Brewers Association

Monthly Legal and Legislative Brief

April 2014

A. FEDERAL / NATIONAL / INTERNATIONAL

Small Brewer Federal Excise Tax Legislation

Small brewer excise tax recalibration legislation, The Small Brewer Reinvestment and Expanding Workforce Act (Small BREW Act) continues to gain support in both chambers of the 113th U.S. Congress.  H.R. 494 was introduced on February 5 by Representatives Jim Gerlach (R-PA) and Richard E. Neal (D-MA).  Joining as original co-sponsors of the bill were Representatives Peter De Fazio (D-OR), Erik Paulsen (R-MN), Earl Blumenauer (D-OR) and Patrick McHenry (R-NC).  The bill now has a total of 156 sponsors.

On May 9, Senators Ben Cardin (D-MD) and Susan Collins (R-ME) introduced S. 917 in the U.S. Senate.  The bill now has the support of 40 Senate sponsors.

The Small BREW Act seeks to reduce the small brewer rate on the first 60,000 barrels by 50 percent (from $7.00 to $3.50/barrel) and institute a new rate $16.00 per barrel on beer production above 60,000 barrels up to 2 million barrels.  Breweries with an annual production of 6 million barrels or less would qualify for these tax rates.  Legislation introduced last session, H.R. 1236, gained a total of 174 total sponsors.  In the Senate, companion legislation S.534 realized 44 total sponsors.

Brewers Association Takes Position on Spent Grain Regulation

In response to a proposed rule from the federal Food and Drug Administration (FDA) regulating the use of spent grain for animal feed as part of the Food Safety and Modernization Act (FSMA), the Brewers Association (BA) released a statement outlining concerns with how the potential regulation would adversely impact brewers and the local farmers utilizing their spent grain.  Under the proposal, brewers would be faced with either implementing extensive and costly handling and recordkeeping requirements if they chose to continue providing spent grain for feed or simply ending the practice and landfilling a valuable resource (which would also come with a monetary cost).  Given the lack of evidence that spent grain is a potential human or animal hazard, the BA requested FDA conduct a risk assessment prior to imposing any new regulation.

The BA also submitted formal comments to the FDA on the issue, making these points as well as arguing that breweries should not be subject to the animal food provisions based on the already existing general exemption in the FSMA for beverage alcohol producers.  The FDA expects to open a further comment period following the issuance of a re-proposed animal feed rule this summer which will reflect revisions to the originally proposed rule. 

Next Up: Food Safety Modernization Act - FDA Proposed Rule on Transportation

Coming close on the heels of the Food and Drug Administration (FDA) proposed rule on animal feed which includes the possible regulation of brewers' spent grain, another proposed rule has been published to establish requirements for shippers, carriers by motor vehicle and rail vehicle, and receivers engaged in the transportation of food, including food for animals, to use sanitary transportation practices to ensure the safety of the food they transport.  The public comment period closes on May 31, 2014.

Federal Trade Commission Releases Alcohol Advertising Study

The Federal Trade Commission (FTC) released its fourth major study on alcohol industry compliance with self-regulatory guidelines, including those designed to address concerns about youth access to alcohol marketing. For the study, the FTC ordered 14 major alcohol companies to provide information on advertising and marketing expenditures from the 2011 calendar year and advertising placement data (including audience data) for the first six months of 2011. For the first time, the agency obtained substantial information on Internet and digital marketing and data collection and use practices. Read a summary of the findings.

TTB Simplifies Electronic Filing

The Alcohol and Tobacco Tax and Trade Bureau (TTB) announced the publication of a final rule amending regulations to allow industry members to submit certain forms electronically to TTB rather than submitting originals. Original forms and other records will be retained by the industry member, thereby removing a barrier to applying for permits completely by electronic means.

TTB is also amending their regulations to allow industry members to submit TTB-required information electronically to other agencies in accordance with those agencies guidelines for electronic submission.

B. THE COURTS

Court Ruling Clarifies NY Small Brewer Franchise Exception

The New York Supreme Court's Commercial Division has ruled in favor of seven defendants (four of whom were small brewers) who were sued by Garal Wholesalers for unlawful termination under provisions of New York franchise law allowing suppliers under 300,000 barrels annual production and 3% or less of a distributor's business to terminate without cause for fair market value compensation.  Garal claimed the suppliers did not meet the 3% threshold when they terminated (January-February 2013) since the distributor had sold its rights to Pabst (which represented 70% of its business) in December, 2012.  The case revolved around the definition of "total annual brand sales" and which 12 month period that referred to.  The court ultimately sided with the defendants, finding the statutory language unambiguous in defining that phrase as referencing "all sales made by the wholesaler during the 12-month period prior to termination, and not just the sales of those brands the wholesaler still had rights to sell as of the date of termination."  Although not exercised to date, Garal does have the right to appeal.

