Title of Regulation: 3VAC5-70. Other Provisions (amending 3VAC5-70-90, 3VAC5-70-100, 3VAC5-70-150, 3VAC5-70-210, 3VAC5-70-220).

Statutory Authority: § 4.1-111 of the Code of Virginia (3VAC5-70-90, 3VAC5-70-100, 3VAC5-70-150, 3VAC5-70-220).

§§ 4.1-111 and 4.1-227 of the Code of Virginia (3VAC5-70-210).

Public Hearing Information: No public hearings are scheduled.

Public Comment Deadline: July 19, 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.

Basis: Section 4.1-103 of the Code of Virginia provides that the board has the power to control the possession, transportation, sale, and delivery of alcoholic beverages. Section 4.1-111 of the Code of Virginia authorizes the board to promulgate reasonable regulations necessary to carry out the provisions of Title 4.1 of the Code of Virginia or the general laws of the Commonwealth.

Purpose: The purpose of the proposed regulatory action is to (i) extend the amount of time that a banquet and special event licensee has to report its income and expenses to the board from 30 days to 90 days after the event, (ii) clarify which alcoholic beverage producers may give samples at a hospitality room and at conventions/trade shows, (iii) clarify price discrimination by moving the pertinent parts of the regulation regarding sales of alcoholic beverages by wholesalers to retailers to 3VAC5-90 (Tied House), (iv) codify board interpretation that each licensed location is considered a separate location with regard to reduced penalties for first time offenses, (v) allow for electronic filing of reports by wine and beer shippers, and (vi) allow licensees to store records off site.

Alcoholic beverage regulation is essential to protect the health, safety, and welfare of citizens by encouraging temperance and maintaining an orderly market. In promulgating regulations, the board must balance the need to protect the public safety with the legitimate interests of industry participants to be free of unnecessary restrictions. Each of the proposed amendments maintains essential public safety controls, while providing more flexibility for alcoholic beverage sellers.

Substance: The proposed amendments establish clearer guidelines on which alcoholic beverage producers may engage in certain activities and incorporate current board interpretation that each licensed location is a separate entity for the purpose of taking advantage of reduced penalties for a first offense. Other proposed amendments clarify price discrimination issues and provide some members of the regulated community extended time to file legislatively mandated reports or an ability to file such reports electronically.

Issues: The primary advantages to the public associated with the proposed regulatory action include relaxed deadlines for monthly tax filing by wholesalers and manufacturers and clarity in the application of regulations to provide leniency to first time offenders. There are no disadvantages to the public or the Commonwealth.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. The Alcoholic Beverage Control Board (ABC) proposes to amend its regulations to 1) allow licensees to store records off-site, 2) allow banquet and special event licensees 90 days to file required reports, 3) add importers, bottlers, brokers and wholesalers to the list of licensees who are permitted to host events at, and donate their products to, conventions or educational events, 4) clarify that each establishment is considered a separate licensee even in cases where one entity owns multiple establishments and 5) allow licensees to file required monthly activity reports electronically.

Result of Analysis. Benefits likely outweigh costs for implementing all proposed changes.

Estimated Economic Impact. Currently, ABC requires licensees to have records available for its agents to examine at any time between the hours of 9 a.m. to 5 p.m. and to provide records for examination within 24 hours if ABC requests them during any other times. ABC now proposes to amend this requirement so that licensees may store records off premises so long as they are electronically viewable during the hours set forth in current regulation. Licensees will likely benefit from this change as it allows them greater flexibility as to how and where they store records.

Current regulations require banquet and special event licensees to file reports with ABC no later than 30 days after their licensed event. ABC proposes to extend that time frame to 90 days. Licensees will benefit from having the extra time to file their reports. ABC does not believe that allowing more time to file reports will harm any affected entity so benefits likely outweigh costs for this proposed change.

Current regulations allow beer and wine manufacturers to take certain actions during conventions, trade association gatherings and alcohol educational programs such as tastings or research activities. They may, for instance, host an event at, and/or donate alcoholic beverages to, such gatherings. ABC now proposes to allow alcoholic beverage importers, bottlers, brokers and wholesalers to also host events or donate alcoholic beverages as manufacturers do. Affected licensees will benefit from increased freedom to take part in activities that may result in greater name recognition and, presumably, greater future income for their businesses.

Current regulations allow lesser penalties for first time offences that are committed by any licensee but are silent as how this applies to individuals or business entities who own more than one business where alcohol beverages are sold. ABC proposes to add language that specifies that each business location counts as a separate licensee for the purposes of determining penalties. ABC representatives report that this language change reflects how current regulations are already enforced but adding this language to regulation will bring the benefit of added clarity for affected entities.

