This post was guest authored by Stoel Rives summer associate Alex Pearson.
With the Washington State Legislature’s third special session at a close, now is a good time for alcoholic beverage producers and distributors to take a moment to look at five bills that passed the Legislature and were signed into law by Governor Inslee this past session. All are effective as of July 23, 2017, and create new opportunities for producers and distributors. What follows is a summary of the more notable additions and modifications made by these new laws. Please note that these laws affect a variety of licensees, so we encourage all producers and distributors to evaluate these changes with their attorney.
Legal Definition of Mead
One of the world’s oldest alcoholic beverages—mead—finally has a legal definition in Washington. S.H.B. 1176 amends RCW 66.24.215 and RCW 66.28.360 to define mead as a wine or malt beverage sold as “mead” and which is fermented primarily from honey, but may contain other agricultural products such as fruit, hops, or spices. Those licensed to sell beer or cider in growlers will also be allowed to similarly sell mead to customers, so long as the mead sold has an alcohol content equal to or less than 14 percent alcohol by volume. Additionally, starting January 1, 2018, mead will be exempt from the assessment on wine production that funds the Washington Wine Commission.
Increase in Satellite Winery Tasting Rooms
S.H.B. 1038 amends RCW 66.24.170 to promote small wineries by increasing the total number of satellite tasting rooms domestic wineries may have—up from two to four. The existing requirements and privileges of these satellite tasting rooms are unchanged. Satellite tasting rooms may be located separately from production or manufacturing sites and may serve wine samples and sell the producer’s wine at retail or for off-site consumption in kegs or growlers. They may not serve as distribution sites and all those selling or serving wine must have the proper server permit. Note that these separate tasting rooms must be approved and licensed by the Washington State Liquor and Cannabis Board and if multiple wineries operate a single location they can be held jointly liable for certain violations, under certain circumstances.
Spirits and Wine Sales to Employees
S.S.B. 5537, which adds a new section to RCW 66.28, allows licensed spirits and wine distributors to sell spirits or wine that cannot reasonably be sold in the normal course of business directly to full-time employees, subject to some restrictions. For licensed spirits distributors, these sales are still subject to the license issuance fee established under RCW 66.24.630(4) and the taxes imposed on retail sales by RCW 82.08.150. Similarly, for licensed wine distributors, these sales are subject to all of the same taxes applicable to a normal retail sale.
Both licensed spirits and wine distributors may make these sales so long as the:
- Products cannot be sold at retail, for example, because of damage to labels;
- Products are not sold at less than the cost of acquisition;
- Full-time employee has been employed for at least 90 days and is at least 21 years old; and
- Employee only uses the products for personal use and does not resell them.
S.S.B. 5589 amends RCW 66.24.140 to loosen some of the restrictions surrounding the samples distillers may sell or sever free of charge to customers. Under current law, distilleries may serve samples of their own spirits on the distillery premises, all severs must be properly permitted, and there is a maximum amount of two ounces per person, per day that may be sampled. These aspects of the law remain unchanged.
However, previously, distilleries could only sell or serve individual samples containing not more than one-half ounce of spirits, which could only be mixed with nonalcoholic mixers, water, and/or ice. Under the new law, distilleries may now provide these samples mixed with alcoholic mixers, so long as the alcoholic mixers are produced by the distiller. Further, the sale of mixed samples is no longer subject to the one-half ounce limit per sample, though the maximum amount of alcohol that may be sampled remains two ounces per person, per day.
E.S.B. 5834 amends RCW 66.24.640 and adds a new section to RCW 66.24 to create a license allowing for maintaining warehouses to store spirits off the premises of a distillery, subject to some limitations. The new license is issued by the Washington State Liquor and Cannabis Board (Board) and allows for the storage and handling of bonded bulk spirits and, as allowed by the Board’s rules and federal law, bottled spirits in these warehouses. The fee for the license is set at $100 per year.
The law establishes numerous requirements for the license application and the operation of these warehouses. For instance, applicants must designate and physically separate portions of the warehouse for either bonded or nonbonded spirits. The warehouse proprietor must also maintain a tracking plan to ensure compliance with all applicable bonding and tax obligations. Further, the law establishes limitations on permissible licensees, the circumstances for removal of spirits from the warehouses, the permitted handling of bottled spirits removed from the warehouses, and monthly reporting requirements for warehouse operators. Notably, the law also creates the opportunity for multiple distilleries to jointly operate a warehouse, for contracting out the ownership and operation of the warehouse, and for the storage of out-of-state spirits, under some circumstances.
Those interested in applying for a license should take note that the law also requires the Board to adopt additional rules regarding qualification, maintenance, zoning, physical separation, and security of the warehouses and authorizes the establishment of a permit allowing for unlimited transfers of spirits to and from the warehouses.