Title of Regulation: 3VAC5-60. Manufacturers and Wholesalers Operations (amending 3VAC5-60-20, 3VAC5-60-50, 3VAC5-60-80; adding 3VAC5-60-25, 3VAC5-60-110).

Statutory Authority: §§ 4.1-103 and 4.1-111 of the Code of Virginia.

Effective Date: December 18, 2013.

Agency Contact: W. Curtis Coleburn III, Chief Operating Officer, Department of Alcoholic Beverage Control, 2901 Hermitage Road, Richmond, VA 23220, telephone (804) 213-4409, FAX (804) 213-4411, TTY (804) 213-4687, or email curtis.coleburn@abc.virginia.gov.

Summary:

The amendments (i) allow required reports of sales to be filed monthly rather than weekly; (ii) allow up to two cases of wine to be peddled to retailers during a scheduled delivery of other wine products that were preordered by the retailers; (iii) add provisions governing situations in which a brewery may manufacture beer bearing the brand name of another pursuant to a contract brewing arrangement; (iv) allow electronic filing of required reports; (v) increase the size of spirits samples that may be given to mixed beverage licensees from 50 milliliters to 375 milliliters; and (vi) allow spirits manufacturers to rent booths, provide hospitality events, and pay for advertising in brochures made for conventions, trade association meetings, and similar gatherings.

Summary of Public Comments and Agency's Response: A summary of comments made by the public and the agency's response may be obtained from the promulgating agency or viewed at the office of the Registrar of Regulations.

3VAC5-60-20. Wines; purchase orders generally; wholesale wine licensees.

A. Purchases of wine between the board, licensees or persons outside the Commonwealth shall be executed only on order forms prescribed by the board and provided at cost if supplied by the department.

B. Wholesale wine licensees shall comply with the following procedures:

1. Purchase orders. A copy of each purchase order for wine and a copy of any change in such order shall be forwarded to the board by the wholesale wine licensee at the time the order is placed or changed. Upon receipt of shipment, one copy of such purchase order shall be forwarded to the board by the licensee reflecting accurately the date received and any changes. In lieu of forwarding copies of purchase orders to the board, a wholesale licensee may submit a report to the board weekly monthly, in a format approved by the board, of all purchase orders for the previous week month. The report covering the last week of any calendar month must be submitted to the board on or before the 5th 15th day of the succeeding month.

2. Sales in the Commonwealth. Separate invoices shall be used for all nontaxed wine sales in the Commonwealth and a copy of each such invoice shall be furnished to the board upon completion of the sale. In lieu of forwarding copies of invoices to the board, a wholesale licensee may submit a report to the board weekly monthly, in a format approved by the board, of all invoices for the previous week month. The report covering the last week of any calendar month must be submitted to the board on or before the 5th 15th day of the succeeding month.

3. Out-of-state sales. Separate sales invoices shall be used for wine sold outside the Commonwealth and a copy of each such invoice shall be furnished to the board upon completion of the sale. In lieu of forwarding copies of invoices to the board, a wholesale licensee may submit a report to the board weekly monthly, in a format approved by the board, of all invoices for the previous week month. The report covering the last week of any calendar month must be submitted to the board on or before the 5th 15th day of the succeeding month.

4. Peddling. Wine shall not A maximum of two cases or 24 bottles of wine may be peddled to retail licensees during an invoiced delivery, provided that the wholesale wine licensee provides a revised purchase order indicating the additional wine peddled during the transaction.

5. Repossession. Repossession of wine sold to a retailer shall be accomplished on forms prescribed by the board and provided at cost if supplied by the board, and in compliance with the instructions on the forms.

6. Reports to the board. Each month wholesale wine licensees shall, on forms or an electronic system prescribed by the board and in accordance with the instructions set forth therein, report to the board the purchases and sales made during the preceding month, and the amount of state wine tax collected from retailers pursuant to §§ 4.1-234 and 4.1-235 of the Code of Virginia. Each wholesale wine licensee shall on forms or an electronic system prescribed by the board on a quarterly basis indicate the quantity of wine on hand at the close of business on the last day of the last month of the preceding quarter based on actual physical inventory by brands. Reports shall be accompanied by remittance for the amount of taxes collected, less any refunds, replacements or adjustments and shall be postmarked or submitted electronically no later than the fifteenth 15th of the month, or if the fifteenth 15th is not a business day, the next business day thereafter.

3VAC5-60-25. Winery, farm winery, and brewery licenses; reports.

On or before the 15th day of each month, each winery, farm winery, and brewery licensee shall, on forms or an electronic system prescribed by the board and in accordance with the instructions set forth therein, file a report with the board of sales made in the previous calendar month. Tax payment in accordance with § 4.1-234 or 4.1-236 of the Code of Virginia shall be made with the submission of this report.

3VAC5-60-50. Records required of distillers, fruit distillers, winery licensees and farm winery licensees; procedures for distilling for another; farm wineries.

