March Wine Madness: Taxes, Control, Lawsuits & Happy Hours

March Madness appears to be infecting the wine business this week as a number of interesting stories hit the news:

Taxes. The British government introduced measures this week, as part of its Budget, which would reduce taxes on beer but increase them on wine and spirits. The Wine & Spirit Trade Association is questioning the legality of this discrimination, particularly in the light of applicable EU laws. Here in Canada, Wines & Vines ran an article today pointing out that British Columbia is one of the most heavily taxed jurisdictions in the world as it relates to the wine business. A hefty 11% of the total economic impact of BC's wine industry relates to taxation (the numbers are 6.3% in WA and 2.4% in OR). As noted earlier, the sales tax rate on BC wine will go up from 12% to 15% as a result of the return to the PST on April 1st. In addition, the non-BC part of the wine business faces much higher rates of taxation ... so the overall impact would be significantly greater than the numbers quoted.

Control Crumbling? Pennsylvania is one of the few U.S. states that retains "Canadian style" government control over its liquor distribution system. However, it appears the control era may be close to an end in this state as the Governor's privatization initiative passed critical votes this week. If the measures pass, Pennsylvania would join the rest of the free world in having a normal private system for the retail of wine and other alcohol

Parker Sues Galloni. The world of wine reviewing meshed with the legal world this week as it was reported that Robert Parker's Wine Advocate is suing his former reviewer, Antonio Galloni. See the NY Times, Robert Parker vs. Antonio Galloni, and Dr. Vino's blog, Parker sues Galloni, for all the details. In one interesting but odd twist, the Wine Advocate is asserting as part of the law suit that Galloni is not entitled to use its "proprietary" 100 point rating system on his new wine review site.

Happy Hours. A fun read in the Vancouver Sun this morning as columnist Pete McMartin takes down BC's outdated "nanny state" approach to liquor regulation: Absurd Ban on Happy Hours Sends This Drinker to Seattle.   

Some Taxes on Wine Increase with PST Return

British Columbia's PST will return as of April 1, 2013. The return of the PST also means the increase of certain taxes on wine. This is due to the fact that the PST has (and previously had) a higher tax rate on alcohol (10%) than on other products (7%). When the HST was introduced, the combined federal/provincial sales tax rate on alcohol went down from 15% to 12%. This would have created a small reduction in consumer prices ... except that the government raised "liquor board markup" rates at the same time to eliminate any savings (for example, the rate on wine was increased from 117% to 123%). As of April 1, the liquor board markup rates will go back down and the sales tax will go back up. For the most part, consumer level retail prices should remain the same. However, there are a number of exceptions ...

  • Wine brought back by travellers from outside the country into BC will become slightly more expensive since the sales tax rate applied at the border will go up from 12% to 15% and the method of calculating it will become slightly disadvantageous. 
  • Wine purchased direct from BC wineries will also be subject to a higher tax rate because liquor board markup is not applied to those sales. However, it has been typical in BC for wineries to advertise "tax included" prices in the past rather than levying the sales tax separately. As a result, wineries may choose to absorb the sales tax increase and keep the prices the same ... or they may choose to increase prices.
  • Wine purchased in restaurants/hotels/bars will also be subject to a higher tax rate for consumers because the combined sales tax rate on those purchases will go up from 12% to 15%. The price charged to the restaurant may go down slightly due to the reduction in liquor board markups and the return of a provincial sales tax discount (hopefully). However, if restaurants do not re-price their wine lists then the end price for consumers will rise.
For more information, see these earlier articles: Removal of HST Will Affect Wine Industry and BC's Budget: Effect on Wine Industry (which discussed the changes when the HST was originally introduced).

Industry Economics, Wine Tasting Rules, Privacy

A few interesting news items for today ...

Economic Impact Study. A number of industry groups, including the Canadian Vintners Association and the BC Wine Institute, have released a study on the economic impact of the Canadian wine industry which includes some very interesting and salient economic statistics relevant to the economic benefits of the wine industry nationally and here in B.C. See the press release and download the full report here

LCBO Shut Down on Privacy Issue. The LCBO has been forced to change its "personal information" collection policies by an Ontario privacy ruling which determined that the LCBO was not entitled to collect personal information on orders processed by a wine club. See the LCBO Loses Privacy Decision. In response, and in what seems to be a rather outrageous reaction, CBC is reporting that the LCBO has now shut down wine club orders!

