Amendment SSA1-SB485

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2007 - 2008 LEGISLATURE

SENATE SUBSTITUTE AMENDMENT 1, TO 2007 SENATE BILL 485

February 27, 2008 - Offered by Committee on Transportation and Tourism.

SB485-SSA1,2,2 An Act to repeal 125.52 (6), 125.52 (8), 125.53 (3), 125.55 (1) (b), 125.58 (4) (a) 1. to 4., 125.58 (4) (b), 125.68 (10) (bm), 125.68 (10) (bs), 125.68 (10) (c), 125.69 (1) (b) 2. and 3., 125.69 (1) (c) 1. to 3. and 125.69 (4) (c); to renumber 125.03 (1); to renumber and amend 125.58 (4) (a) (intro.), 125.69 (1) (c) (intro.), 139.11 (4) and 185.043; to consolidate, renumber and amend 125.55 (1) (intro.) and (a); to amend 20.566 (1) (ha), 36.11 (40), 125.01, 125.02 (22), 125.03 (3), 125.12 (5), 125.52 (1), 125.53 (1), 125.54 (1), 125.55 (2), 125.58 (1), 125.65 (8), 125.68 (10) (a), 125.68 (10) (b), 125.69 (1) (a), 125.69 (1) (b) 1., 125.69 (6) (a) and 139.11 (4) (title); to repeal and recreate 139.035; and to create 125.02 (23), 125.03 (1) (b), 125.04 (3) (a) 4m., 125.06 (11m), 125.272, 125.51 (6), 125.535, 125.54 (7) (e), 125.54 (8), 125.545, 139.11 (4) (b) and 185.043 (2) of the statutes; relating to: the production, sale, and distribution of intoxicating liquor, providing an exemption from emergency rule procedures, granting rule-making authority, making an appropriation, and providing a penalty.

Analysis by the Legislative Reference Bureau

Under current law, the Department of Revenue (DOR) issues various permits related to intoxicating liquor (which includes wine), including winery permits, manufacturer's permits, rectifier's permits, wholesaler's permits, and out-of-state shipper's permits. Wine may be produced and distributed under a winery permit, manufacturer's permit, or rectifier's permit.

This substitute amendment makes changes to the way in which wine may be produced and distributed in this state, including the following:

1. Direct shipments of wine to consumers. Under current law, a winery located outside this state may ship wine into this state without an out-of-state shipper's permit and directly to an individual if the winery is located in a state that has a reciprocal agreement with this state pertaining to out-of-state shipments of wine to individuals in the respective states (reciprocal agreement) and if certain other conditions are met. An individual in this state may not receive more than 27 liters of wine annually from out-of-state wineries. Also, a winery located in this state that holds a winery permit, as well as a person in this state holding an intoxicating liquor manufacturer's or rectifier's permit, may ship wine from this state to individuals in another state under authorization of a reciprocal agreement if certain conditions are met. DOR is required to negotiate and, if possible, enter into reciprocal agreements with other states. Currently this state is a party to such a reciprocal agreement only with California. Current law also does not authorize intrastate shipments of wine directly to consumers.

This substitute amendment repeals the reciprocal agreement system for authorizing interstate wine shipments directly to consumers and replaces it with a new permit system available for both interstate and intrastate shipments of wine directly to consumers. The substitute amendment requires DOR to issue a new permit called a direct wine shipper's permit that authorizes the permittee to ship wine directly to an individual in this state who is of the legal drinking age, who acknowledges receipt of the wine shipped, and who is not intoxicated at the time of delivery. A direct wine shipper's permit may be issued to any person that manufactures and bottles wine on premises covered by a winery, manufacturer's, or rectifier's permit issued by DOR, a winery permit issued by another state, or a federal winery permit. Containers of wine shipped to an individual in this state must be clearly labeled to indicate that the package may not be delivered to an underage person or to an intoxicated person. No individual may resell, or use for a commercial purpose, wine that the individual receives by direct shipment under the permit. No individual in this state may receive more than 108 liters of wine annually that is shipped under authority of the permit. Holders of direct wine shippers' permits must report quarterly to DOR specified information related to wine shipments made under authority of the permit and must include the amount of the occupational tax in the sales price of the wine and pay the sales or use tax on the sale of the wine shipped under authority of the permit.