A person holding a distiller's, fruit distiller's, winery or a farm winery license shall comply with the following procedures:

1. Records. Complete and accurate records shall be kept at the licensee's place of business for a period of two years, which records shall be available during reasonable hours for inspection by any member of the board or its special agents. Such records shall include the following information:

a. The amount in liters and alcoholic content of each type of alcoholic beverage manufactured during each calendar month;

b. The amount of alcoholic beverages on hand at the end of each calendar month;

c. Withdrawals of alcoholic beverages for sale to the board or licensees;

d. Withdrawals of alcoholic beverages for shipment outside of the Commonwealth showing:

(1) Name and address of consignee;

(2) Date of shipment; and

(3) Alcoholic content, brand name, type of beverage, size of container and quantity of shipment.

e. Purchases of cider or wine including:

(1) Date of purchase;

(2) Name and address of vendor;

(3) Amount of purchase in liters; and

(4) Amount of consideration paid.

f. A distiller or fruit distiller employed to distill any alcoholic beverage shall include in his records the name and address of his employer for such purpose, the amount of grain, fruit products or other substances delivered by such employer, the type, amount in liters and alcoholic content of alcoholic beverage distilled therefrom, the place where stored, and the date of the transaction.

2. Distillation for another. A distiller or fruit distiller manufacturing spirits for another person shall:

a. At all times during distillation keep segregated and identifiable the grain, fruit, fruit products or other substances furnished by the owner thereof;

b. Keep the alcoholic beverages distilled for such person segregated in containers bearing the date of distillation, the name of the owner, the amount in liters, and the type and alcoholic content of each container; and

c. Release the alcoholic beverages so distilled to the custody of the owner, or otherwise, only upon a written permit issued by the board.

3. Farm wineries. A farm winery shall keep complete, accurate and separate records of fresh fruits or other agricultural products grown or produced elsewhere and obtained for the purpose of manufacturing wine. At least 51% of the fresh fruits or agricultural products used by the farm winery to manufacture the wine shall be grown or produced on such farm. Each farm winery must comply with the provisions of § 4.1-219 of the Code of Virginia for its applicable class of winery license relating to production of fresh fruits or other agricultural products. As provided in § 4.1-219, the board, upon petition by the Department of Agriculture and Consumer Services, may grant a waiver from the production requirements.

3VAC5-60-80. Solicitation of mixed beverage licensees by representatives of manufacturers, etc., of spirits.

A. Generally. This section applies to the solicitation, directly or indirectly, of a mixed beverage licensee to sell or offer for sale spirits. Solicitation of a mixed beverage licensee for such purpose other than by a permittee of the board and in the manner authorized by this section shall be prohibited.

B. Permits.

1. No person shall solicit a mixed beverage licensee unless he has been issued a permit. To obtain a permit, a person shall:

a. Register with the board by filing an application on such forms as prescribed by the board;

b. Pay in advance a fee of $300, which is subject to proration on a quarterly basis, pursuant to § 4.1-230 E of the Code of Virginia;

c. Submit with the application a letter of authorization from the manufacturer, brand owner or its duly designated United States agent, of each specific brand or brands of spirits which the permittee is authorized to represent on behalf of the manufacturer or brand owner in the Commonwealth; and

d. Be an individual at least 21 years of age.

2. Each permit shall expire yearly on June 30, unless sooner suspended or revoked by the board.

3. A permit hereunder shall authorize the permittee to solicit or promote only the brand or brands of spirits for which the permittee has been issued written authorization to represent on behalf of the manufacturer, brand owner, or its duly designated United States agent and provided that a letter of authorization from the manufacturer or brand owner to the permittee specifying the brand or brands he is authorized to represent shall be on file with the board. Until written authorization or a letter of authorization, in a form authorized by the board, is received and filed with the board for a particular brand or brands of spirits, there shall be no solicitation or promotion of such product by the permittee. Further, no amendment, withdrawal or revocation, in whole or in part, of a letter of authorization on file with the board shall be effective as against the board until written notice thereof is received and filed with the board; and, until the board receives notice thereof, the permittee shall be deemed to be the authorized representative of the manufacturer or brand owner for the brand or brands specified on the most current authorization on file with the board.

C. Records. A permittee shall keep complete and accurate records of his solicitation of any mixed beverage licensee for a period of two years, reflecting all expenses incurred by him in connection with the solicitation of the sale of his employer's products and shall, upon request, furnish the board with a copy of such records.

D. Permitted activities. Solicitation by a permittee shall be limited to his authorized brand or brands, may include contact, meetings with, or programs for the benefit of mixed beverage licensees and employees thereof on the licensed premises, and in conjunction with solicitation, a permittee may:

1. Distribute directly or indirectly written educational material (one item per retailer and one item per employee, per visit) which may not be displayed on the licensed premises; distribute novelty and specialty items bearing spirits advertising not in excess of $10 in wholesale value (in quantities equal to the number of employees of the retail establishment present at the time the items are delivered); and provide film or video presentations of spirits which are essentially educational to licensees and their employees only, and not for display or viewing by customers;

