WSR 08-21-119

PROPOSED RULES

LIQUOR CONTROL BOARD


[ Filed October 17, 2008, 1:07 p.m. ]

Original Notice.

Preproposal statement of inquiry was filed as WSR 08-15-069.

Title of Rule and Other Identifying Information: Chapter 314-28 WAC, Distillers. Amending the title of chapter 314-28 from "fruit distillers" to "distillers" and WAC 314-28-010; and creating six new sections in the chapter.

Hearing Location(s): Liquor Control Board, Board Room, 3000 Pacific Avenue S.E., Olympia, WA, on December 3, 2008, at 10:00 a.m.

Date of Intended Adoption: December 17, 2008.

Submit Written Comments to: Karen McCall, P.O. Box 43080, Olympia, WA 98504-3080, e-mail rules@liq.wa.gov, fax (360) 704-4921, by December 10, 2008.

Assistance for Persons with Disabilities: Contact Karen McCall by December 10, 2008, (360) 664-1631.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The purpose of this rule making is to implement legislation passed in the 2008 legislative session (SHB 2959), creating a craft distillery liquor license.

Reasons Supporting Proposal: The rules are amended to reflect statute changes during the legislative sessions.

Statutory Authority for Adoption: RCW 66.08.030, 66.24.145.

Statute Being Implemented: RCW 66.24.140, 66.24.145.

Rule is not necessitated by federal law, federal or state court decision.

Name of Proponent: Washington state liquor control board, governmental.

Name of Agency Personnel Responsible for Drafting: Karen Rogers, 3000 Pacific Avenue S.E., Olympia, WA 98504, (360) 664-1622; Implementation: Alan Rathbun, 3000 Pacific Avenue S.E., Olympia, WA 98504, (360) 664-1615; and Enforcement: Pat Parmer, 3000 Pacific Avenue S.E., Olympia, WA 98504, (360) 664-1726.

No small business economic impact statement has been prepared under chapter 19.85 RCW. This proposal imposes only minor impact on businesses in the industry.

A cost-benefit analysis is not required under RCW 34.05.328.

October 15, 2008

Lorraine Lee

Chairman

OTS-1949.2

Chapter 314-28 WAC

((FRUIT)) DISTILLERS


AMENDATORY SECTION(Amending Order 172, Resolution No. 181, filed 3/13/86)

WAC 314-28-010   Records.   ((All fruit distillers, whether operating under the general distiller's license or under the two hundred dollar license, provided in section 23-D of the Washington State Liquor Act (RCW 66.24.140), and who manufacture brandy or wine spirits intended for use by domestic wineries for brandy or wine spirits addition in the manufacture of wine, must keep separate records concerning such brandy or wine spirits on forms approved by the board, and such records must be kept separate and apart from any other records kept or required to be kept and maintained.)) (1) All distilleries licensed under RCW 66.24.140 and 66.24.145, including craft, fruit, and laboratory distillers:

(a) Must keep records concerning any spirits, whether produced or purchased, for two years after each sale. These records must be kept separate from any other records. A distiller may be required to report on forms approved by the board;

(b) Must, in case of spirits exported or sold, preserve all bills of lading and other evidence of shipment; and

(c) Must submit duplicate copies of transcripts, notices, or other data that are required by the federal government to the board if requested, within thirty days of the notice of such request. A distiller shall also furnish copies of the bills of lading, covering all shipments of the products of the licensee, to the board within thirty days of notice of such request.

(2) A craft distiller must:

(a) Preserve all sales records, in the case of retail sales to consumers, in addition to the records listed in subsection (1)(b) of this section; and

(b) Submit duplicate copies of its monthly returns to the board upon request, in addition to the duplicate copies listed in subsection (1)(c) of this section. The same conditions apply as in subsection (1)(c) of this section.