Current regulations require shipper and retailer licensees to file monthly activity reports. ABC proposes to specify that reports may be filed electronically or in paper form. This change will allow licensee greater flexibility in how they meet their regulatory requirements and may slightly lower their reporting costs (copying costs and postage) if they have the capacity to file reports electronically.

Businesses and Entities Affected. ABC reports that approximately 15,000 businesses would be potentially affected by these proposed regulatory changes; 70% of these entities would meet the Commonwealth's definition of small business.

Localities Particularly Affected. No locality will be particularly affected by this proposed regulatory action.

Projected Impact on Employment. This proposed regulatory action is unlikely to have any effect on employment in the Commonwealth.

Effects on the Use and Value of Private Property. These proposed regulatory changes are unlikely to affect the use or value of private property in the Commonwealth.

Small Businesses: Costs and Other Effects. No small business is likely to incur any costs on account of this regulatory action.

Small Businesses: Alternative Method that Minimizes Adverse Impact. No small business is likely to incur any costs on account of this regulatory action.

Real Estate Development Costs. This regulatory action will likely have no effect on real estate development costs in the Commonwealth.

Legal Mandate. The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Administrative Process Act and Executive Order Number 14 (10). Section 2.2-4007.04 requires that such economic impact analyses include, but need not be limited to, the projected number of businesses or other entities to whom the regulation would apply, the identity of any localities and types of businesses or other entities particularly affected, the projected number of persons and employment positions to be affected, the projected costs to affected businesses or entities to implement or comply with the regulation, and the impact on the use and value of private property. Further, if the proposed regulation has adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include (i) an identification and estimate of the number of small businesses subject to the regulation; (ii) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the regulation, including the type of professional skills necessary for preparing required reports and other documents; (iii) a statement of the probable effect of the regulation on affected small businesses; and (iv) a description of any less intrusive or less costly alternative methods of achieving the purpose of the regulation. The analysis presented above represents DPB's best estimate of these economic impacts.

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

Summary:

The Alcoholic Beverage Control Board proposes to amend its regulations to (i) allow licensees to store records off site; (ii) allow banquet and special event licensees 90 days to file required reports; (iii) add importers, bottlers, brokers, and wholesalers to the list of licensees who are permitted to host events at and donate their products to conventions or educational events; (iv) clarify that each establishment is considered a separate licensee even in cases where one entity owns multiple establishments; and (v) allow licensees to file required monthly activity reports electronically.

3VAC5-70-90. Records to be kept by licensees generally; additional requirements for certain retailers; "sale" and "sell" defined; gross receipts; reports.

A. All licensees shall keep complete, accurate and separate records at the licensee's place of business for a period of two years. The records shall be available for inspection and copying by any member of the board or its special agents during reasonable hours. Licensees may use microfilm, microfiche, disks, or other available technologies for the storage of their records, and may store them off site, provided the records so stored are readily subject to retrieval and made available for viewing on a screen or in hard copy by the board or its special agents at the licensed premises between the hours of 9 a.m. and 5 p.m. At any other time of day, if the licensee's records are not available for inspection, the licensee shall provide the records to a special agent of the board within 24 hours after a request is made to inspect the records.

The board and its special agents shall be allowed free access during reasonable hours to every place in the Commonwealth where alcoholic beverages are manufactured, bottled, stored, offered for sale or sold, for the purpose of examining and inspecting all records, invoices and accounts therein.

"Reasonable hours" shall be deemed to include all business hours of operation and any other time at which there exists any indication of activity upon the licensed premises.

B. All licensed manufacturers, bottlers or wholesalers of alcoholic beverages shall keep a complete, accurate and separate record of all alcoholic beverages manufactured, bottled, purchased, sold or shipped by him. Such records shall show the quantities of all such alcoholic beverages manufactured, bottled, purchased, sold or shipped by him; the dates of all sales, purchases, deliveries or shipments; the names and addresses of all persons to or from whom such sales, purchases, deliveries or shipments are made; the quantities and kinds of alcoholic beverages sold and delivered or shipped and the prices charged therefor and the taxes applicable thereto, if any. Every manufacturer and wholesaler, at the time of delivering alcoholic beverages to any person, shall also prepare a duplicate invoice showing the date of delivery, the quantity and value of each delivery and the name of the purchaser to whom the delivery is made.

C. Every retail licensee shall keep complete, accurate and separate records, including invoices, of the purchases and sales of alcoholic beverages, food and other merchandise. The records of alcoholic beverages shall be kept separate and apart from other records and shall include all purchases thereof, the dates of such purchases, the kinds and quantities of alcoholic beverages purchased, the prices charged therefor and the names and addresses of the persons from whom purchased.

Additionally, each retail licensee shall keep accurate accounts of daily sales, showing quantities of alcoholic beverages, food, and other merchandising sold and the prices charged therefor.