2. Distribution of intoxicating liquor to other licensees and permittees, except by cooperative wholesalers. Under current law, a winery permit authorizes a winery to manufacture and bottle wine on the winery premises for sale at wholesale to other licensees or permittees, such as retailers, other wholesalers, and manufacturers. A manufacturer's permit or rectifier's permit authorizes a manufacturer or rectifier to manufacture, bottle, and wholesale wine on the manufacturing or rectifying premises. A rectifier's permit authorizes the rectifier to sell its own intoxicating liquor to retailers.

This substitute amendment eliminates the authorization of wineries, manufacturers, and rectifiers to sell wine at wholesale and eliminates the authorization of rectifiers to sell intoxicating liquor directly to retailers. Under the substitute amendment, wineries, manufacturers, and rectifiers may not sell wine directly to retailers. A winery may only sell wine to wholesalers. A manufacturer or rectifier may only sell intoxicating liquor, including wine, to wholesalers, wineries, and other manufacturers and rectifiers.

Under current law, an out-of-state shipper's permit authorizes a person located outside this state to sell or ship intoxicating liquor into this state to a person holding a manufacturer's, rectifier's, wholesaler's, industrial alcohol, or medicinal alcohol permit.

Under this substitute amendment, a person holding an out-of-state shipper's permit may only sell or ship intoxicating liquor into this state to a person holding a wholesaler's permit or, if shipped from a manufacturer or rectifier in another state, to a person holding a manufacturer's or rectifier's permit or a winery permit.

The substitute amendment also requires each wholesaler to negotiate in good faith with any manufacturer, rectifier, or winery that seeks to sell its products through the wholesaler. All wholesalers must work diligently to ensure that distribution channels are available for the sale of intoxicating liquor products through wholesalers to retailers in this state.

3. Distribution of wine by cooperative wholesalers. The substitute amendment allows certain wineries holding a winery permit and certain out-of-state wineries to form a cooperative for purposes of wholesaling their wine. However, the substitute amendment requires any such cooperative to be created between October 1, 2008, and December 31, 2008, and limits the total number of these cooperatives to six.

Under the substitute amendment, a winery that produces and bottles less than 25,000 gallons of wine in a calendar year (small winery) may organize with other small wineries as a cooperative known as a small winery cooperative wholesaler (cooperative wholesaler). The principal purpose of a cooperative wholesaler is to sell and distribute wine produced and bottled by the members of the cooperative wholesaler. The membership of a cooperative wholesaler must consist exclusively of small wineries that hold direct shippers' permits and that are certified as small wineries by DOR. To form the cooperative, three or more individuals, at least one of whom must be a resident of this state and all of which must be owners of small wineries, must sign and file articles of incorporation with the Department of Financial Institutions. A cooperative wholesaler may not employ any owner or employee of its member wineries, but such an owner or employee may act as a volunteer to assist the cooperative wholesaler.

Under the substitute amendment, no cooperative wholesaler may operate without a wholesaler's permit issued by DOR. Within seven days after filing its articles of incorporation as a cooperative, a cooperative wholesaler must apply to DOR for a wholesaler's permit. DOR may issue only one wholesaler's permit to any cooperative wholesaler. DOR may not issue more than a total of six wholesalers' permits to cooperative wholesalers and DOR may not issue any new wholesaler's permit to a cooperative wholesaler after December 31, 2008. A cooperative wholesaler issued a wholesaler's permit is authorized to sell and distribute only wine, including blended or mixed products sold as wine, and ancillary wine industry trade goods such as bottles, corks, and other supplies used by wineries, but may not sell or distribute any other product. A cooperative wholesaler may not purchase wine from any person other than a member and may not resell or distribute wine unless it has been purchased on consignment from a member. A cooperative wholesaler may only sell or distribute wine to a retailer or to another wholesaler and may only sell ancillary wine industry trade goods to the cooperative wholesaler's members or former members.

Under the substitute amendment, a member of a cooperative wholesaler may not sell its wine directly to any other wholesaler or directly to a retailer; it must make its wine available to retailers and other wholesalers only through the cooperative wholesaler.

