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North Bay Business Journal

Monday, November 28, 2011, 6:00 am

Important legal changes for wine, alcohol in 2012

By Tom Carey, Bahaneh Hobel, Michael Mann and Jennifer Phillips

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    Dickenson Peatman & Fogarty attorneys (clockwise from top left) Tom Carey, Jennifer Phillips, Bahaneh Hobel and Michael Mann

    Dickenson Peatman & Fogarty attorneys (clockwise from top left) Tom Carey, Jennifer Phillips, Bahaneh Hobel and Michael Mann

    Important laws and regulations affecting members of the California wine and alcohol beverage industry in 2012 include clarification on third-party marketing and promotions, a new direct-to-consumer wine retail license, permission for on-premise infusion of wine and spirits with flavors, a change in the definition of “distilled spirits” for taxation purposes, new state Russian River frost-protection water rules and agricultural union elections law changes.

    Clarification on third-party marketing, promotions

    On Nov. 1, the California Department of Alcoholic Beverage Control (ABC) issued a new industry advisory regarding third-party providers (TPPs) to address industry confusion. “Unlicensed entities that are involved with the promotion, marketing and facilitation of sales of alcoholic beverages by licensees over the Internet” can facilitate the sale of wine over the Internet, provided the benefited alcoholic beverage licensee at all times retains control over all sales transactions, including all decisions regarding pricing, selection, shipping and fulfillment, according to the advisory.

    A TPP would be permitted to place advertising for an alcoholic beverage at the direction of a licensee, make buying recommendations to a consumer, direct consumers to specific licensees, receive orders and pass them on to the licensee for acceptance and fulfillment, process payments — the licensee ultimately must control the funds and the flow of funds — and assist with shipping arrangements. TPPs may be compensated for their services, so long as the compensation is reasonable and does not result in any “actual or de facto control” over the licensee by the TPP.

    TPPs and the licensees with whom they work continue to be subject ABC’s prohibition on the giving of “free goods,” which includes no free shipping. While the ABC still retains a great deal of discretion in reviewing relationships between TPPs and industry members, the TPP Advisory has clarified the scope of permissible activities for TPPs and has provided industry members some much needed guidance with respect to their relationships with TPPs. 

    –Bahaneh Hobel and Michael Mann

    New direct-to-consumer off-sale retail license

    Effective Jan. 1, a new ABC type 85 limited off-sale retail wine license will be available in California. Previously, any licensees that were interested in selling wine to consumers by Internet, phone or mail order (without a retail storefront), were required to obtain two licenses — a type 17 wine and beer wholesalers license and a type 20 off-sale beer and wine license. Such operations were permitted via direct mail, telephone or the Internet so long as the licensee also made sales to a licensed retailer (as opposed to a consumer) at least every 45 days.

    Now, the holder of a new type 85 license may make direct sales to consumers without also being required to make sales to licensed retailers at the wholesale level. Current type 17/20 licensees could therefore transition to the new license and conduct consumer-only sales.

    However, a type 85 licensee is still only permitted to solicit and accept sales via direct mail, telephone or the Internet. No sales from a retail premises open to the public (i.e., from a “storefront”) are permitted

    Bahaneh Hobel and Michael Mann

    Restaurants, other on-sale licensees can infuse spirits, wine

    Section 23016 of the California Business and Professions Code was recently amended to allow on-sale licensees, including restaurants, to infuse spirits and wine with flavors or blending processes. Previously, the practice of infusing spirits and wines with fruits or flavoring, often done by restaurants throughout California, was prohibited.

    The new amendment, which is already in effect, permits on-sale licensees to color, flavor, or blend distilled spirits or wine products on the on-sale licensed premises so long as those products are consumed on the licensed premises.

    Bahaneh Hobel and Michael Mann

    Wines with other alcohol to be taxed as distilled spirits

    The California State Board of Equalization recently adopted Regulation 2558.1, effective Jan. 1, to clarify the definition of wine in the context of determining the applicable tax rate for alcoholic beverages.

    The regulation has now clarified that, for purposes of taxation, “wine” as defined in Section 23007 of the Business and Professions Code does not include products that contain 0.5 percent or more alcohol by volume from a source other than the particular agricultural product from which the wine is made.

    For example, if an alcohol distilled from a grain — as opposed to an alcohol distilled from grapes such as brandy — was added to a grape based wine product and that product contains more than 0.5 percent percent alcohol from that nongrape source, it would be considered a distilled spirit and taxed accordingly.

    Wine producers and importers should therefore remain informed as to the alcohol source and percentage of any flavorings and blending material that may be added to natural wine that could result in the reclassification of their wine product to a distilled spirit for taxation purposes. Note that this Regulation does not impact or in any way change the way the California Department of Alcoholic Beverage Control defines wine under Section 23007 above. As such, licensees selling wine products that may be reclassified as a distilled spirits for taxation purposes would not be required to obtain a different license from ABC.

    Bahaneh Hobel and Michael Mann

    New frost-protection rules for growers, absent court action

    Effective March 15, growers diverting water from the Russian River watershed for frost protection will be subject to new regulations from the State Water Resources Control Board. They were developed over the last two years in response to concern about the effect of frost-protection activities on threatened and endangered salmon species.

    The regulations require affected growers to participate in a state-approved water demand management program. It would be administered by a third party and require reporting grower water use, monitoring of stream levels in their region. Growers must reduce impact on stream levels if their diversions potentially affect river wildlife. 

    Compliance will be a condition of all existing water rights diversion permits in the Russian River watershed. Failure to comply could result in enforcement action and forfeiture of existing permits. The regulations will be phased in over a number of years because it will take time to set up the required stream-monitoring equipment. 

    A group called Russian River Water Users for the Environment has filed suit in Sacramento Superior Court to prevent the regulations from taking effect. The impact of that suit remains to be seen. 

    Tom Carey

    Revisions to ag union elections

    As of Jan. 1, there will be new provisions to the Agricultural Labor Relations Act (ALRA) regarding union elections. The law applies to agricultural employers, employees and labor organizations.

    After vetoing an earlier bill that would have revised the law to allow a simple card check voting procedure for union certification, Gov. Brown approved scaled-back revisions that preserve the secret ballot. Instead of altering election procedure, the revisions will shorten the time periods in which the Agriculture Labor Relations Board can take certain actions against inappropriate employer activity.

    Jennifer Phillips

    •••

    The authors are attorneys and/or consultants with Dickenson, Peatman & Fogarty, with offices in Napa and Santa Rosa. Tom Carey (tcarey@dpf-law.com) is a director in the firm’s Land Use and Alcohol Beverage groups. Bahaneh Hobel (bhobel@dpf-law.com) is in the Alcoholic Beverage group. Michael Mann (mmann@dpf-law.com) is a consultant in the Alcoholic Beverage group. Jennifer Phillips (jphillips@dpf-law.com) is an attorney in the Labor & Employment group. Visit the firm’s wine law blog Lex Vini (www.lexvini.com). This article is not legal advice.

     

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    Comments

    1 Comment

    1. January 5, 2013, 3:50 pm

      by Shannon

      Would like to know what are the regulation for small convenient store off sale for beer and wine are in Bel Marin Keys Novato, CA 94949?


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