Month: May 2010

The BC Liquor Distribution Branch has announced today that the \”liquor board markup\” on all products will be increased as of July 1, 2010 as part of the implementation of the HST. The introduction of the HST means that the provincial sales tax on alcohol will actually go down from its current 10% to the 7% provincial component of the HST (the 12% HST is made up of 7% provincial sales tax + 5% federal sales tax). In order to prevent consumers from actually receiving a break on the introduction of the HST (maybe that would have been a good idea?) … the government had previously announced that they would increase liquor board markups to compensate. Today\’s announcements make changes to the markups across the board for all products. On wine, the liquor board markup will increase from 117% to 123%. On spirits, it goes from 163% to 170%. If you weren\’t aware of these staggeringly high \”tax\” rates … yes, you are reading those numbers correctly.

The stated intention has always been to keep \”shelf prices the same\”. I ran a few calculations for wine only using the new markup formula and the results were fairly consistent that the end shelf prices were almost identical to the old formula. However, these changes may be difficult to explain to a cynical public … as the markup goes up by 6%, tax down by 3%. In addition, there is a small problem regarding the legitimacy of moving government revenue generated by tax dollars to government revenue generated by liquor board markup. Revenue from taxes must be considered and passed by the legislature or it is not legal (i.e. no taxation without representation). Revenue from liquor board markup is not passed by the legislature – it is simply implemented by administrative action at the LDB. The government has now \”moved\” a large chunk of revenue from the tax side (passed by the legislature) to the non-tax side. Is this taxation without representation?

This story has now been covered by the Vancouver Sun: LDB Increases Markup on Booze as HST Lowers Tax

Update (May 25, 2010): I received a press release from Laughing Stock Vineyards today indicating that they intend to pass the HST savings on to their customers for wine ordered directly from the winery. As I explained, in an earlier article, BC wineries will actually get a small benefit from the switch to HST for wine delivered direct from the winery.

The \”cellared in Canada\” issue is in the news again this week with a story in Business in Vancouver\’s current issue: \”Gripes Growing Over BC Wine Grape Rules\” (subscription required for online access). As readers will recall, \”cellared in Canada\” (CIC) wines are blended wines made from primarily (or all) imported bulk juice that is then bottled in Canada. The issue that is now in the news is that CIC wines get preferential distribution treatment within BC over other imported wines. Specifcally, CIC wines can be distributed through \”direct delivery\” which means that the producer can ship them (along with 100% BC wines) directly to consumers and licensees without going through the BCLDB distribution system. All other import wines have to go through the BCLDB distribution system which creates numerous problems in terms of providing timely and efficient delivery to customers. The story quotes CIC producers as arguing that CIC wines provide economic benefits to Canada over other imported products. In addition, there is an argument that CIC wines are competing against other blended global products which by Canadian law are able to identify a country of origin (such as \”Product of France\”) so long as 75% of the wine comes from that country (in other words, up to 25% of the wine can be blended in from elsewhere).

In my view, while there are likely good arguments about the fairness of the distribution system, the sale of CIC wines should not be problematic if the wines are labelled correctly and in a manner which is not misleading to consumers. The recent signage changes at BCLDB stores are a step in the right direction on this issue. However, one issue that still lingers is the legality of the wording on the labels used on most CIC products. This issue was first raised by Arnold Schwisberg at the wine law conference held here in Vancouver this past November. Canadian federal labelling law requires that all wine sold in Canada must contain a declaration of the \”country of origin\” on the label (see Food and Drug Act, Regulation B.02.108). The Canadian Food Inspection Agency has a guide to their enforcement of the labelling laws on their website. It acknowledges the blending issue and then explains that if a wine does not contain at least 75% content from a single country, so that it can claim that country as its \”country of origin\”, then it must be labelled as follows:

The labels of products which do not meet the conditions mentioned
above must describe the various origins on the label.  For example: \”Made in Canada from (naming the country or countries) grapes
(or juices)\” or \”Blended in Canada from (naming the country or countries)
wines\”

(emphasis added)

It seems to me that there is still a problem with the labelling of many CIC wines because most, but not all of them, simply state \”Cellared in Canada from a blend of international and domestic wine\”. This wording does not identify the countries of origin of the wine, as federal law requires. As a result, it is not possible for the consumer to tell where the wine is sourced from. In BC, this wording is particularly problematic because there is, in fact, no requirement that any domestic wine be included in the blend. I have discussed this issue with producers who have told me that CIC blends change quite frequently and, as a result, it would be difficult to continually change the labels to identify the various countries of origin. While that may be true from a practical business perspective, it is not a sufficient answer to the legal problem – the law currently requires the country of origin declaration. In my view, any labels that do not include it are likely in violation of federal labelling laws.