Under the substitute amendment, a cooperative wholesaler is not subject to certain provisions of current law requiring a wholesaler to physically unload intoxicating liquor at a warehouse location prior to distribution and requiring a wholesaler to annually sell and deliver intoxicating liquor to at least ten retailers that do not have any direct or indirect interest in each other or in the wholesaler. Neither a cooperative wholesaler nor its winery members are subject to certain provisions of current law restricting common ownership interests in wineries and wholesalers. Except as provided in the substitute amendment, all provisions of law that apply to a wholesaler also apply to a cooperative wholesaler.

The substitute amendment requires DOR to certify applicants as small wineries if the applicant is a winery that produces and bottles less than 25,000 gallons of wine in a calendar year, holds a direct shipper's permit, and submits any other information that DOR determines is necessary to certify that the winery is operating as a small winery and is eligible for membership in a cooperative wholesaler. In certifying a winery as a small winery, DOR must classify the winery as either a Wisconsin winery or an out-of-state winery. A cooperative wholesaler may not give preferential treatment to a member that is a Wisconsin winery or discriminate against a member that is an out-of-state winery.

The substitute amendment requires the board of directors of a cooperative wholesaler, at least once every six months, to meet in person with DOR and the University of Wisconsin Center for Cooperatives. The substitute amendment specifies various requirements related to these meetings, including that publicly available reports be prepared by DOR and the Center for Cooperatives as a result of these meetings. The substitute amendment also requires each cooperative wholesaler to biennially file a report with DOR that includes specified information.

Under the substitute amendment, any winery that sells or distributes its wine directly to a retailer, rather than through a wholesaler or cooperative wholesaler, is subject to a fine of not more than $10,000 and revocation of the permits issued to it by DOR. Any cooperative wholesaler that provides preferential treatment to a Wisconsin winery or discriminates against an out-of-state winery is subject to a fine of not more than $10,000 and revocation of its wholesaler's permit.

4. Blending or mixing wine or distilled spirits. Current law is unclear as to whether a winery operating under a winery permit may mix or blend wine with other intoxicating liquor to produce fortified wine and whether a winery may receive shipments of bulk wine or other intoxicating liquor directly from out-of-state producers holding an out-of-state shipper's permit.

This substitute amendment clarifies that a winery operating under a winery permit may, without obtaining a rectifier's permit, possess intoxicating liquor and mix or blend intoxicating liquor to produce wine sold to wholesalers. The substitute amendment also clarifies the definition of "wine" by specifying that wine contains not more than 21 percent of alcohol by volume.

The substitute amendment specifically authorizes wholesalers to sell intoxicating liquor to wineries, manufacturers, and rectifiers for production purposes. The substitute amendment also specifies that an out-of-state shipper's permittee may sell or ship intoxicating liquor into this state directly to a winery.

5. Face-to-face retail sales. The substitute amendment specifies that an intoxicating liquor or fermented malt beverages retail license or permit, with limited exceptions, authorizes only face-to-face sales to consumers at the premises described in the retail license or permit.

6. Common ownership interests. The substitute amendment specifies that certain restrictions on common ownership interests that apply under current law to manufacturers, rectifiers, and wholesalers also apply to wineries and out-of-state shipper permittees. The substitute amendment further provides that rectifiers, wineries, and out-of-state shipper permittees may not hold any direct or indirect interest in any wholesale permit or establishment and that, except for a retail license issued to a winery, no retail licensee may hold any direct or indirect interest in any manufacturer, rectifier, winery, or out-of-state shipper permittee.

Under current law, an exception to the common ownership restrictions allows a winery to hold one retail license, which may be a "Class A" license or a "Class B" license. The substitute amendment clarifies this exception, including specifying that the retail licensed premises may be on the winery premises or on real estate owned or leased by the winery and that the winery may distribute its own wine to its own retail premises without going through a wholesaler.

7. DOR industry reports. The substitute amendment requires DOR to publish monthly reports containing specified information related to the intoxicating liquor industry.