C. THE STATES

Sales, Distribution and Franchise

Florida
Reported from committee with substantial amendments, House Bill 1329 defines growlers to be containers between 32 ounces and 128 ounces and sets growler packaging requirements. Additionally, it would allow the following three-tier exceptions, essentially requiring businesses to choose to operate primarily as a vendor or a manufacturer rather than under the current law that effectively permits businesses to operate in both tiers:

Manufacturers with Vendor's Licenses: permits malt beverage manufacturers to obtain a vendor's license for a retail location attached to a manufacturing premises at two manufacturing premises; permits the manufacturer/vendor to sell malt beverages that manufacturer brews directly to consumers on-premises, in bottles and cans, and growlers; permits the manufacturer to sell malt beverages brewed by other manufacturers as authorized by its vendor's license; permits an entity that has obtained a vendor's license at more than two licensed manufacturing premises before July 1, 2014, or has applied for a vendor's license at more than two licensed manufacturing premises before March 15, 2014, to maintain the previously obtained licenses and those received pursuant to such applications, but not obtain additional vendor's licenses.

Taprooms: permits malt beverage manufacturers to have a taproom attached to any manufacturing premises without a vendor's license to sell malt beverages that manufacturer brews directly to consumers; requires that 70 percent of malt beverages sold in a taproom be brewed on premises.

Brewpubs: maintains brewpubs' ability to sell malt beverages, wine, and liquor as currently permitted; codifies prohibition that brewpubs may not place malt beverages into the distribution channel or ship between brewpubs owned by the same entity.

Currently under committee consideration, House Bill 283 would permit manufacturers to package malt beverages in individual containers of any size.  It would also require that containers include information specifying the manufacturer and brand of the malt beverage it contains and that it must have an unbroken seal or be incapable of being immediately consumed.  Finally, it would authorize manufacturers, distributors, and vendors to conduct malt beverage tastings in a vendor's licensed premises.

Senate Bill 1714 seeks to define the term "growler" to mean a clean container made of glass, ceramic, metal, or similar leak-proof material having a capacity of 32 ounces, 64 ounces, or 128 ounces that is filled with a malt beverage and sealed on the premises at or immediately before or after the time of sale in response to an order in a face-to-face transaction. The bill permits vendor-licensed brewers to sell growlers to consumers for off-premises consumption with malt beverages that are brewed on the licensed premises by the vendor-licensed brewer. Growlers may only be filled or refilled with malt beverages that are manufactured on the licensed premises. A vendor-licensed brewer may sell malt beverages that it manufactures at another location or that are manufactured by another brewer as authorized by its vendor's license. However, the malt beverages that are manufactured at another location and that are sold for consumption off the premises must be obtained from a licensed distributor and sold to the consumer in their original sealed containers.  The bill prohibits brew pubs from filling growlers, shipping malt beverages between licensed premises owned by the licensee, and selling or distributing malt beverages outside the licensed premises.  

Hawaii
Passing House committee after previously passing the full Senate, S.B. 3042 remove the requirement that a class 14 brewpub licensee manufacture not more than thirty thousand barrels of malt beverages and create a new license (class 18) for a small craft producer pub (for beer defined as one producing not more than 60,000 barrels annually) and among other abilities, allow for the sale of growlers for off-premises consumption.

Idaho
Signed into law by the Governor, H.B. 524 seeks to codify the independence between the manufacturing tier and the distribution tier by declaring that a brewery/manufacturer, with limited exceptions, cannot have a financial interest in a distributor and that a distributor cannot have a financial interest in a brewery.  Brewers producing less than 30,000 barrels annually are still eligible to self-distribute.

Kentucky
An amended version having passed the Senate and been returned to the House for consideration, House Bill 413 seeks to prohibit brewers or importers of malt beverages from requiring payment from distributors for the right to distribute their products in a designated territory.

Maine
Passing both chambers and becoming law without the Governor's signature, House Bill 517 directs the Director of the Bureau of Alcoholic Beverages and Lottery Operations to adopt major substantive rules to define the term "brand" as it applies to the distribution of malt liquor and wine.

Maryland
Passing the House and receiving favorable Senate committee consideration, House Bill 464 authorizes the holder of a Class 7 micro-brewery (on- and off-sale) license to sell at retail beer brewed under the license to customers for consumption off the licensed premises as prepackaged beer in non-refillable containers.