[Statutory Authority: RCW 66.08.030. 86-07-022 (Order 172, Resolution No. 181), 314-28-010, filed 3/13/86; Order 14, 314-28-010, filed 12/1/70, effective 1/1/71; Rule 84, filed 6/13/63.]


NEW SECTION
WAC 314-28-050   What does a craft distillery license allow?   (1) A craft distillery license allows a licensee to:

(a) Produce twenty thousand proof gallons or less of its own spirits per calendar year. A "proof gallon" is one liquid gallon of spirits that is fifty percent alcohol at sixty degrees Fahrenheit;

(b) Sell spirits of its own production directly to a customer for off-premises consumption, provided that the sale occurs when the customer is physically present on the licensed premises. A licensee may sell no more than two liters per customer per day. A craft distiller may not sell liquor products of someone else's production;

(c) Sell spirits of its own production to the board provided that the product is "listed" by the board, or is special-ordered by an individual Washington state liquor store;

(d) Sell to out-of-state entities;

(e) Provide, free of charge, samples of spirits of its own production to persons on the distillery premises. Each sample must be one-half ounce or less, with no more than two ounces of samples provided per person per day. Samples must be unaltered, and anyone involved in the serving of such samples must have a valid Class 12 alcohol server permit. Samples must be in compliance with RCW 66.28.040 and all applicable WACs, and are subject to taxes under WAC 314-28-070; and

(f) Provide, free of charge, samples of spirits of its own production to retailers. Samples must be unaltered, and in compliance with RCW 66.28.040 and all applicable WACs, including WAC 314-44-005 and 314-64-08001. Samples are considered sales and are subject to taxes under WAC 314-28-070.

(2) A craft distillery licensee may not sell directly to in-state retailers or in-state distributors, but only to on-premises customers, to the board, and to out-of-state entities, as stipulated in subsections (1)(b), (c) and (d) of this section.

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NEW SECTION
WAC 314-28-060   What are the general requirements for a craft distillery license?   Per RCW 66.24.140 and 66.24.145, a craft distillery licensee is required to:

(1) Submit copies of all permits required by the federal government;

(2) Submit other licensing documents as determined by the board. Other documents may include, but are not limited to, a personal criminal history statement, a financial statement, the right to the real property, and the tied house statement;

(3) Ensure a minimum of fifty percent of all raw materials (including any neutral grain spirits and the raw materials that go into making mash, wort or wash) used in the monthly production of the spirits product are grown in the state of Washington. Water is not considered a raw material grown in the state of Washington;

(4) Purchase any spirits sold at the distillery premises for off-premises consumption from the board, at the price set by the board;

(5) Purchase any spirits used for sampling at the distillery premises from the board;

(6) Purchase any spirits used for samples provided to retailers from the board; and

(7) Meet any other applicable requirements stated in RCW and WAC.

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NEW SECTION
WAC 314-28-070   What are the monthly reporting and payment requirements for a craft distillery license?   A craft distiller must submit monthly reports and payments to the board.

(1) Monthly reports. The required monthly reports must be:

(a) On a form furnished by the board or in a format approved by the board;

(b) Filed every month, including months with no activity or payment due;

(c) Submitted, with payment due, to the board on or before the twentieth day of each month, for the previous month. (For example, a report listing transactions for the month of January is due by February 20th.) When the twentieth day of the month falls on a Saturday, Sunday, or a legal holiday, the filing must be postmarked by the U.S. postal service no later than the next postal business day; and

(d) Filed separately for each liquor license held.

(2) For reporting purposes, production is the distillation of spirits from mash, wort, wash or any other distilling material. After the production process is completed, a production gauge shall be made to establish the quantity and proof of the spirits produced. The designation as to the kind of spirits shall also be made at the time of the production gauge. A record of the production gauge shall be maintained by the distiller. The completion of the production process is when the product is packaged for distribution. Production quantities are reportable within thirty days of the completion of the production process.

(3) Payments to the board. A distillery must pay the difference between the cost of the alcohol purchased by the board and the sale of alcohol at the established retail price, less the established commission rate during the preceding calendar month, including samples at no charge (see WAC 314-64-08001 for more information).