8. Wine collectors. The substitute amendment specifically authorizes, by creating a new license or permit exception, a wine collector to sell to any other wine collector manufacturer-sealed bottles or containers of wine that the seller has held for at least eight years, but limits this exception to one sale in a 12-month period. The substitute amendment also authorizes a wine collector to donate manufacturer-sealed bottles or containers of wine to any charitable organization and allows the charitable organization to use the wine in any event held by the charitable organization or other fund-raising effort of the charitable organization.

9. Effective date. The general effective date of the substitute amendment is October 1, 2008. Notwithstanding any other provision of the substitute amendment, a winery holding a winery permit issued prior to the substitute amendment's effective date may continue to sell its wine at wholesale, in the manner authorized under current law, until June 30, 2009.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

SB485-SSA1, s. 1 Section 1. 20.566 (1) (ha) of the statutes is amended to read:

SB485-SSA1,6,11 20.566 (1) (ha) Administration of liquor tax and alcohol beverages enforcement. The amounts in the schedule for computer, audit, and enforcement costs incurred in administering the tax under s. 139.03 (2m) and for costs incurred in enforcing the 3-tier system for alcohol beverages production, distribution, and sale under ch. 125. All moneys received from the administration fee under s. 139.06 (1) (a) and any permit fee under s. 125.535 (2) shall be credited to this appropriation. Notwithstanding s. 20.001 (3) (a), at the end of each fiscal year, the unencumbered balance of this appropriation account, minus an amount equal to 10% of the sum of the amounts expended and the amounts encumbered from the account during the fiscal year, shall lapse to the general fund.

SB485-SSA1, s. 2 Section 2. 36.11 (40) of the statutes is amended to read:

SB485-SSA1,6,15 36.11 (40) Center for cooperatives. The board shall maintain a center for cooperatives at the University of Wisconsin-Madison. The center shall comply with the requirements specified in s. 125.545 (5) (a).

SB485-SSA1, s. 3 Section 3. 125.01 of the statutes is amended to read:

SB485-SSA1,7,14 125.01 Legislative intent. This chapter shall be construed as an enactment of the legislature's support for the 3-tier system for alcohol beverages production, distribution, and sale that, through uniform statewide regulation, provides this state regulatory authority over the production, storage, distribution, transportation, sale, and consumption of alcohol beverages by and to its citizens, for the benefit of the public health and welfare and this state's economic stability. Without the 3-tier system, the effective statewide regulation and collection of state taxes on alcohol beverages sales would be seriously jeopardized. It is further the intent of the legislature that without a specific statutory exception, all sales of alcohol beverages shall occur through the 3-tier system, from manufacturers to licensed wholesalers to retailers to consumers. Face-to-face retail sales at licensed premises directly advance the state's interest in preventing alcohol sales to underage or intoxicated persons and the state's interest in efficient and effective collection of tax.

SB485-SSA1, s. 4 Section 4. 125.02 (22) of the statutes is amended to read:

SB485-SSA1,7,20 125.02 (22) "Wine" means products obtained from the normal alcohol fermentation of the juice or must of sound, ripe grapes, other fruits or other agricultural products, imitation wine, compounds sold as wine, vermouth, cider, perry, mead and sake, if such products contain 0.5% or more not less than 0.5 percent nor more than 21 percent of alcohol by volume.

SB485-SSA1, s. 5 Section 5. 125.02 (23) of the statutes is created to read:

SB485-SSA1,7,24 125.02 (23) "Wine collector" means an individual who meets the standards established by the department by rule and who is registered with the department as a collector of wine.

SB485-SSA1, s. 6 Section 6. 125.03 (1) of the statutes is renumbered 125.03 (1) (a).

SB485-SSA1, s. 7 Section 7. 125.03 (1) (b) of the statutes is created to read:

SB485-SSA1,8,5 125.03 (1) (b) The department shall promulgate rules providing for registration of wine collectors and establishing standards of eligibility for registration as a wine collector. The rules shall also specify the form and manner of notice required under s. 125.06 (11m) (a).

SB485-SSA1, s. 8 Section 8. 125.03 (3) of the statutes is amended to read:

SB485-SSA1,8,8 125.03 (3) Violations. No person may violate a rule promulgated under sub. (1) (a) or (2).