Title of Regulation: 3VAC5-70. Other Provisions (amending 3VAC5-70-220).

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

Public Hearing Information: No public hearings are scheduled.

Public Comment Deadline: July 23, 2020.

Effective Date: August 8, 2020.

Agency Contact: LaTonya D. Hucks-Watkins, Legal Liaison, Alcoholic Beverage Control Authority, 2901 Hermitage Road, Richmond, VA 23220, telephone (804) 213-4698, FAX (804) 213-4574, or email latonya.hucks-watkins@abc.virginia.gov.

Basis: Section 4.1-103 of the Code of Virginia authorizes the Board of Directors of the Alcoholic Beverage Control Authority to adopt regulations in accordance with the Administrative Process Act (§ 2.2-4000 et seq. of the Code of Virginia) and § 4.1-111 of the Code of Virginia. Section 4.1-111 provides the board with the authority to adopt reasonable regulations to carry out the provisions of the Alcoholic Beverage Control Act (§ 4.1-100 et seq. of the Code of Virginia).

Purpose: The Alcoholic Beverage Control Authority has undertaken this action as a measure to establish regulations that will allow persons located within or outside the Commonwealth to sell and ship beer in closed containers to persons in the Commonwealth to whom beer may be lawfully sold for off-premises consumption. The amendment is essential to protect the public health, safety, or welfare because without it, there is nothing regulating Internet beer retailers as required by the Code of Virginia.

Rationale for Using Fast-Track Rulemaking Process: This rulemaking change should be noncontroversial because it is in line with established code and incorporates requirements that have already been in effect.

Substance: The substantive changes include changing the language throughout the existing regulation such that "Internet beer retailer," or a variation thereof, is added to the text in any instance where a variation of "Internet wine retailer" appears.

Issues: The primary advantage to the public and the agency of this regulation change is that it will provide guidance for Internet beer retailer licensees. There are no disadvantages to the public or the Commonwealth by promulgating this regulation.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. The Virginia Alcoholic Beverage Control Board (ABC) seeks to create a new Internet beer retailer license to authorize sales and shipments of beer to consumers in Virginia. Hence, ABC proposes to amend 3VAC5-70-220 Wine or Beer Shipper's Licenses and Internet Wine Retailer Licenses; Application Process; Common Carriers; Records and Reports to insert Internet Beer Retail Licenses to the section title as well as the text of the section. As such, all provisions that currently apply to wine or beer shipper's licenses and Internet wine retail licenses would be extended to Internet beer retail licenses.

Background. The 2018 Acts of Assembly (Chapter 337) created and defined an Internet beer retail license.¹ Accordingly, § 4.1-208(A)(10) of the Code of Virginia authorizes persons licensed as Internet beer retailers and located within or outside the Commonwealth to sell and ship beer in accordance with Virginia Code § 4.1-209.1 and board regulations.² The language of § 4.1-208(A)(10) mirrors that of § 4.1-207(6) regarding the Internet wine retail license.³ In 2008, ABC amended 3 VAC 5-70-220 to incorporate Internet wine retail licenses and now proposes to incorporate Internet beer retail licenses in an identical manner.⁴

Estimated Benefits and Costs. Allowing Internet beer retailers to sell, and ship, directly to individual consumers is likely to benefit businesses engaged in beer retail as well as beer consumers by providing the flexibility to conduct their transactions online. Internet beer retailers would likely be able to earn greater revenue, and likely greater profits, from selling directly to individuals who want their product. Consumers would benefit from the convenience of purchasing beer online. Expanding the market for beer in this way would likely increase competition among beer retailers, which would in turn benefit consumers to the extent that it leads to lower prices, better quality, greater variety, or any combination thereof. On the other hand, to the extent that individual consumers substitute Internet purchases for local retail purchases, brick-and-mortar stores that have been, until now, the only source of beer for off-site consumption would likely experience decreases in revenue.

