Effective Date of Rule: December 8, 2011.

     Purpose: New rules are needed to implement Initiative 1183 that passed on November 8, 2011. Parts of the initiative become effective on December 8, 2011. New license types were created and the state of Washington changed from a controlled liquor system to a privatized liquor system. Emergency rules are needed to clarify the language in the new laws created in Initiative 1183.

     Citation of Existing Rules Affected by this Order: Amending WAC 314-28-010, 314-28-050, 314-28-060, 314-28-070, 314-28-080, and 314-28-090.

     Statutory Authority for Adoption: The following new sections in the initiative created new laws directing the board to establish rules: Sections 103, 104, 105, 123, 206.

     Other Authority: RCW 66.28.030.

     Under RCW 34.05.350 the agency for good cause finds that immediate adoption, amendment, or repeal of a rule is necessary for the preservation of the public health, safety, or general welfare, and that observing the time requirements of notice and opportunity to comment upon adoption of a permanent rule would be contrary to the public interest.

     Reasons for this Finding: Initiative 1183 passed on November 8, 2011, changing Washington state from a controlled liquor system to a privatized liquor system. Sections of the initiative become effective December 8, 2011. The emergency rules are needed to clarify the initiative for liquor licensees in the state and to ensure the public health and safety of the citizens of Washington. Permanent rule making will also begin immediately for these rules.

     Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 0, Repealed 0.

     Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.

     Number of Sections Adopted on the Agency's Own Initiative: New 10, Amended 6, Repealed 0.

     Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 10, Amended 6, Repealed 0.

     Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0;      Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 0, Repealed 0.

     Date Adopted: December 7, 2011.

Sharon Foster

Chairman

OTS-4509.4

NEW SECTION
WAC 314-02-103   What is a wine retailer reseller endorsement?   (1) A wine retailer reseller endorsement is issued to the holder of a grocery store liquor license to allow the sale of wine at retail to on-premises liquor licensees.

     (2) No single sale to an on-premises liquor licensee may exceed twenty four liters.

     (3) A grocery store licensee with a wine retailer reseller endorsement may accept delivery at its licensed premises or at one or more warehouse facilities registered with the board.

     (4) The holder of a wine retailer reseller endorsement may also deliver wine to its own licensed premises from the registered warehouse; may deliver wine to other licensed premises, or to other facilities registered to the board pursuant to WAC 314-02-104.

     (5) A grocery store licensee wishing to obtain a wine retailer reseller endorsement that permits sales to another retailer must possess and submit a copy of their basic wholesale permit under the Federal Alcohol Administration Act. This permit must provide for purchasing wine for resale at wholesale.

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     (a) Documentation that shows the licensee has a right to the warehouse property;

     (b) A sketch of the interior of the warehouse facility indicating the designated area the licensee will be storing product. There must be a physical barrier separating product purchased by different ownership entities. (Example: If ABC Grocery and My Grocery, each licensed to a different ownership entity, both lease space in a warehouse facility, the wine and/or spirits must be in separate areas separated by a physical barrier.)

     (2) Retail liquor licensees must keep the following records for three years:

     (a) Purchase invoices and supporting documents for wine and/or spirits purchased; and

     (b) Invoices showing incoming and outgoing wine and/or spirits (product transfers).

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     (a) Sell spirits in original containers to consumers for off-premises consumption;

     (b) Sell spirits in original containers to permit holders;

     (c) Sell spirits in original containers to on-premises liquor retailers, for resale at their licensed premises, although no single sale may exceed twenty-four liters; and

     (d) Export spirits in original containers.

     (2) A spirits retailer license that intends to sell to another retailer must possess a basic permit under the Federal Alcohol Administration Act. This permit must provide for purchasing distilled spirits for resale at wholesale. A copy of the federal basic permit must be submitted to the board. A federal basic permit is required for each location from which the spirits retailer licensee plans to sell to another retailer.