D. In addition to the requirements of subsections A and C of this section, mixed beverage restaurant licensees shall keep records of all alcoholic beverages purchased for sale as mixed beverages and records of all mixed beverage sales. The following actions shall also be taken:

1. On delivery of a mixed beverage restaurant license by the board, the licensee shall furnish to the board or its special agents a complete and accurate inventory of all alcoholic beverages currently held in inventory on the premises by the licensee; and

2. Once a year, each licensee shall submit on prescribed forms to the board an annual review report. The report is due within 30 days after the end of the mixed beverage license year and shall include:

a. A complete and accurate inventory of all alcoholic beverages purchased for sale as mixed beverages and held in inventory at the close of business at the end of the annual review period;

b. An accounting of the annual purchases of food, nonalcoholic beverages and alcoholic beverages, including alcoholic beverages purchased for sale as mixed beverages, and miscellaneous items; and

c. An accounting of the monthly and annual sales of all merchandise specified in subdivision 2 b of this subsection.

E. The terms "sale" and "sell" shall include exchange, barter or traffic, or delivery made otherwise than gratuitously, by any means whatsoever, of mixed beverages and other alcoholic beverages, and of meals or food.

F. In determining "gross receipts from the sale of food" for the purposes of § 4.1-210 of the Code of Virginia, a licensee shall not include any receipts for food for which there was no sale, as defined in this section. Food which is available at an unwritten, non-separate charge to patrons or employees during Happy Hours, private social gatherings, promotional events, or at any other time, shall not be included in the gross receipts. Food shall include hors d'oeuvres.

If in conducting its review pursuant to § 4.1-114 of the Code of Virginia, the board determines that the licensee has failed or refused to keep complete and accurate records of the amounts of mixed beverages or other alcoholic beverages sold at regular prices, as well as at all various reduced and increased prices offered by the licensee, the board may calculate the number of mixed drinks and other alcoholic beverage drinks sold, as determined from purchase records, and presume that such sales were made at the highest posted menu prices for such merchandise.

G. Any changes in the officers, directors or shareholders owning 10% or more of the outstanding capital stock of a corporation shall be reported to the board within 30 days; provided, however, that corporations or their wholly owned subsidiaries whose corporate common stock is publicly traded and owned shall not be required to report changes in shareholders owning 10% or more of the outstanding capital stock.

H. All banquet and special event licensees in charge of public events shall report to the board the income and expenses associated with the public event on a form prescribed by the board when the licensee engages another person to organize, conduct or operate the event on behalf of the licensee. Reports shall be made within 30 90 days after the date of each event. "Public events" shall be deemed to include any event at which alcoholic beverages are sold to the general public and not only to personally invited guests.

All applicants for banquet or special event licenses shall indicate at the time of application whether the event is open to the public and whether another person has been or will be engaged to organize, conduct or operate the event on behalf of the licensee. If the applicant indicates that the event is open to the public and another person has been or will be engaged to organize, conduct or operate the event on behalf of the licensee, the applicant shall attach a copy of any contract between the applicant and such other person to the license application.

3VAC5-70-100. Gifts of alcoholic beverages generally; exceptions; wine and beer tastings; taxes and records.

A. Gifts of alcoholic beverages by a licensee to any other person are prohibited except as otherwise provided in this section or as provided in §§ 4.1-119 G, 4.1-201, 4.1-201.1, 4.1-205, 4.1-209, 4.1-325, and 4.1-325.2 of the Code of Virginia.

B. Gifts of alcoholic beverages may be made by licensees as follows:

1. Personal friends. Gifts may be made to personal friends as a matter of normal social intercourse when in no wise a shift or device to evade the provisions of this section.

2. Samples. A wholesaler may give a retail licensee a sample serving or a container not then sold by such licensee of wine or beer, which such wholesaler otherwise may sell to such retail licensee, provided that in a the case of containers, the container does not exceed 52 fluid ounces in size (1.5 liters if in a metric-sized container) and the label bears the word "Sample" in lettering of reasonable size. Such samples may not be sold. For good cause shown the board may authorize a larger sample container.

3. Hospitality rooms; conventions. A person licensed to manufacture wine or beer may The following activities are permitted:

a. Give A brewer or vintner may give samples of his products to visitors to his winery or brewery for consumption on premises only in a hospitality room approved by the board, provided the donees are persons to whom such products may be lawfully sold; and

b. Host A manufacturer, importer, bottler, broker, or wholesaler may host an event at conventions of national, regional or interstate associations or foundations organized and operated exclusively for religious, charitable, scientific, literary, civil affairs, educational or national purposes upon the premises occupied by such licensee, or upon property of the licensee contiguous to such premises, or in a development contiguous to such premises, owned and operated by the licensee or a wholly owned subsidiary.