Those applying for an Internet beer license would have to pay a (statutorily set) $150 annual licensure fee (in addition to a nonrefundable application fee of $195) and would have to meet the same recordkeeping requirements that currently apply to beer and wine shippers and Internet wine retail licensees. As per current regulation, these licensees "shall maintain for two years complete and accurate records of all shipments made under the privileges of such licenses, including for each shipment:

1. Number of containers shipped;

2. Volume of each container shipped;

3. Brand of each container shipped;

4. Names and addresses of recipients; and

5. Price charged."

Further, on or before the 15th of each month, licensees are also required to file a report with the Tax Management Section of ABC indicating whether any shipments were made during the month, and if so, provide all the information listed for each shipment.

Businesses and Other Entities Affected. ABC reported that since the statute came into effect in 2018, they have already granted two Internet beer licenses, although they could not clarify if these licensees had previously held a shipper's license or a retail license. The proposed amendments would benefit current and future Internet beer retail licensees.

Grocery stores, convenience stores, and other brick-and-mortar locations selling beer would likely be adversely affected if their consumers opt to make purchases on the Internet instead of buying from the stores, unless they engage in online retail and choose to obtain an Internet beer retail license.

Small Businesses⁵ Affected. Types and Estimated Number of Small Businesses Affected. Although ABC does not track its small businesses, they report that the majority of their licensees are likely to be small businesses. Virginia has 151 breweries, 71 beer and ale wholesalers, 1,308 supermarkets and grocery stores, 1,055 convenience stores, and 99 beer and wine stores that are considered small businesses.⁶ However, the effect of the proposed amendments on any particular small business would depend on their own decision, as well as the decisions made by their competitors, about the extent to which they engage in Internet beer retail. Grocery stores and convenience stores that do not currently engage in any beer retail may not be affected at all.

Costs and Other Effects. The proposed amendments would likely benefit small independent breweries and beer, wine and liquor stores by allowing them to advertise online and expand their sales in parts of the state where they do not currently ship their product. However, this benefit could be limited depending on the competitiveness of Internet beer retail. Conversely, small supermarkets, grocery stores and convenience stores that sell beer may see decreased revenues from beer sales in brick-and-mortar locations. However, brick-and-mortar locations provide consumers with the convenience of immediate access to a wide variety of domestic and imported beers without additional shipping costs, so any adverse impact is unlikely to be substantive in nature at least in the short run.

Alternative Method that Minimizes Adverse Impact. There are no clear alternative methods that both reduce adverse impact and meet the intended policy goals.

Localities⁷ Affected.⁸ The proposed amendments do not disproportionately affect particular localities or introduce new costs for local governments.

Projected Impact on Employment. The proposed amendments are unlikely to affect total employment in the industry.

Effects on the Use and Value of Private Property. Real estate development costs do not appear to be affected.

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¹See http://lis.virginia.gov/cgi-bin/legp604.exe?181+ful+CHAP0337

²See https://law.lis.virginia.gov/vacode/title4.1/chapter2/section4.1-208/ (Beer License) and https://law.lis.virginia.gov/vacode/title4.1/chapter2/section4.1-209.1/ (Direct shipment of wine and beer; shipper's license.)

³See https://law.lis.virginia.gov/vacode/title4.1/chapter2/section4.1-207/ (Wine License)

⁴See https://townhall.virginia.gov/L/ViewAction.cfm?actionid=2517, which became effective May 1, 2008.

⁵Pursuant to § 2.2-4007.04 of the Code of Virginia, small business is defined as "a business entity, including its affiliates, that (i) is independently owned and operated and (ii) employs fewer than 500 full-time employees or has gross annual sales of less than $6 million."

⁶Data source: Virginia Employment Commission

⁷"Locality" can refer to either local governments or the locations in the Commonwealth where the activities relevant to the regulatory change are most likely to occur.