     (3) A sale by a spirits retail licensee is a retail sale only if not for resale to an on-premises spirits retailer. On-premises retail licensees that purchase spirits from a spirits retail licensee must:

     (a) Maintain a schedule by stock-keeping unit of all their purchases from spirits retail licensees, indicating the identity of the seller and the quantities purchased; and

     (b) Provide a quarterly report for each scheduled item containing the identity of the on-premises spirits retailer and the quantities of each item purchased since the preceding report to:

     (i) A distributor authorized by the distiller to distribute a scheduled item in the on-premises spirits retailer licensee's geographic area; or

     (ii) A distiller acting as a distributor of the scheduled item in the area.

     (4) The annual fee for a spirits retail license is one hundred sixty-six dollars.

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     (a) The premises must be at least ten thousand square feet of fully enclosed retail space within a single structure, including store rooms and other interior auxiliary areas, not encumbered by a lease or rental agreement (floor plans one quarter inch to one foot scale may be required by the board); and

     (b) Submit an acknowledgment form indicating the licensee has a security plan which addresses:

     (i) Inventory management;

     (ii) Employee training; and

     (iii) Physical security of spirits product with respect to preventing sales to underage or inebriated persons and theft of product.

     (2) A grocery store licensee or a specialty shop licensee may add a spirits retail liquor license to their current license if they meet the requirements for the spirits retail license.

     (3) The board may not deny a spirits retail license to qualified applicants where the premises is less than ten thousand square feet if:

     (a) There is no spirits retail license holder in the trade area that the applicant proposes to serve;

     (b) The applicant meets the operation requirements in WAC 314-02-107 (1)(b); and

     (c) If a current liquor licensee, has not committed more than one public safety violation within the last three years.

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OTS-4510.4

     (a) Sell spirits purchased from manufacturers, distillers, or suppliers to spirits retailers;

     (b) Sell spirits to other spirits distributors; and

     (c) Export spirits from the state of Washington.

     (2) The price of spirits sold to retailers may not be below acquisition cost.

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     (a) Ten percent of the total revenue from all sales of spirits to retail licensees made during the month for which the fee is due for the first two years of licensure; and

     (b) Five percent of the total revenue from all sales of spirits to retail licensees made during the month for which the fee is due for the third year of licensure and every year thereafter.

     (c) The license fee is only calculated on sales of items which the licensee was the first spirits distributor in the state to have received:

     (i) In the case of spirits manufactured in the state, from the distiller; or

     (ii) In the case of spirits manufactured outside the state, from an authorized out-of-state supplier.

     (2) The annual fee for a spirits distributor license is one thousand three hundred twenty dollars.

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     (1) A copy of all permits required by the federal government;

     (2) The physical location of the warehouse. There is no minimum facility size or capacity;

     (3) Submitting an acknowledgment form indicating the applicant has a security plan which addresses:

     (a) Inventory management;

     (b) Employee training; and

     (c) Physical security of spirits product with respect to preventing the theft of product.

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     (a) A spirits manufacturer;

     (b) A spirits importer; or

     (c) A bottler of spirits.

     (2) A holder of a spirits certificate of approval may act as a distributor of spirits they are entitled to import into the state by selling directly to distributors or importers licensed in Washington state. The fee for a certificate of approval is two hundred dollars per year.

     (3) A certificate of approval holder must obtain an endorsement to the certificate of approval that allows the shipment of spirits the holder is entitled to import into the state directly to liquor licensed retailers. The fee for this endorsement is one hundred dollars per year and is in addition to the fee for the certificate of approval license. The holder of a certificate of approval license that sells directly to liquor licensed retailers must:

     (a) Report to the board monthly, on forms provided by the board, the amount of all sales of spirits to licensed retailers.

     (b) Pay to the board a fee of ten percent of the total revenue from all sales of spirits to retail licensees made during the month for which the fee is due for the first two years of licensure.

     (c) Pay to the board five percent of the total revenue from all sales of spirits to retail licensees made during the month for which the fee is due for the third year of licensure and every year thereafter.

     (4) An authorized representative for spirits produced in the United States but outside of Washington state may obtain an authorized representative certificate of approval license which allows the holder to ship spirits to spirits distributors, or spirits importers located in Washington state. The fee for an authorized representative certificate of approval for spirits is two hundred dollars per year.

