30, 2018, the new “safe harbor” warning regulations are in effect, and the previous 2008 warning regulations are no longer available as a safe harbor compliance option.
Specifically, the new regulations require a Prop. 65 Alcohol Beverage Warning to be displayed on winery websites before any sale to a California resident, on catalogs sent to a California address, and on or in packages containing direct-to-consumer orders sent to a California address.
(NOTE: if a winery is a party to a court-approved settlement known as a consent judgment, it can continue to use the warning language provided for in that consent judgment, but only for the specific products covered in the consent judgment. Additionally, if the winery opted into the 2014 Proposition 65 Consent Judgment negotiated by the Wine Institute, it may continue to use the existing Prop. 65 alcohol warning).
The new requirements that apply to wine sold direct to California consumers are as follows:
• Warning statement:WARNING: Drinking distilled spirits, beer, coolers, wine and other alcoholic beverages may increase cancer risk, and, during pregnancy, can cause birth defects. For more information go to www.P65Warnings.ca.gov/alcohol.
• The word “WARNING” must be in all capital letters and bold print.
• The warning statement font size must be at least equal to the largest font used for other consumer information on the product. In no case shall a warning appear in a type size smaller than 8 point font.
• The warning statement should be placed on or in the wine shipping container or delivery package.
• The warning statement must be readable and conspicuous to the recipient prior to consumption of the wine.
• If the wine packaging contains BPA, the new Point of Sale BPA Warning must also be included on the website and catalogs, and the new Point of Display BPA Warning must be included in or on direct-to-consumer shipments to California addresses.
For general guidance on the new Prop 65 rules, see this legal alert, and if you would like to speak to a Stoel Rives attorney for specific advice, contact Melissa Jones at (916) 319-4649 or firstname.lastname@example.org or Stephanie Meier at (206) 386-7546 or email@example.com.