Article by Leanne Holley, Texas Wine and Trail Magazine
After much debate as to the why’s and how much the Texas Legislature is willing to regulate the Texas Wine Industry regarding HB 2537, Texas Wine and Trail Magazine made contact to help get answers from Senator Carona, sponsor of the Bill. The response came in less than 24hrs from Steven Polunsky, Director of the Texas Senate Committee on Business and Commerce.
The introduction of HB 2537 makes a broad stroke statement, alluding to regulation changes that leaves Texas winery owners more than a little concerned:
A BILL TO BE ENTITLED
relating to production requirements for holders of winery permits.
The text for HB 2537 is short and to the point, however it has caused many in the Texas wine industry – grape growers included, to take serious notice and for sound reason. Most importantly because Texans have never been a fan of government regulation. Mr. Polunsky assured me that Senator Carona was appreciative of the concerned inquiry, “He is in fact a supporter of the wine industry, as evidenced by the many bills that he has authored, sponsored, or allowed to move through his committee that benefit the industry and consumers.” I was also reminded that Texas has had to revise and update its Alcoholic Beverage Code to address things like wine sales over the internet, which were not anticipated when the code was written. Internet sales are contributing wonderfully to boost sales in Texas which at present has no economical way to distribute local wines across such a large area.
Mr. Polunsky provided more details for Texas Wine and Trail Magazine to share with concerned winery owners, wine producers, grape growers, and Texas wine consumers.
- While Texas wineries are included in the manufacturing tier of the Texas three-tiered distribution system, they are not currently obligated to manufacture wine.
- Additionally, the Texas Alcoholic Beverage Code authorizes a Texas winery permit holder to sell and ship wine directly to a Texas consumer, however there is no requirement that permit holders actually grow and produce the wine to be sold or shipped.
- At the same time, the Code does not allow out-of-state wineries to ship wine directly to Texas consumers if the wine is not blended or produced by the winery; nor does it allow out-of-state retailers to ship wine directly to a consumer in Texas.
- This disparate treatment of out-of-state and in-state wineries has been viewed by some as economic protectionism benefiting in-state economic interests by burdening out-of-state competitors.
- This leaves Texas vulnerable to legal challenges based on allegations that the practice violates the United States Constitution’s Commerce Clause, which grants Congress exclusive authority to regulate interstate commerce.
- Lawsuits such as these can be costly for taxpayers and, if possible, should be avoided.
- HB 2537 imposes a manufacturing obligation of 200 gallons on Texas wineries as a condition of holding a winery permit.
o This amount was decided on because a person can currently manufacture up to 200 gallons of wine without a winery permit; thus, this number is very attainable and reasonable.
- The bill removes the option of producing the wine through an alternating proprietorship or a contract, but provides the option of producing it at another winery owned and operated by the permit holder.
o This ensures that in order to be a winery, the permit holder must actually produce 200 gallons of their own wine, and
o Ensures that wineries can continue to have tasting rooms.
- Furthermore, HB 2537 says that 51% of wine shipped by a Texas winery permit holder must be wine produced or bottled in this state:
o In response to concerns we heard in committee this requirement can be met through an alternating proprietorship; or
o By the permitee at the permitted location, or at a permitted location owned and operated by the permitee; or
o Under an agreement with another winery permit holder for a bottling brand under the Department of Treasury Tax and Trade Bureau Basic Permit trade name application.
- It still allows Texas wineries to sell and ship other people’s product for the purpose of growing their winery, but stops retailers disguised as wineries from shipping statewide.
- Additionally, HB 2537 requires wineries to maintain records of sales and deliveries of the wine they ship and whether that wine was wine they produced or wine from another manufacturer.
o TABC would establish rules for wineries to periodically provide these reports to them.
o This reporting will give the Legislature a clearer idea of how many retail wineries currently exist in Texas.
- HB 2537 has an effective date of September 1, 2014 in order to allow for a transition period.
- Finally, HB 2537 grants an exemption from this requirement for a niche business that sells personalized labeled wines for weddings and company parties.
Several Texas winery owners are heavily affected by HB 2537, but ALL in the industry are rightfully worried this bill is setting a strong precedent for government involvement, burdensome reporting, and further regulations, especially if no one raises an eyebrow or takes the time to voice their concern. If Senator Carona is truly a champion of Texas wine, he’ll continue to view the industry’s growth as an economic and cultural incentive to the State (not as a threat to large campaign contributors in big beer) and legislate accordingly. Texas Wine and Trail Magazine sincerely appreciates Senator John Carona, and Mr. Steven Polunsky for taking the time to respond, and hope the above information provides better direction for any questions those concerned still have.
This bill is on the Senate intent calendar today, so call the Senate Committee on Business and Commerce for questions, concerns, support or opposition: (512) 463-0365
photo credit: saveur.com