     (5) An authorized representative for spirits produced outside of the United States may ship spirits to licensed spirits distributors, or spirits importers located in Washington state. The fee for an authorized representative certificate of approval for foreign spirits is two hundred dollars per year.

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

     (2) Copies of all state licenses and permits required by the state in which your operation is located; and

     (3) Licensing documents as determined by the board.

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OTS-4517.3

AMENDATORY SECTION(Amending WSR 10-19-066, filed 9/15/10, effective 10/16/10)

WAC 314-28-010   Records.   (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 three years after each sale. 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;

     (d) Must preserve all sales records, in the case of sales to spirits retail licensees, sales to spirits distributors, and exports from the state; and

     (e) Must submit duplicate copies of its monthly returns to the board upon request.

     (2) In addition to the above, a craft distiller must:

     (a) Preserve all sales records, in the case of retail sales to consumers; and

     (b) Submit duplicate copies of its monthly returns to the board upon request.

[Statutory Authority: RCW 66.24.145 and 66.08.030. 10-19-066, § 314-28-010, filed 9/15/10, effective 10/16/10; 09-02-011, § 314-28-010, filed 12/29/08, effective 1/29/09. 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.]

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     (a) Produce sixty thousand proof gallons or less of 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) For sales on or after March 1, 2012, sell spirits of its own production to a licensed spirits distributor;

     (e) For sales on or after March 1, 2012, sell spirits of its own production to a licensed spirits retailer in the state of Washington;

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

     (((e))) (g) 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;

     (((f))) (h) 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, 66.24.310 and WAC 314-64-08001. Samples are considered sales and are subject to taxes;

     (((g))) (i) Contract produced spirits for holders of a distiller or manufacturer license.

     (2) A craft distillery licensee may not sell directly to in-state retailers or in-state distributors until March 1, 2012.

[Statutory Authority: RCW 66.24.145 and 66.08.030. 10-19-066, § 314-28-050, filed 9/15/10, effective 10/16/10; 09-02-011, § 314-28-050, filed 12/29/08, effective 1/29/09.]

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

     (2) Submit other licensing documents as determined by the board;

     (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 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; and

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

[Statutory Authority: RCW 66.24.145 and 66.08.030. 10-19-066, § 314-28-060, filed 9/15/10, effective 10/16/10; 09-02-011, § 314-28-060, filed 12/29/08, effective 1/29/09.]

     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. On sales on or after March 1, 2012, a distillery or craft distillery must pay ten percent of their gross spirits revenue to the board during the first two years of licensure and five percent of their gross spirits revenues to the board in year three and thereafter.

     (a) Any on-premises sale or sample provided to a customer 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.

[Statutory Authority: RCW 66.24.145 and 66.08.030. 10-19-066, § 314-28-070, filed 9/15/10, effective 10/16/10; 09-02-011, § 314-28-070, filed 12/29/08, effective 1/29/09.]

     (((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.))

[Statutory Authority: RCW 66.08.030, 66.24.145. 09-02-011, § 314-28-080, filed 12/29/08, effective 1/29/09.]

     (2))) What are the requirements for a craft distillery licensee to sell its spirits product outside the state of Washington?

     (((a))) (1) A distillery or craft distillery licensee shall include, in its monthly report to the board, information on the product it produces in-state and sells out-of-state. Information includes, but is not limited to, the amount of proof gallons sold, and the composition of raw materials used in production of the product.

     (((b))) (2) Product produced in-state and sold out-of-state counts toward a licensee's sixty thousand proof gallons per calendar year production limit (see WAC 314-28-050).

     (((c))) (3) Product produced in-state and sold out-of-state is subject to the fifty percent Washington grown raw materials requirement.

     (((d) Product sold out-of-state is not subject to retail pricing by the board.

     (e))) (4) A distillery or craft distillery licensee is not subject to Washington state liquor taxes on any product the licensee sells out-of-state.

[Statutory Authority: RCW 66.24.145 and 66.08.030. 10-19-066, § 314-28-090, filed 9/15/10, effective 10/16/10; 09-02-011, § 314-28-090, filed 12/29/08, effective 1/29/09.]

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