Passing the House and receiving favorable Senate committee consideration, House Bill 208 seeks to standardize the requirements for alcoholic beverages refillable containers used in the sale of draft beer or wine for off premises consumption. The bill also authorizes the Comptroller to establish standards for alcoholic beverages refillable containers, including containers originating from outside the State. The holder of a refillable container permit may sell, fill, or refill any container that meets the standards. The bill applies to refillable container license holders in specified jurisdictions as well as Class 5 manufacturer's license holders who sell refillable containers.

Michigan                                                                                     
Signed into law, Senate Bill 650 would allow a "qualified micro brewer", or an out-of-state business that was the substantial equivalent of a qualified micro brewer, to sell and deliver beer to a retailer under certain conditions.  A qualified micro brewer is defined as one that produces less than 1,000 barrels of beer per year (all brands and labels combined, whether brewed within or outside of Michigan).

A package of three bills seeking to redefine production restrictions and consumption regulations affecting small brewers has been signed into law by the Governor:

House Bill 4709 would amend the definition of "microbrewer" to increase the amount of beer that a business could brew and still be considered a microbrewer from 30,000 to 60,000 barrels per year.

House Bill 4710 would allow a brewpub to have an interest in up to five other brewpubs as long as the combined production of all the locations in which the brewpub has an interest does not exceed 18,000 barrels of beer in a calendar year. Under current law, brewpubs are limited to an interest in up to two other brewpubs if the combined production does not exceed 5,000 barrels of beer per calendar year.

House Bill 4711 would allow a brewer to sell its beer for on-premises consumption at up to two locations that are on any of its licensed brewery premises where the brewer is engaged in the production of beer (defined in the bill to mean the full and complete brewing process, not just a portion of the brewing process). Currently, a brewer can only sell its beer for on-premises consumption at one location.

Missouri
Passing the Senate and under consideration in the House, Senate Bill 689 expands the types of packages in which malt liquor may be sold to include single bottles, cans and pouches of beer.

House Bill 1838 seeks to allow homebrewed beer to be distributed at organized events with a general admission fee without being classified as a retail sale so long as the person distributing the beer does not receive any portion of the admission fee.

New Hampshire
As amended, Senate Bill 257 establishes a commission to study the sale of beer in refillable containers.  The previously included authorization for off-premises and on-premises licensees to sell beer in sealed refillable containers is deleted.

West Virginia
Signed by the Governor, House Bill 4549 strengthens distributor franchise rights with respect to brand rights, including line extensions and new brands, and gives the West Virginia Alcohol Beverage Control Commissioner authority to investigate, review and approve or deny franchise agreements.

Wisconsin
Companions Senate Bill 658 and Assembly Bill 855 authorizes a brewer, at the request of a customer, to package and sell at retail, on brewery premises or at the brewer's off-site retail outlet, the brewer's own beer and other Wisconsin-made beer in refillable containers exceeding 24 ounces in volume. 

Taxation

Michigan
Becoming law with the Governor's signature, Senate Bill 506 allows an in-state brewer or brewpub to designate its wholesaler to pay the $6.30 per-barrel tax on beer that is manufactured or sold in the state. Currently, the code requires the tax to be paid by the in-state brewer or brewpub.  The bill also allows a wholesaler designated to pay a brewer's beer tax to claim the $2.00 per-barrel credit for the first 30,000 barrels that is currently available to eligible brewers. Additionally, for beer manufactured outside the state, the bill would require the tax to be paid by the wholesaler that is assigned to distribute the beer, and the tax would be levied and collected on the number of barrels the wholesaler actually sold.

Tennessee
After being introduced in 2013, companions H.B. 200 and S.B 711 are receiving committee consideration.  The bills change the per-gallon tax levied on manufacturers of high alcohol content beer to the beer tax rate instead of the wine or intoxicating liquor tax rate and create a direct beer shipper's license that would allow an in-state or out-of-state entity to ship beer or high alcohol content beer or both directly to consumers age 21 or older in the state for personal use.

Virginia
Eligible for the Governor's signature, Senate Bill 596 establishes the state and local license tax for breweries that manufacture no more than 500 barrels of beer during the licensing year. For such breweries, the state license tax is $350 per licensing year and the local license tax is $250. The bill also establishes the local license tax at a rate not exceed $1,000 for breweries that manufacture more than 500 barrels of beer during the year. 

Trade Practice & Other

Arizona
Passing the Senate and under House consideration, Senate Bill 1397, among many provisions, permits beer to be dispensed in a refillable container composed of a material approved by a national sanitation organization, rather than only a glass container.

