As 2022 draws to a close, it’s time to look back and reflect on the year that was. For beverage alcohol regulation, 2022 saw an interesting mix of big changes on one hand and stagnation on the other.
On the direct-to-consumer (DtC) shipping front, there was little overall change, at least compared to the admittedly brash predictions some had bandied about in 2021. Efforts to expand DtC shipping permission to distillers, brewers and retailers largely failed, with the collapse of legislation in California being perhaps the most disappointing. Only Vermont ended up expanding DtC shipping permissions in 2022, and only for limited spirits products. Otherwise, changes around DtC were mostly on the edges, removing some minor barriers and adding others, but largely keeping things the same.
However, that does not mean that states were quiet when it came to alcohol related legislation. Instead, their work was much more related to local issues, including making to-go cocktails permanent and establishing regulations on third-party local delivery services like Uber Eats.
The federal government was also very busy when it came to beverage alcohol regulations this year. Following the publication of the Treasury Department’s report on competition, the Tax and Trade Bureau (TTB) has issued several calls for notice and comment rulemaking to amend their policies on, among other things, label regulations and trade practice enforcement. In addition, the TTB has stepped up its overall enforcement activities.
Following is a quick review of some of the bigger news stories from 2022.
State law changes
- To-go drinks: During the early days of the COVID emergency, almost every state enacted temporary permissions allowing on-premises retailers to sell beer, wine and mixed drinks to-go alongside food orders. This turned out to be quite popular and in 2022 nearly two dozen states made efforts to make these permissions permanent.
- Alaska: In June, SB 9 was ratified. This was the culmination of years of work to create an omnibus bill to modernize much of Alaska’s alcohol laws. Included were new provisions for direct-to-consumer shipping, including new license and tax requirements, elimination of DtC shipping permission for retailers, and production caps for distillers and brewers that may engage in DtC shipping. These provisions will become effective January 1, 2024.
- California: Legislation to expand the state’s bottle bill program was enacted. Effective January 1, 2024, wine and distilled spirits bottles will be included in the state’s waste management program. Bottles will need to include label information regarding the 10-cent deposit, with additional compliance requirements for California manufacturers and distributors. Notably, California’s bottle bill program will also apply to DtC shipments of wine from outside of the state, unlike every other state with a bottle bill that includes wine.
- Iowa: In August, the state removed its bond requirement for wine direct shipper permits. This provision should make it simpler for new and renewing applicants looking to ship their wine into the state.
- Louisiana: In 2021, Louisiana announced it would no longer permit DtC shippers to due fulfillment houses to manage their shipments. This policy was quickly reversed, but the state continued to look for ways to regulate fulfillment houses. In the summer, the Louisiana Office of Alcohol and Tobacco Control instituted new rulemaking that now requires all new and renewing applicants for a Direct Ship Permit to list any fulfillment houses they use for DtC shipping into the state.
- Missouri: Economic nexus will take effect on January 1, 2023. Going forward, DtC shippers that make over $100,000 in taxable annual sales in the state will be required to collect and remit the state’s sales taxes. This will mean registering with the Missouri Department of Revenue as a remote seller and filing regular tax returns. DtC shippers without economic nexus in the state will not be affected by this rule and will continue to not have sales tax liability there.
- Vermont: In July, Vermont Act 177 took effect. The bill included several provisions aimed at Ready-to-Drink (RTD) cocktails made from spiritous liquor. RTD Spirits Beverages, defined as spiritous products with an ABV less than 12% and packaged in containers smaller than 24 fluid ounces, will be taxed at a reduced rate of $1.10 per gallon, may be sold in the private sector alongside beer and wine, and may be DtC shipped to Vermont consumers by licensed parties.
Federal action in 2022
The Tax and Trade Bureau of the Treasury Department was very busy in 2022. Early, in February, the TTB published a report on competition in the beverage alcohol industry, following a request from the Biden Administration in late 2021. The report noted numerous ways to expand competitive opportunities and create room for smaller parties in the industry.
Among the suggestions offered by the TTB were:
- Consideration for expanding DtC shipping permissions for breweries and distilleries;
- Eliminating the disparate treatment of different product types, such as with tax and label reform;
- Expanded trade practice enforcement and greater review of future mergers to protect against undue consolidation in the industry.
To affect these policies, the TTB has also issued several requests for notice and comment rulemaking asking the industry to opine on what updates to make with label regulations and what direction the agency should take with trade practice reform.
In recent weeks, the TTB was sued to act on ingredient labeling for alcoholic beverages. The measure, which proposes to add standard dietary information and lists of ingredients to all alcohol labels, has been controversial within the industry. While there is clear interest among the public for calorie counts and disclosure of additives, many producers have pushed back, noting that alcoholic beverages are unlike processed foods and that adding such information to labels would have limited benefit. The TTB has issued proposed rulemaking on this issue and is actively soliciting public comments on what should—and should not—be part of such a requirement.
In October, the TTB also launched new support for importers for filing their federal excess taxes under the Craft Beverage Modernization Act. Starting January 1, 2023, the TTB will take over management of taxes for foreign produced products from Customs. To handle this, the myTTB system was expanded to enable easier submission of reports and taxes by importers.
What will 2023 bring?
In ways, 2022 seems to be setting 2023 up to be a big year. The rulemaking initiatives launched by the TTB in 2022 will need to be resolved, with lots of potential for the TTB to radically change current policies—or decide that things are working fine as is. Efforts to expand DtC shipping will continue apace, with lessons learned from what did and didn’t work in 2022. And more states will consider making their COVID emergency relief policies permanent.
How any of this will go—what the story of 2023 will be, one of bold reform or retrenchment and torpor—will only be clear when the dust settles.
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