Legislature(2003 - 2004)
02/27/2004 03:25 PM House L&C
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HB 505-ALCOHOL LICENSING: CONNOISSEUR LICENSE VICE CHAIR GATTO announced that the first order of business would be HOUSE BILL NO. 505, "An Act relating to importing beer or wine for personal consumption and a liquor license for that purpose, and to taxes on beer or wine imported for personal consumption." Number 0089 SUE STANCLIFF, House Majority Office, Alaska State Legislature, introduced HB 505 on behalf of Representative Kott, sponsor. She explained that the bill would require individuals who import beer and wine for personal consumption to acquire a license from the Alcoholic and Beverage Control Board ("ABC Board") prior to importing wine and beer, and to pay the alcoholic beverage tax, the excise tax, on those imports through the Department of Revenue. MS. STANCLIFF said the Twenty-first Amendment [to the federal constitution] grants states the authority to regulate taxation, distribution, and sale of alcoholic beverages; the key provision in that amendment reads: "The transportation or importation into any State, Territory, or Possession of the United States for the delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited." Number 0207 MS. STANCLIFF noted that the majority of states require consumers to purchase alcoholic beverages from retailers licensed by the state. This "three-tiered system" is what Alaska adopted at statehood and has used successfully for nearly half a century. However, technology, primarily in the form of direct purchasing of alcohol over the Internet, threatens the system in Alaska. An estimated $1 billion-plus in alcohol is illegally shipped to consumers in the U.S., thereby avoiding state taxation and state laws that prohibit the sale of alcohol to minors. This bill would establish a framework for control of alcohol sales via the Internet and to attempt to avoid some problems identified in the Lower 48 with the sale of alcohol. Number 0324 MS. STANCLIFF, in response to a question from Representative Dahlstrom, said enforcement would fall to the ABC Board. She acknowledged the difficulty of enforcement and indicated the intention isn't to spend a lot of money on enforcement. She related that other states with similar laws use it as a deterrent, a notification to the public that this type of activity is illegal. Ms. Stancliff offered her belief that minors are purchasing alcohol via the Internet. REPRESENTATIVE DAHLSTROM asked how a customer provides proof of age for an Internet transaction. MS. STANCLIFF replied that it is often necessary to fax a copy of identification to the seller. An Alaskan who traveled to California and returned with a case of wine wouldn't be in violation of this proposed law, since the product wouldn't have been shipped in. She specified that the purpose of this bill is to gather shipping revenues through taxation and licensing. In this bill the two-year connoisseur license for wine carries a fee of $100. Number 0616 REPRESENTATIVE DAHLSTROM asked: If a California winery wanted to ship a case of wine, would that transaction be covered by this bill? MS. STANCLIFF said she believes, but isn't certain, that alcohol shipped into the state would be covered. Number 0667 REPRESENTATIVE CRAWFORD asked if the cost of the connoisseur license would be prohibitive. MS. STANCLIFF replied that, for her, the primary concern is legality rather than expense. REPRESENTATIVE CRAWFORD asked what the cost to the state would be for issuing these licenses that he believes are expensive. MS. STANCLIFF replied that the Department of Revenue or [the Division of Occupational Licensing in the Department of Community & Economic Development (DCED)] might be better able to respond. She said she believes the fiscal note was based on costs that other states with similar legislation have experienced. Number 0807 CHAIR ANDERSON asked if this legislation would affect even one bottle of wine coming through the mail. MS. STANCLIFF replied, "It does affect even one bottle. If you are a member of wine-of-the-month club - one bottle." CHAIR ANDERSON asked what penalties would result from this legislation. MS. STANCLIFF replied that the provider who breaks the law would have committed a class C felony. She read from Section 5, page 3, subsection (d). CHAIR ANDERSON asked about the procedure if a person has bought a bottle of wine through a wine-of-the-month club and doesn't have a connoisseur's license. MS. STANCLIFF replied that violating this law would result in a class A misdemeanor for the person purchasing the wine; the winery that provided the wine would be guilty of a class C felony. Number 1003 VICE CHAIR GATTO remarked: I can order a bottle of wine and if I get caught, spank my hand and I won't order any more. If I don't get caught, I can order wine all day and all night and all week and all year until I get caught. Now, on my next offense I'm subject to penalty. I'm going to guess that if a person wants a bottle of wine, they are probably not going to get caught. MS. STANCLIFF offered that when people want a bottle of wine, they usually buy one at a local liquor store, rather than order it