WA State Bill Aims to Permit Educational Tastings for 18-21 Year Old Students. Washington state's progressive approach to alcohol regulation is apparent in respect of a state bill that aims to permit underage (18 to 21 year old) students to taste wine as part of legitimate wine education courses. Contrast this to the arcane approach to wine education and culture in B.C. where current licensing policies do not even permit adults to taste wine at educational wine tastings unless the event is held in a licensed venue or is hosted by a charity.

Quebec Introduces Bill C-311 Amendments - Intent Unclear. The Quebec government has introduced legislative amendments (PDF) that are intended to deal with the issue of interprovincial wine shipments. However, it is unclear at the present time whether the intention is to allow interprovincial wine shipments or to restrict them. More information as it becomes available.

BC Appoints New GM For LDB

The BC government has announced that the new General Manager for the Liquor Distribution Branch will be Blain Lawson, who was previously with Coast Wholesale Appliances. Here is the press release: New Liquor Distribution Branch General Manager Named.

BC Charity Wine Auction Update

Here is an update on the charity wine auction issue in BC, following the receipt of additional information from the LCLB. The BC Government introduced legislative amendments last week which were intended to deal with this. The issue first arose last summer/fall when the LCLB made changes to its policy manual and took the position that fundraising wine auctions of privately donated wine were not legally permitted in BC despite the fact that such auctions had been regularly held and licensed without problem for close to three decades. The donation and auction of privately donated wine is extremely important to charities and non-profit groups because the most valuable wine for fundraising is usually older or rarer wine which is donated from private cellars. Following negative media attention and an expression of major concern by affected charities and non-profit organizations, the government issued a press release in the fall of 2012 indicating that fundraising wine auctions would be permitted ... but which did not mention privately donated wine. A short while later in November 2012, the LCLB issued Policy Directive 12-08 which confirmed that wine auctions were permitted if they were held under a special occasion license with wine sourced only from the LDB. In addition, non-licensed auctions and auctions of privately donated wine would be permitted but only if the wine was contained in "gift baskets" or "the equivalent", thus providing a temporary workaround although one based on an odd distinction which appears to have no basis in law. Finally, this past week, legislative amendments were introduced under the Miscellaneous Statutes Amendment Act (see part 3). Here is a review of what has been proposed and the issues related to the amendments.

Permit System Created. The amendments establish a permit system which was not previously required. Charities and some qualifying non-profit organizations would be able to apply for a permit to hold a fundraising wine auction. There would be an exemption from the permit requirement for "small quantities" of liquor which amount has not yet been defined. Organizations wishing to both serve wine and auction wine (which is the most common type of fundraiser) may have to obtain both a special occasion license and an auction permit depending upon whether the event was held in an unlicensed location or if the charity did not want to pay the wine prices commonly associated with serving wine in licensed premises. 

Privately Donated Wine. As noted above, it is critical for the affected organizations to be able to accept private wine donations and to auction the wine in order to fundraise effectively. The amendments themselves do not make any mention of privately donated wine (which was the issue that created this problem in the first place). However, I have confirmed with the LCLB that the intention is that regulations will eventually be issued that will allow an auction permit holder to receive private donations and to auction the donated wine. 

Non-Profit Organizations. The proposed amendments only permit fundraising wine auctions for registered charities and for those non-profit organizations that will use the funds generated for charitable purposes. Non-profit organizations that are not technically charitable are not included (and there are many of these).

As noted previously, while the government and LCLB are to be commended for acting relatively quickly on this issue, it is not clear whether the amendments will get passed before the current short legislative session ends. In addition, it is unclear to me why non-profit organizations that are not charitable are being left out. My review of similar provisions in Alberta, Washington state, Oregon and California shows that none of those jurisdictions leaves such organizations out (for an example, see the Napa Valley Premiere fundraiser which raised over $3 million last week). In addition, I am aware that BC politicians on both sides of the house regularly include wine in their political fundraising auctions (which are not charitable). It seems particularly inappropriate to include such a restriction in BC law ... when none of our neighbours do so ... and when our elected politicians have regularly done the same thing.