⁸§ 2.2-4007.04 defines "particularly affected" as bearing disproportionate material impact.

Agency's Response to Economic Impact Analysis: The Virginia Alcoholic Beverage Control Authority concurs with the Department of Planning and Budget's economic impact analysis.

Summary:

Chapter 337 of the 2018 Acts of Assembly creates an Internet beer retailer license and sets the fee for such license. This regulatory action implements Chapter 337 and establishes license requirements, including application, shipping, record keeping, and reporting.

3VAC5-70-220. Wine or beer shipper's licenses, and Internet wine retailer licenses, and Internet beer retailer licenses; application process; common carriers; records and reports.

A. Any person or entity qualified for a wine shipper's license or beer shipper's license pursuant to § 4.1-209.1 of the Code of Virginia, or an Internet wine retailer license pursuant to subdivision 6 of § 4.1-207 of the Code of Virginia, or an Internet beer retailer license pursuant to subdivision A 10 of § 4.1-208 of the Code of Virginia, must apply for such license by submitting form 805-52, Application for License. In addition to the application, each applicant shall submit as attachments a list of all brands of wine or beer sought to be shipped by the applicant, along with the board-assigned code numbers for each brand or a copy of the label approval by the appropriate federal agency for any brand not previously approved for sale in Virginia pursuant to 3VAC5-40-20 or 3VAC5-40-50 that will be sold only through direct shipment to consumers.

If the applicant is not also the brand owner of the brands listed in the application, the applicant shall obtain and submit with the application a dated letter identifying each brand, from the brand owner or any wholesale distributor authorized to distribute the brand, addressed to the Supervisor, Tax Management Section, Virginia Department of Alcoholic Beverage Control Authority, indicating the brand owner's or wholesale distributor's consent to the applicant's shipping the brand to Virginia consumers.

The applicant shall attach (i) a photocopy of its current license as a winery, farm winery, brewery, or alcoholic beverage retailer issued by the appropriate authority for the location from which shipments will be made and (ii) evidence of the applicant's registration with the Virginia Department of Taxation for the collection of Virginia retail sales tax.

B. Any brewery, winery, or farm winery that applies for a shipper's license or consents to the application by any other person, other than a retail off-premises licensee, for a license to ship such brewery's, winery's, or farm winery's brands of wine or beer shall notify all wholesale licensees that have been authorized to distribute such brands in Virginia that an application for a shipper's license has been filed. Such notification shall be by a dated letter to each such wholesale licensee, setting forth the brands that wholesaler has been authorized to distribute in Virginia for which a shipper's license has been applied. A copy of each such letter shall be forwarded to the Supervisor, Tax Management Section, by the brewery, winery, or farm winery.

C. Any holder of a wine or beer shipper's license or, Internet wine retailer's license, or Internet beer retailer's license may add or delete brands to be shipped by letter to the Supervisor, Tax Management Section, designating the brands to be added or deleted. Any letter adding brands shall be accompanied by any appropriate brand-owner consents or notices to wholesalers as required with an original application.

D. Any brand owner that consents to a holder of a wine shipper's license, beer shipper's license, or Internet wine retailer's license, or Internet beer retailer's license shipping its brands to Virginia consumers may withdraw such consent by a dated letter to the affected wine or beer shipper's licensee or, Internet wine retailer's licensee, or Internet beer retailer's licensee. Copies of all such withdrawals shall be forwarded by the brand owner, by certified mail, return receipt requested, to the Supervisor, Tax Management Section. Withdrawals shall become effective upon receipt of the copy by the Tax Management Section, as evidenced by the postmark on the return receipt.

E. Wine shipper's licensees, beer shipper's licensees, and Internet wine retailer's licensees, and Internet beer retailer's licensees shall maintain for two years complete and accurate records of all shipments made under the privileges of such licenses, including for each shipment:

1. Number of containers shipped;

2. Volume of each container shipped;

3. Brand of each container shipped;

4. Names and addresses of recipients; and

5. Price charged.

The records required by this subsection shall be made available for inspection and copying by any member of the board or its special agents upon request.

