[Filed June 9, 2021, 11:30 a.m., effective July 10, 2021]

Effective Date of Rule: Thirty-one days after filing.

Purpose: The Washington state liquor and cannabis board (WSLCB) has repealed WAC 314-28-070 and 314-28-080, and adopted amendments to WAC 314-28-010, 314-28-055, and 314-28-090, related to distillery reporting and payment requirements, to be consistent with the court of appeals decision in Blue Spirits Distilling, LLC v. WSLCB, 15 Wn. App. 2d 779, 478 P.3d 153 (2020), which held that WSLCB rules requiring distillers to pay spirits retailer licensing fees when they acted as spirits retailers were invalid.

Citation of Rules Affected by this Order: Repealing WAC 314-28-070 and 314-28-080; and amending WAC 314-28-010, 314-28-055, and 314-28-090.

Statutory Authority for Adoption: RCW 66.08.030.

Other Authority: Blue Spirits Distilling, LLC v. WSLCB, 15 Wn. App. 2d 779, 478 P.3d 153 (2020).

Adopted under notice filed as WSR 21-09-042 on April 14, 2021.

A final cost-benefit analysis is available by contacting Audrey Vasek, 1025 Union Avenue S.E., Olympia, WA 98501, phone 360-664-1758, fax 360-704-5027, email rules@lcb.wa.gov, website www.lcb.wa.gov.

Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 0, Repealed 0.

Number of Sections Adopted at the Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.

Number of Sections Adopted on the Agency's own Initiative: New 0, Amended 3, Repealed 2.

Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 0, Repealed 0.

Number of Sections Adopted using Negotiated Rule Making: New 0, Amended 0, Repealed 0; Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 3, Repealed 2.

Date Adopted: June 9, 2021.

AMENDATORY SECTION(Amending WSR 16-01-102, filed 12/16/15, effective 1/16/16)

WAC 314-28-010Records.

(1) All distilleries licensed under RCW 66.24.140 and 66.24.145, including craft, fruit, and laboratory distillers must:

(a) Keep records regarding any spirits, whether produced or purchased, for three years after each sale((. A distiller is required to report on forms approved by the liquor and cannabis board));

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

(c) Submit duplicate copies of transcripts, notices, or other data that is required by the federal government to the ((liquor and cannabis)) 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) Preserve all sales records to spirits retail licensees, sales to spirits distributors, and exports from the state; and

(e) Submit copies of its ((monthly)) records to the ((liquor and cannabis)) board upon request.

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

(a) Preserve all sales records of retail sales to consumers; and

(b) Submit its ((monthly)) records to the ((liquor and cannabis)) board upon request.

AMENDATORY SECTION(Amending WSR 14-20-047, filed 9/24/14, effective 10/25/14)

WAC 314-28-055((What are the))Requirements for contract production by craft distilleries((?)).

(1) This section clarifies the language for contract production found in RCW 66.24.145. For the purposes of this section, contract production is when one craft distillery, referred to as the "contractor," produces distilled spirits for and sells contract distilled spirits to holders of distillers' or manufacturers' licenses including licenses issued under RCW 66.24.520, referred to as "contractee," and for export from the state. This distilled spirit is referred to as the "product."

(a) The contractee is the product owner. The contractee may handle the product under its license as RCW and WAC allow.

(b) The contractor is required to physically transport all contracted product to the contractee. The contractor is not allowed to distribute or retail the product.

(2) The contractor must submit a copy of the contract to the board prior to production. Any changes in the contract must also be submitted to the board prior to subsequent production. The board may require additional information.

(3) The contractor and contractee are required to obtain any federal approvals.

(4) Maintaining qualification as a craft distillery. Each craft distillery, whether in the capacity of a contractor or contractee, is allowed to produce one hundred fifty thousand gallons or less of total product per year. Total product, in this instance, includes:

(a) Product owned and produced by the craft distillery;

(b) Product owned and produced by the craft distillery for export from the state;

(d) Product produced by the craft distillery on behalf of another craft distillery;

(e) Product produced by the craft distillery under contract for another distillery, manufacturer, or grower.

(5) ((Reporting and))Recordkeeping.

(a) The contractor must ((include))submit, upon request by the board, records of all product produced including contract production ((when it reports its monthly production to the board)).

(b) The contractee must ((include))submit, upon request by the board, records of the product contract produced by another craft distillery ((when the contractee reports its monthly production to the board)).

(c) The contractor's and the contractee's recordkeeping documents must include the product information for each contract. The information must show the quantities produced.

AMENDATORY SECTION(Amending WSR 18-02-006, filed 12/20/17, effective 1/20/18)

WAC 314-28-090Distilleries or craft distilleries—Requirements for selling out-of-state.

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

(1) A distillery or craft distillery licensee shall ((include, in its monthly report to))provide, upon request by 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 for a craft distillery, the composition of raw materials used in production of the product.

(2) Product produced in-state and sold out-of-state counts toward a craft distillery licensee's one hundred fifty thousand proof gallons per calendar year production limit.

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

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

The following sections of the Washington Administrative Code are repealed:

Monthly reporting and payment requirements for a distiller and craft distiller.

What if a distillery or craft distillery licensee fails to report or pay, or reports or pays late?

WAC 314-28-070	Monthly reporting and payment requirements for a distiller and craft distiller.
WAC 314-28-080	What if a distillery or craft distillery licensee fails to report or pay, or reports or pays late?