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Marc E. Sorini concentrates on issues facing the alcohol beverage industry, with a particular focus on the supplier tier and non-beverage alcohol users. He heads the Firm's Alcohol Regulatory & Distribution Group and is recognized as one of the leading lawyers in his field. Read Marc Sorini's full bio.

In late September 2018, the U.S. Supreme Court granted a petition for a writ of certiorari (i.e. the Court agreed to hear a case) brought before the Court by the Tennessee Wine and Spirits Retailers Association (Tennessee Retailers) in Tennessee Wine and Spirits Retailers Association v. Byrd. The petition requested that the Court review the lower court’s decision upholding a finding that Tennessee’s two-year residency requirement for retail license applicants is unconstitutional. Specifically, the question Tennessee Retailers posed to the Court is whether the 21st Amendment of the U.S. Constitution gives states that authority to, consistent with the so-called “dormant” Commerce Clause of the Constitution, regulate sales of alcohol beverages by imposing residency requirements on retail (or wholesale) license applicants.

In this article, Mar Sorini and Bethany Hatef discuss the legal background of the dormant Commerce Clause, as well as the Byrd case. Particularly, they examined the Sixth Circuit’s opinion in February 2018 which affirmed the district court decision that invalidated Tennessee’s residency requirements, held that “a three-tier system can still function” without the two-year durational residency restriction imposed by the state. This article examines the potential impacts of Byrd, and how the Supreme Court’s review will address the constitutional validity of the Tennessee law imposing residency requirements on retail alcohol beverage license applicants.

Access the full article.

Originally published in Artisan Spirit: Winter 2018.

As you likely have read in the trade press already, on Wednesday, November 28, 2018, the US Court of Appeals for the Seventh Circuit issued its opinion in Lebamoff v. Rauner. The opinion adds three judges of the Seventh Circuit to the collection of legal minds rejecting the notion that the dormant Commerce Clause non-discrimination principles applied by the Supreme Court in Bacchus (1984) and Granholm (2005) should be limited to laws discriminating against producers and products.

Like other cases brought by Lebamoff and its legal team, this case involves a challenge to state laws that prohibit direct-to-consumer wine shipments by out-of-state retailers. Illinois, like many states, permits in-state retailers to deliver wine directly to Illinois consumers located anywhere in the state. The law, however, denies that same privilege to out-of-state retailers. This distinction, according to the plaintiffs, amounts to discrimination against out-of-state economic interests in violation of the Constitution’s dormant Commerce Clause.

The Seventh Circuit opinion rejects the reading of Granholm, embraced by the Second and Eighth Circuits, that the Supreme Court drew an implicit distinction between laws discriminating against producers and products (not permitted) and laws affecting the wholesale- or retail-tiers (immune from Commerce Clause scrutiny). Reading Granholm in its totality, the Seventh Circuit finds such an implied bright-line rule unlikely. Moreover, drawing on the Brown-Forman (1986) and Healy (1989) cases, the Seventh Circuit notes that prior Supreme Court opinions have applied dormant Commerce Clause principles to laws that did not regulate producers or products.

The Seventh Circuit, of course, recognized that its opinion could be substantially affected by the Tennessee Wine & Spirits Retailers Ass’n v. Byrd case now pending before the Supreme Court. Moreover, the Seventh Circuit’s discussion of issues upon remand suggests a number of potential distinguishing facts that could alter the outcome of the case. Nevertheless, should the Supreme Court affirm the Sixth Circuit’s Byrd decision, the state of Illinois will have a hard time defending the discriminatory treatment challenged in Lebamoff.

Earlier this week, US Customs and Border Protection (CBP) issued further guidance on the procedures for importers to take the lower tax rates and credits available under the Craft Beverage Modernization Act (CBMA).

Key points of the new guidance:

  1. CBP will process drawback claims on an oldest-entry-first basis.
  2. Failure to substantiate drawback claims by January 31, 2019, risks a loss of the CBMA rates/credits for the entries in question.
  3. Going forward, every entry seeking to claim CBMA rates/credits must be accompanied by a CBMA Spreadsheet based on a template provided by CBP.
  4. Each importer must also submit a Controlled Group Spreadsheet, based on a template provided by CBP, for each controlled group it belongs to (foreign producers have the option of providing this information directly to CBP). Importers are responsible for immediately reporting to CBP any changes to the information in the Controlled Group Spreadsheet.
  5. Each foreign producer must provide their importer or CBP with an Assignment Certification based on a template provided by CBP.

With this guidance, importers can now start benefiting from the CBMA lower rates and credits on entries going forward, and make drawback claims for imports entered since January 1, 2018.

During the International Wine Association’s 2018 Conference, Marc Sorini presented on the latest law developments, including the Commerce Clause and First Amendment.

The topic was made particularly timely by the Supreme Court’s September 27 decision to grant certiorari review of the Byrd v. Tennessee Wine and Spirits Retailers Association decision.

View the full presentation.

Last week Customs & Border Protection (CBP) issued additional guidance on the Craft Beverage Modernization Act (CBMA) rules for applying the CBMA lower excise tax rates (for beer and distilled spirits) and credits (for wine) to alcohol beverages imported from other countries.