F. On or before the 15th day of each month, each wine shipper's licensee, beer shipper's licensee, or Internet wine retailer's licensee, or Internet beer retailer's licensee shall file with the Supervisor, Tax Management Section, either in paper form or electronically as directed by the department, a report of activity for the previous calendar month. Such report shall include:

1. Whether any shipments were made during the month; and

2. If shipments were made, the following information for each shipment:

a. Number of containers shipped;

b. Volume of each container shipped;

c. Brand of each container shipped;

d. Names and addresses of recipients; and

e. Price charged.

Unless otherwise paid, payment of the appropriate beer or wine tax shall accompany each report.

G. All shipments by holders of wine shipper's licenses, beer shipper's licenses, or Internet wine retailer's licenses, or Internet beer retailer's licenses shall be by approved common carrier only. Common carriers possessing all necessary licenses or permits to operate as common carriers in Virginia may apply for approval to provide common carriage of wine or beer, or both, shipped by holders of wine shipper's licenses, beer shipper's licenses, or Internet wine retailer's licenses, or Internet beer retailer's licenses by dated letter to the Supervisor, Tax Management Section, requesting such approval and agreeing to perform deliveries of beer or wine shipped, maintain records, and submit reports in accordance with the requirements of this section. The board may refuse, suspend, or revoke approval if it shall have reasonable cause to believe that a carrier does not possess all necessary licenses or permits, that a carrier has failed to comply with the regulations of the board, or that a cause exists with respect to the carrier that would authorize the board to refuse, suspend, or revoke a license pursuant to Title 4.1 of the Code of Virginia. Before refusing, suspending, or revoking such approval, 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.

H. When attempting to deliver wine or beer shipped by a wine shipper's licensee, beer shipper's licensee, or Internet wine retailer's licensee, or Internet beer retailer's licensee, an approved common carrier shall require:

1. The recipient to demonstrate, upon delivery, that he the recipient is at least 21 years of age; and

2. The recipient to sign an electronic or paper form or other acknowledgement acknowledgment of receipt that allows the maintenance of the records required by this section.

The approved common carrier shall refuse delivery when the proposed recipient appears to be under the age of younger than 21 years of age and refuses to present valid identification. All licensees shipping wine or beer pursuant to this section shall affix a conspicuous notice in 16-point type or larger to the outside of each package of wine or beer shipped within or into the Commonwealth, in a conspicuous location stating: "CONTAINS ALCOHOLIC BEVERAGES; SIGNATURE OF PERSON AGED 21 YEARS OR OLDER REQUIRED FOR DELIVERY." Such notice shall also contain the wine shipper's, beer shipper's, or Internet wine retailer's license, or Internet beer retailer's license number of the shipping licensee. No approved common carrier shall accept for shipment any wine or beer to be shipped to anyone other than a licensee of the board unless the package bears the information required by this subsection.

I. Approved common carriers shall maintain for two years complete and accurate records of all shipments of wine or beer received from and delivered for wine or beer shipper's licensees, or Internet wine retailer's licensees, or Internet beer retailer's licensees, including for each shipment:

1. Date of shipment and delivery;

2. Number of items shipped and delivered;

3. Weight of items shipped and delivered;

4. Acknowledgement signed by recipient; and

5. Names and addresses of shippers and recipients.

The records required by this subsection shall be made available for inspection and copying by any member of the board or its special agents upon request.

J. On or before the 15th day of each January, April, July, and October, each approved common carrier shall file with the Supervisor, Tax Management Section, a report of activity for the previous calendar quarter. Such report shall include:

1. Whether any shipments were delivered during the quarter; and

2. If shipments were made, the following information for each shipment:

a. Dates of each delivery; and

b. Names and address of shippers and recipients for each delivery.