4. Conventions; educational programs, including wine and beer alcoholic beverage tastings; research; licensee associations. Licensed manufacturers Manufacturers, importers, bottlers, brokers, and wholesalers may donate beer or wines alcoholic beverages to:

a. A convention, trade association or similar gathering, composed of licensees and their guests, when the alcoholic beverages donated are intended for consumption during the convention;

b. Retail licensees attending a bona fide educational program relating to the alcoholic beverages being given away;

c. Research departments of educational institutions, or alcoholic research centers, for the purpose of scientific research on alcoholism;

d. Licensed manufacturers and wholesalers may donate wine to official Official associations of wholesale wine licensees alcoholic beverage industry members when conducting a bona fide educational program concerning wine alcoholic beverages, with no promotion of a particular brand, for members and guests of particular groups, associations, or organizations.

5. Conditions. Exceptions authorized by subdivisions 3 b and 4 of this subsection are conditioned upon the following:

a. That prior written notice of the activity be submitted to the board describing it and giving the date, time and place of such; and

b. That the activity be conducted in a room or rooms set aside for that purpose and be adequately supervised.

C. Wine and beer wholesalers may participate in a wine or beer tasting sponsored by a gourmet shop licensee for its customers and may provide educational material, oral or written, pertaining thereto, as well as participate in the pouring of such wine or beer.

D. Any gift authorized by this section shall be subject to the taxes imposed on sales by Title 4.1 of the Code of Virginia, and complete and accurate records shall be maintained.

3VAC5-70-150. Wholesale alcoholic beverage sales; winery and brewery discounts, price-fixing; price increases; price discrimination; inducements.

A. No winery as defined in § 4.1-401 or brewery as defined in § 4.1-500 of the Code of Virginia shall require a wholesale licensee to discount the price at which the wholesaler shall sell any alcoholic beverage to persons holding licenses authorizing sale of such merchandise at retail. No winery, brewery, bottler or wine or beer importer shall in any other way fix or maintain the price at which a wholesaler shall sell any alcoholic beverage.

B. No winery as defined in § 4.1-401 or brewery as defined in § 4.1-500 of the Code of Virginia shall increase the price charged any person holding a wholesale license for alcoholic beverages except by written notice to the wholesaler signed by an authorized officer or agent of the winery, brewery, bottler or importer which shall contain the amount and effective date of the increase.

No increase shall take effect prior to 30 calendar days following the date on which the notice is postmarked; provided that the board may authorize such price increases to take effect with less than the aforesaid 30 calendar days' notice if a winery, brewery, bottler or importer so requests and demonstrates good cause therefor.

The provisions of this subsection shall not apply in any case where the importer required to provide notice of a price increase and the wholesaler to whom notice is to be provided are the same person.

C. No winery as defined in § 4.1-401 or brewery as defined in § 4.1-500 of the Code of Virginia shall discriminate in price of alcoholic beverages between different wholesale purchasers and no wholesale wine or beer licensee shall discriminate in price of alcoholic beverages between different retail purchasers except where the difference in price charged by such winery, or brewery or wholesale licensee is due to a bona fide difference in the cost of sale or delivery, or where a lower price was charged in good faith to meet an equally low price charged by a competing winery, or brewery or wholesaler on a brand and package of like grade and quality. Where such difference in price charged to any such wholesaler or retail purchaser does occur, the board may ask and the winery, or brewery or wholesaler shall furnish written substantiation for the price difference.

D. No person holding a license authorizing the sale of alcoholic beverages at wholesale or retail shall knowingly induce or receive a discrimination in price prohibited by subsection C of this section.

3VAC5-70-210. Schedule of penalties for first-offense violations.

A. Any licensee charged with any violation of board regulations or statutes listed below, if the licensee has no other pending charges and has not had any substantiated violations of regulation or statute within the three years immediately preceding the date of the violation, may enter a written waiver of hearing and (i) accept the period of license suspension set forth below for the violation, or (ii) pay the civil charge set forth below for the violation in lieu of suspension. In the case of a violation involving the sale of beer, wine, or mixed beverages to a person at least 18 but under 21 years of age, or to an intoxicated person, or allowing consumption of such beverages by such person, any retail licensee that can demonstrate that it provided alcohol seller/server training certified in advance by the board to the employee responsible for such violation within the 12 months immediately preceding the alleged violation may accept the lesser period of license suspension or pay the lesser civil charge listed below for the violation in lieu of suspension. Any notice of hearing served on a licensee for a violation covered by this section shall contain a notice of the licensee's options under this section. Any licensee who fails to notify the board of its intent to exercise one of the options provided for under this section within 20 days after the date of mailing of the notice of hearing shall be deemed to have waived the right to exercise such options and the case shall proceed to hearing. For good cause shown, the board may, in its discretion, allow a licensee to exercise the options provided for under this section beyond the 20-day period.