over the Internet. She said she didn't believe people were readily violating the law, but could also understand Vice Chair Gatto's point. VICE CHAIR GATTO asked, if his sister sent him a bottle of wine, whether she would be in violation. MS. STANCLIFF responded that she didn't know, but that this is a concern and may require an amendment because the intent of the bill is to prevent minors from ordering alcohol through the Internet, and as a revenue-generating tax. She also expressed concern for the dry communities in Alaska that can bring in alcohol through the Internet. REPRESENTATIVE LYNN questioned whether many minors order alcohol via the Internet. Number 1209 BOB BAILEY, Alaska Wine and Spirits Wholesalers Association, Anchorage, said his association supports restricting the direct shipment of alcohol into Alaska for three main reasons: preventing the sale of alcohol to minors; addressing shipments into dry communities; and tax revenue that isn't coming to the state, but should be. He related that there has been an increase in Internet ordering of alcohol into Alaska and that while there are providers who are diligent about checking identification, this doesn't preclude someone from using another's identification. MR. BAILEY spoke to the increase in the alcohol excise tax that went into effect October of 2002. He said Alaska has the highest alcohol excise tax in the U.S., and this provides a legitimate financial reason for someone to order alcohol from out of state, in particular, low-priced, low-weight liquor goods in plastic bottles. He informed the committee that when Alaska's alcohol tax is over $30 a case, that pays for the freight quickly. He said Alaska is only one of two states in the U.S. that have no restrictions on direct sale of alcohol. He gave an example of a winery in California that can legally ship directly to anyone in Alaska, but said an Alaskan licensed retailer is unable to do so. Number 1399 MR. BAILEY pointed out that enforcement would be necessary, but opined that the felony provision would be the primary deterrent. He predicted that wineries would oppose this bill, since they'd prefer the status quo that allows them to ship freely. He also surmised they'd notify customers of a change in the law so they'd be in compliance. He noted that the process for the legitimate connoisseur includes getting a license; getting the appropriate shipping label; and sending it to the provider, who'd then be alerted that shipping to Alaska was legal. Number 1436 REPRESENTATIVE CRAWFORD asked for clarification of which states allow shipping of alcoholic beverages. MR. BAILEY pointed to a map. He noted that states can use federal courts to enforce their liquor laws. REPRESENTATIVE CRAWFORD expressed concern that the process was complicated and the cost of the license onerous. MR. BAILEY noted that this bill is patterned on a bill from Montana and that the actual cost of the license could be changed. He indicated support for the felony penalty. REPRESENTATIVE LYNN asked how many connoisseurs in Alaska would apply for this license. MR. BAILEY replied that he didn't know, but Montana had issued 18 of these licenses since passing a similar law. He stressed that this legislation, because of the felony provision, is focused on providers of alcohol. In further response, he reiterated the three projected areas of impact from the bill: collection of taxes, aid in preventing minors' consumption, and aid in preventing alcohol from getting to dry communities. He added that in some cases, up to 10 percent of alcohol that goes to minors was purchased via the Internet in other states, but there are no related statistics for Alaska. MR. BAILEY, in response to further questions from Representative Lynn, admitted the revenue from this bill wouldn't be substantial. He mentioned the amount the state is losing on cheap liquor being shipped into the state by people who want to avoid paying the state tax of $30 a case. Likening it to the state's efforts to tax tobacco, he noted that the industry pays over $30 million a year in alcohol tax into the general fund, and suggested some of that could pay for this bill. REPRESENTATIVE CRAWFORD agreed the felony provisions in the bill are good, but questioned the amount for the license fee. MR. BAILEY agreed with Representative Crawford. Number 1860 REPRESENTATIVE DAHLSTROM asked Mr. Bailey to address the benefits that this bill would bring to local business owners. She also asked Mr. Bailey to state his major concern. MR. BAILEY said it wasn't possible to measure the benefit at this point. He said his major concern is consumption by minors, specifically, "regulating that the people who shouldn't get it don't get it." Number 1943 REPRESENTATIVE ROKEBERG surmised that probably the major effect would be prohibiting the purchase of spirits via the Internet. He asked whether that is correct. MR. BAILEY replied: Right now, we suspect that inexpensive liquor like vodka in plastic bottles, which may or may not be going to bootleggers - we have no idea where it's going - that would be prohibited completely by this. The only thing allowed through the connoisseur's license is the purchase of wine or beer, not