Privatization, Trade Issues and Fraud

Wine law remains in the news this spring with a host of interesting stories ...

Privatization. The liquor distribution privatization effort continues in Pennsylvania which is one of the few U.S. states that retains a "Canadian style" government control system for liquor. The privatization bill has now passed the state congress and is headed for the senate: see Corbett Pushes to Advance Liquor Privatization. This commentary from the Huffington Post is relevant to Canada as the issues related to "prohibition era" thinking are also relevant to most Canadian provinces: Pennsylvania's Medieval Wine and Spirits Laws

Trade Issues on Wine. The U.S. Trade Representative to Europe is complaining about the EU's geographical indication protections for wine as they relate to the use of certain terms such as "chateau" which the U.S. argues unfairly limits access of certain U.S. wines to the EU market. In addition, the Trade Rep is unhappy about restricted access to monopoly liquor markets such as Norway where listing requirements make it difficult for producers to gain a foothold in a market with restricted products and limited competition. See: US Slams EU Geographical Indication System.

Winery Land Prices. Recent data from south of the border shows that Napa land prices are the most expensive agricultural land in the U.S. with prices "topping out at $300,000 an acre". See: Napa Ag Lands Remain Most Expensive in U.S.  

Fraud Law Suit. Ongoing law suits in the U.S. related to the allegedly fraudulent sale of counterfeit wine provide interesting reading, particularly if you were a fan of the book "The Billionaire's Vinegar". See: Servant Disses Ex-Boss in Billionaire Wine Fraud Trial and this commentary at the On Reserve Wine Law Blog: William Koch Back in Court for Another Counterfeit Wine Lawsuit.

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.