2. Provide to a mixed beverage licensee sample servings from containers of spirits and furnish one, unopened, 50 milliliter sample container no larger than 375 milliliters of each brand being promoted by the permittee and not sold by the licensee; such containers and sample containers shall be purchased at a government store and bear the permittee's permit number and the word "sample" in reasonable sized lettering on the container or sample container label; further, the spirits container shall remain the property of the permittee and may not be left with the licensee and any 50 milliliter sample containers left with the licensee shall not be sold by the licensee;

3. Promote their authorized brands of spirits at conventions, trade association meetings, or similar gatherings of organizations, a majority of whose membership consists of mixed beverage licensees or spirits representatives for the benefit of their members and guests, and shall be limited as follows:

a. To sample servings from containers of spirits purchased from government stores when the spirits donated are intended for consumption during the gathering;

b. To displays of spirits in closed containers bearing the word "sample" in lettering of reasonable size and informational signs provided such merchandise is not sold or given away except as permitted in this section;

c. To distribution of informational brochures, pamphlets and the like, relating to spirits;

d. To distribution of novelty and specialty items bearing spirits advertising not in excess of $10 in wholesale value; and

e. To film or video presentations of spirits which are essentially educational;

f. To display at the event the brands being promoted by the permittee;

g. To rent display booth space if the rental fee is the same as paid by all exhibitors at the event;

h. To provide its own hospitality, which is independent from activities sponsored by the association or organization holding the event;

i. To purchase tickets to functions and pay registration fees if the payments or fees are the same as paid by all attendees, participants, or exhibitors at the event; and

j. To make payments for advertisements in programs or brochures issued by the association or organization holding the event if the total payments made for all such advertisements do not exceed $300 per year for any association or organization holding the event; or

4. Provide or offer to provide point-of-sale advertising material to licensees as provided in 3VAC5-20-20 or 3VAC5-30-80.

E. Prohibited activities. A permittee shall not:

1. Sell spirits to any licensee, solicit or receive orders for spirits from any licensee, provide or offer to provide cash discounts or cash rebates to any licensee, or to negotiate any contract or contract terms for the sale of spirits with a licensee;

2. Discount or offer to discount any merchandise or other alcoholic beverages as an inducement to sell or offer to sell spirits to licensees;

3. Provide or offer to provide gifts, entertainment or other forms of gratuity to licensees except that a permittee may provide a licensee "routine business entertainment," as defined in 3VAC5-30-70, subject to the same conditions and limitations that apply to wholesalers and manufacturers under that section;

4. Provide or offer to provide any equipment, furniture, fixtures, property or other thing of value to licensees except as permitted by this regulation;

5. Purchase or deliver spirits or other alcoholic beverages for or to licensees or provide any services as inducements to licensees, except that this provision shall not preclude the sale or delivery of wine or beer by a licensed wholesaler;

6. Be employed directly or indirectly in the manufacturing, bottling, importing or wholesaling of spirits and simultaneously be employed by a retail licensee;

7. Solicit licensees on any premises other than on their licensed premises or at conventions, trade association meetings or similar gatherings as permitted in subdivision D 3 of this section;

8. Solicit or promote any brand or brands of spirits without having on file with the board a letter from the manufacturer or brand owner authorizing the permittee to represent such brand or brands in the Commonwealth; or

9. Engage in solicitation of spirits other than as authorized by law.

F. Refusal, suspension or revocation of permits.

1. The board may refuse, suspend or revoke a permit if it shall have reasonable cause to believe that any cause exists which would justify the board in refusing to issue such person a license, or that such person has violated any provision of this section or committed any other act that would justify the board in suspending or revoking a license.

2. Before refusing, suspending or revoking such permit, the board shall follow the same administrative procedures accorded an applicant or licensee under Title 4.1 of the Code of Virginia and regulations of the board.

3VAC5-60-110. Contract brewing arrangements.

A licensed brewery may manufacture beer bearing the brand of another not under common control with the manufacturing brewery, and sell and deliver the beer so manufactured to the brand owner, provided that (i) the brand owner is appropriately licensed as a brewery or beer wholesaler; (ii) the manufacturing is pursuant to a written agreement between the parties; and (iii) complete records of all beer manufactured, sold, and delivered pursuant to the agreement are maintained by both parties.

[ FORMS (3VAC5-60)

Wholesale Wine Distributions' Bond - Corporate Form, #702-38.

Wholesale Wine Distributions' Bond - Individual or Partnership Form, #702-37.

Purchase Order, #703-34 (eff. 3/87).

Wholesaler's Summary of Wine Sales and Taxes, #703-40 (eff. 5/92).

Malt Beverage Wholesaler's Tax Report, #805-70.

Purchase Order, #703-34 (rev. 3/87)

Wholesale Wine Distributors' Bond - Individual or Partnership Form, #702-37

Wholesale Wine Distributors' Bond - Corporation Form, #702-38.

Wholesaler's Summary of Wine Sales and Taxes, #703-40 (rev. 7/00)

Virginia Farm Winery Monthly Report, #703-40A (rev. 10/12)

Malt Beverage Wholesaler's Tax Report, #805-70 (rev. 5/09)

Solicitor-Salesman Permit Application, #805-81 (rev. 5/08) ]