spirits. REPRESENTATIVE ROKEBERG recounted his personal experience with a California vineyard. He said the genuine connoisseurs wouldn't be affected as much as the wine-of-the-month club customers. He noted that this bill prohibits the illegal purchase, over the Internet primarily, of spirits, wine, and beer. It thus maintains the integrity of the three-tiered system, with regulation of the manufacturer, wholesaler, and retailer. He referred to cyberspace as the fourth tier that needs regulation. He asked if Mr. Bailey thought there was a sense of fairness involved, since in-state people were paying taxes but out-of- state people weren't. Number 2113 MR. BAILEY said his association had attempted to pass this legislation in the past, and the increased alcohol excise tax provided further impetus for HB 505. VICE CHAIR GATTO asked whether a person could, at this time, go to the Internet and order wine legally. MR. BAILEY replied that retailers have to purchase products through wholesalers who are, in turn, designated by the supplier. Individuals can order over the Internet, and retailers can order over the Internet but cannot legally put that product in their stores for resale. VICE CHAIR GATTO asked about the urgency of this bill. MR. BAILEY said one could infer that the high use of the Internet in Alaska has resulted in a higher-than-average rate of ordering alcohol over the Internet, which has resulted in lost revenue to the state. CHAIR ANDERSON said he supported the bill, but didn't think minor consumption was an issue, and also felt the excise tax was too high in Alaska, so that he wasn't overly concerned about the lost revenue. He said he did believe, however, that the dry- community issue in Alaska was a salient point. Number 2338 MATT JONES, Anchorage, testified that he thought it important to clarify that Montana is a "control state" where the sale and distribution of alcohol is controlled by the state, so there is a vested interest in reducing sales of "non-state-sold alcohol." However, Alaska is a "license state" where alcohol is sold by private companies. TAPE 04-20, SIDE B Number 2372 MR. JONES said he understood and supported the need to collect taxes, as well as the need to keep alcohol out of dry communities and away from minors. He wasn't sure beyond these effects what the purpose of this bill was. He said the bill would result in out-of-state wineries' not wanting to deal with shipping to Alaska because of the added regulation. He suggested this would be unfortunate because liquor stores in Alaska don't carry every wine, and he felt that as a consumer his choices would be diminished. He proposed that the legislature could regulate the sale of hard liquor over the Internet with another bill, rather than HB 505. REPRESENTATIVE ROKEBERG read from the bill, page 2, Section 3. He asked, "So, there's a requirement of registration. Do you think these wineries will not register with the board and therefore will not send you any wine?" MR. JONES said his concern was more than that, since the winery or brewery has to obtain a general wholesale license and get a registered agent, and these requirements of the bill constitute a burden for a small winery or brewery. REPRESENTATIVE ROKEBERG clarified that the current law requires obtaining a general wholesale license, appointing an agent, and obtaining other applicable licenses. He said subsection (b) actually makes it less cumbersome, since the business could sell wine directly to the consumer without a wholesale license. MR. JONES asked why there is a limit on the number of cases of wine he can buy, since this would also limit revenue from taxes. Number 2145 DOUG GRIFFIN, Chairman, Alcoholic Beverage Control Board, Department of Public Safety, said the amount of alcohol coming into the state due to the Internet sales is unknown. He said this bill would not be a large revenue-generator. He noted that he suspects there have been occurrences of underage people getting alcohol through the Internet, but had never received a complaint about this. He thought increased use of the Internet would be an indicator that the ABC Board had done a good job of reducing access to alcohol for underage persons. MR. GRIFFIN said he wasn't aware of the cheap spirits Mr. Bailey had referred to, and felt this bill was aimed primarily at fairly high-end wine. He commented that this is part of a nationwide battle between wineries, which argue they can't get their product to be carried by wholesalers, and wholesalers who feel that wineries are avoiding taxation, that underage people may have access to alcohol, and that taxes aren't being paid by these direct shipment routes. He surmised this battle is ripe for adjudication before the U.S. Supreme Court, since circuit courts have ruled in favor of the Twenty-first Amendment, saying states have the right to regulate alcohol, and also in favor of the interstate commerce clause, saying states could not limit the ability of people to carry out commerce between states. Number 1948 CHAIR ANDERSON said he had some concerns and thought it better to hold the bill until next week. [HB 505 was held over.]
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