The new guidance provides further clarity on the procedures required to make claims for drawback (refund) of taxes paid at the non-CBMA rate on product imported since the beginning of calendar 2018. It also indicates that CBP expects to provide additional guidance this month (October) on taking the lower rates and credits contemporaneously with importing additional product going forward. Among other things, CBP apparently will soon publish: (1) a Controlled Group Spreadsheet to track eligibility for the lower rates and credits; and (2) an Assignment Certification that foreign producers must execute and their importers must file in order to claim the CBMA lower rates and credits.

In short, if CBP can keep to its timetable, importers can begin claiming the lower CBMA rates and credits by the end of the month.

The recent US District Court for the Eastern District of Michigan opinion strikes down a Michigan statue and authorizes out-of-state retailers to sell and ship wine directly to Michigan consumers. Lebamoff Enterprises v. Snyder, E.D. Mich. Case No. 17-10191 (Sept. 28, 2018). More fundamentally, the Lebamoff decision underscores the stakes in the upcoming (as of September 27) Supreme Court review of the Sixth Circuit’s decision in Byrd v. Tenn. Wine and Spirits Retailers Ass’n.

The Lebamoff case involves 2016 legislation that amended Michigan law to: (1) make it easier for in-state retailers to ship directly to consumers by employing third-party carriers and (2) prohibit completely the sale and shipment of alcohol beverages to Michigan consumers by out-of-state retailers. The plaintiffs include an Indiana retail chain, its owner and several Michigan wine consumers.

The Lebamoff opinion first recaps the familiar dormant Commerce Clause analysis that: (a) asks whether the challenged law discriminates against interstate commerce or favors in-state interests over out-of-state interests; and (b) examines the state’s justifications for the law to see if they advance a legitimate local purpose that reasonable alternatives cannot adequately advance. Not surprisingly, the district court had little trouble concluding that the challenged law—which facially discriminates between in-state and out-of-state retailers—favors in-state interests and discriminates against interstate commerce. Continue Reading Recent Retailer Direct Shipping Opinion Illustrates Stakes in Upcoming Supreme Court Review

The “final word” may be in sight in a long-running dispute over state residency requirements imposed on applicants for retail alcohol beverage licenses as well as more fundamental questions about state powers under the 21st Amendment.

As anticipated last July in the Alcohol Law Advisor blog, a single sentence order of the US Supreme Court issued on September 27 granted a petition for a writ of certiorari filed by the Tennessee Wine and Spirits Retailers Association (Tennessee Retailers) requesting the high court to review lower court decisions that invalidated Tennessee’s two-year residency requirement for retail license applicants.

Earlier this year, the US Court of Appeals for the Sixth Circuit reviewed the Tennessee law at issue and held that, “a three-tier system can still function” without the two-year durational residency restriction imposed by Tennessee. The 6th Circuit quoted a 1984 Supreme Court decision: “The central purpose of the [Twenty-first Amendment] was not to empower States to favor local liquor industries by erecting barriers to competition.” The court went on to analyze the Tennessee restrictions and found that they violate the dormant commerce clause, a legal concept designed to prevent states from engaging in economic protectionism. Continue Reading US Supreme Court to Review State Residency Requirements

US Customs and Border Protection (CBP) expects to publish tomorrow Interim Regulations authorizing the refund of beer, wine, and spirits excise taxes in connection with the 2017 tax reform act’s reduced rates and credits. The Interim Regulations specify:

  1. Claims must be filed with the National Revenue Center of the Alcohol and Tobacco Tax and Trade Bureau (TTB).
  2. Claims must be filed on TTB Form 5620.8.
  3. A separate claim is required for entries made at each US port or internal revenue region.

The interim regulations will be effective on the date of publication (expected to be August 16, 2018).

CBP also initiated a 60-day comment period that will provide interested parties with opportunities to raise questions or identify issues that are not addressed in the interim regulations.

Please let us know if you have any questions about this development.

Last week, the Alcohol and Tobacco Tax and Trade Bureau (TTB) published a TTB Procedure governing the transfer in bond of beer between breweries of different ownership. See TTB Procedure 2018-1 (July 17, 2018). In bond transfers between breweries of different ownership were authorized by the 2017 tax reform act and like many provisions of that act, the transfer provision is scheduled to sunset at the end of 2019.

Some highlights:

  1. The beer transfers can include both packaged and bulk beer.
  2. Transferred beer can be re-consigned while in transit or returned to the shipping brewery.
  3. Most recordkeeping and recording rules are the same as the current regulations governing transfers between breweries of the same ownership.
  4. Because the 2017 tax reform act’s lower tax rates apply to beer “produced” by the removing brewery, beer transferred in bulk does not benefit from the lower rates if the receiving brewer makes no changes or only de minimis changes to the transferred beer.
  5. For excise tax purposes, a beer is “produced” by a brewer if it is “brewed by fermentation or produced by the addition of water or other liquids during any state of production.” Blending alone does not qualify as “production.”
  6. Packaged beer that was transferred does not receive any lower rate of tax and will be taxed at the $18/barrel rate upon removal.
  7. Absent evidence of theft or diversion, in-transit losses of up to 2 percent are permitted without the need to file a report or a claim with TTB.
  8. Bulk containers used to transfer beer between breweries are subject to certain marking requirements.