California
An amended version of A.B. 1928 has been approved by committee.  The bill seeks to prohibit a licensee authorized to sell alcoholic beverages at retail from accepting, redeeming, possessing, or utilizing any type of coupon that is funded, produced, sponsored, promoted, or furnished by a beer manufacturer or beer and wine wholesaler.

Assembly Concurrent Resolution 116 proclaims the month of April 2014 as California Craft Brewery Month.

Connecticut
Receiving favorable committee consideration, H.B. 5099 seeks to allow holders of caterer liquor permits to also be holders of manufacturer permits for brew pubs and manufacturer permits for beer and brew pubs. 

Idaho
Signed into law by the Governor, House Bill 515 allows for sampling on premises not licensed for the sale of beer by the individual glass or opened bottle and clarifies what constitutes legal sampling at a retail location.  

House Bill 623 amends existing law to transfer licensing and regulation for alcohol sales and/or distribution from Idaho State Police to the Idaho State Liquor Division.

Kansas
Following Senate passage, Senate Bill 346 has received initial House committee consideration.  The bill seeks to raise the allowable annual production cap from 15,000 to 30,000 barrels by a Kansas microbrewery licensee.

After passing the House and being amended in the Senate to include a provision raising the allowable annual production cap from 15,000 to 30,000 barrels by a Kansas microbrewery licensee, H.B. 2223 is now the subject of conference committee deliberation.  The bill also would allow a homemade fermented beverage to be provided to guests and judges at a contest or competition so long as no compensation is provided to the maker for producing the beverage or allowing its consumption.

Maine
An amended version of House Bill 1265 has passed both chambers.  The amended bill strikes the provision in the original that prohibited a liquor licensee from displaying images or phrases that are likely to be considered statements of high alcohol content, such as "full strength," "high test" or "extra strength." It retains the provision in the original that ensures a licensee may display the alcohol content of malt liquor, wine or spirits when it is expressed as a percentage of alcohol by volume. Current law prohibits a licensee from posting any advertisement that includes the alcohol content of malt liquor, expressed in any manner. The amendment maintains the section in the bill that repeals this prohibition.

Maryland
Companions S.B. 445 and H.B. 774 increase to 60,000 (currently 22,500) the limit on the number of barrels of malt beverages that a micro-brewery may collectively brew, bottle, or contract for in a calendar year.  Both bills have received an unfavorable report in committee.

Passing the Senate, Senate Bill 226 allows Maryland brewers to sample and sell their beer at farmers markets, County Agricultural Fairs, and a variety of other special events.

Michigan
Passing both legislative chambers, House Bill 4593 regulates the purchase and sale of scrap metal.

Signed by the Governor, Senate Bill 505 allows manufacturers, sellers, and distributors of alcohol to provide another licensee with advertising items that promoted brands and prices of alcohol, under certain circumstances.

Missouri
Reported from committee, S.B. 786 specifies that the admission fee for any organized event at which home-brewed beer is available without a separate charge is not to be considered a sale of the beer so long as the home brewer does not receive proceeds from the fee and the beer consumption occurs off licensed premises or on certain types of licensed premises.

New Hampshire
Receiving favorable Senate consideration, S.B. 329 is now under House committee review.  The bill seeks to eliminate the prohibition on advertising alcoholic beverages on billboards and establishes restrictions on the content and placement of billboards and exterior signs advertising alcoholic beverages.

An amended version of H.B. 1276 has passed the House.  The measure proposes amending restrictions which now prevent children from being shown on alcohol labels.

Ohio
Passing both legislative chambers, S.B. 173 expands the ability to offer consumer sampling of beer, wine and mixed beverages.

Rhode Island
House Bill 7718
provides the parameters for the issuance of a farmer-brewer license.

H.B. 7919 seeks to allow a farmer-brewery and a farmer-winery, under certain conditions, the ability to sell beer or wine for off-premises consumption at a farmers' market, similar to what is now permitted in Massachusetts.

South Dakota
Signed into law, House Bill 1148 provides for a license for certain businesses to allow patrons to manufacture malt beverages and wines on the licensed premises for personal use.

Virginia
Agreed to by the House, H.R. 143 commends the Commonwealth's craft beer brewers.

Washington
Signed into law by the Governor, Senate Bill 6514 changes definition of "qualifying farmers market" such that farmers markets may qualify for retail sales and sampling of beer and wine produced by domestic wineries and microbreweries if the combined gross annual sales of farmers and processors at the market are at least $1 million. 

 

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