(a) Any on-premises sale or sample provided to a consumer is considered a sale reportable to the board.

(b) Samples provided to retailers are considered sales reportable to the board.

(c) Payments must be submitted, with monthly reports, to the board on or before the twentieth day of each month, for the previous month. (For example, payment for a report listing transactions for the month of January is due by February 20th.) When the twentieth day of the month falls on a Saturday, Sunday, or a legal holiday, payment must be postmarked by the U.S. postal service no later than the next postal business day.

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NEW SECTION
WAC 314-28-080   What if a craft distillery licensee fails to report or pay, or reports or pays late?   If a craft distiller fails to submit its monthly reports or payment to the board, or submits late, then the licensee is subject to penalties and surety bonds.

(1) Penalties. A penalty of two percent per month will be assessed on any payments postmarked after the twentieth day of the month following the month of sale. When the twentieth day of the month falls on a Saturday, Sunday, or a legal holiday, the filing must be postmarked by the U.S. postal service no later than the next postal business day.

(2) Surety bonds. A "surety bond" is a type of insurance policy that guarantees payment to the state, and is executed by a surety company authorized to do business in the state of Washington. Surety bond requirements are as follows:

(a) Must be on a surety bond form and in an amount acceptable to the board;

(b) Payable to the "Washington state liquor control board"; and

(c) Conditioned that the licensee will pay the taxes and penalties levied by RCW 66.28.040 and by all applicable WACs.

(3) The board may require a craft distillery to obtain a surety bond or assignment of savings account, within twenty-one days after a notification by mail, if any of the following occur:

(a) A report or payment is missing more than thirty days past the required filing date, for two or more consecutive months;

(b) A report or payment is missing more than thirty days past the required filing date, for two or more times within a two-year period; or

(c) Return of payment for nonsufficient funds.

(4) As an option to obtaining a surety bond, a licensee may create an assignment of savings account for the board in the same amount as required for a surety bond. Requests for this option must be submitted in writing to the board's financial division.

(5) The amount of a surety bond or savings account required by this chapter must be either three thousand dollars, or the total of the highest four months' worth of liability for the previous twelve month period, whichever is greater. The licensee must maintain the bond for at least two years.

(6) Surety bond and savings account amounts may be reviewed annually and compared to the last twelve months' tax liability of the licensee. If the current bond or savings account amount does not meet the requirements outlined in this section, the licensee will be required to increase the bond amount or amount on deposit within twenty-one days.

(7) If a licensee holds a surety bond or savings account, the board will immediately start the process to collect overdue payments from the surety company or assigned account. If the exact amount of payment due is not known because of missing reports, the board will estimate the payment due based on previous production, receipts, and/or sales.

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NEW SECTION
WAC 314-28-090   Craft distilleries -- Retail pricing -- Selling to customers and to the board.   (1) Retail pricing. A craft distillery licensee must submit a pricing quote to the board forty-five days prior to the first day of the effective pricing month. The board will then set the retail price. Pricing cannot be changed within a calendar month. Spirits sold out-of-state are not subject to retail pricing by the board.

(2) Selling to customers. The craft distillery licensee is required to sell to its customers at the same retail price as set by the board. In the case that a temporary price reduction is being offered on a listed item by the board in a given month, the licensee may sell its products to its customers at the reduced price for that time period only.

(3) Product listing. A craft distillery licensee may send its listing request to the board's purchasing division. The purchasing division will follow the standard listing process, and give the same consideration and apply the same criteria to all requests.

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NEW SECTION
WAC 314-28-200   Adoption of federal laws.   All laws, rules and regulations of the federal government, or any subsequent modification thereof, applicable to the rectification of distilled spirits, wines, cordials, liquors, etc., are by reference hereby adopted and promulgated as the rules and regulations of this board.

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Washington State Code Reviser's Office