With the summer travel season upon us, I\’ve just updated an earlier article on \”Bringing Wine Back to Canada After a Trip\”. This article explains the duty-free allowances for wine as well as the extra charges and fees that you may have to pay at the border if you exceed the duty-free allowance. It also discusses the legal authority for charging these fees and the differences in fees between provinces and other jurisdictions.
I attended the Conference on the European Union – Canada Relationship yesterday in Vancouver which was very well attended by those seeking to determine the scope and impact of a possible EU-Canada Trade Pact for which negotations have just commenced. The EU trade officials made it clear that wine and beer has been a trade irritant in the past and would certainly be included in any trade deal. Indeed, the EU\’s chief negotiator, Mauro Petriccione, made it clear that \”when we say the agreement will be comprehensive, we mean it\”. The negotiations are hoping to conclude a deal within 2 years.
The impact of the negotiations and any prospective trade deal on British Columbia\’s wine industry could be significant for VQA producers as there are currently preferential treatments given to BC VQA wine in respect of both pricing (application of liquor board markup) and distribution within the province. I\’ll write a more in-depth analysis on this subject in due course but there could be problems and issues with both the VQA rebate system and preferential distribution channels. Although the dollar amounts related to these programs are small in the grand scheme of things, they are likely significant to VQA producers.
Governments are facing challenging fiscal situations world-wide. As a result of mounting economic pressures, governments across North America appear to be looking to liquor and wine taxation as a source of increased revenue. In April, Alberta raised its provincial markups (hidden taxes) on all forms of liquor. The U.S. federal government is exploring the idea of taxes on wine, liquor and sugary soft drinks. California has debated this issue prior to almost every state budget recently. And the latest salvo comes from New Jersey where that state is proposing to increase liquor taxes by about 25%.
Which of course brings us to BC and the newly re-elected Liberal government. Unfortunately for the Liberals, there is basically no room for increasing revenue within the current system. BC already has the highest wine taxes and prices in North America and the highest in the world in any significant wine producing region. Liquor sales in BC were down significantly by both volume and price in the last quarter. That trend is excessive compared to other neighbouring jurisdictions and could be a harbinger of growing problems of evasion for an uncompetitive system.
In my view, the government should be taking a serious look at overhauling the current system so that we can have a liquor distribution and revenue structure worthy of the 21st century. Here\’s some food for thought: the Alberta and BC governments generated almost exactly the same amount of per capita revenue from liquor even though the Alberta system is privatized and has lower prices. And that was BEFORE the recent increase in Alberta markups. Maybe BC should consider systemic reform if it wants to maintain or increase its liquor revenue.
Interesting article this morning out of Washington, D.C. indicating that the U.S. federal government is proposing to dramatically increase federal taxes on all forms of liquor (as well as on soft drinks made with sugar) in order to pay for health care for about 50 million uninsured Americans. The proposed taxes would add 49 cents to a bottle of wine and 48 cents to a six pack of beer.
One of British Columbia\’s neighbours, Washington State, is reforming many aspects of its winery and wine distribution laws in Bill 2040 which resulted from hearings of a Joint Select Committee from both the state senate and house. The Bill has now been signed into law by the Governor. The bill is multi-faceted: it removes \”tied house\” restrictions so that the owners of a retail establishment serving liquor such as a hotel or restaurant could also invest in a winery (previously prohibited). It also reforms many, but not all, aspects of state distribution laws which were the subject of a long running legal battle between Costco and the state. These include elimination of both the required 10% markup by distributors and the \”post and hold\” requirement which restricted changes to the prices of beer and wine. Costco, however, has indicated that it will seek further changes \”to bring the beer and wine regulations into the 21st century\”.
Maybe it\’s time for similar reform here in B.C.? After all, our laws are even more archaic than Washington state\’s. If you agree, please contact your MLA and express your support for wine law reform.
Washington state originally had a state control liquor system similar to BC. Washington stands as an interesting contrast to BC because at one point, Washington\’s state control system was similar to BC\’s current one in that all imported product was marked up substantially and had to be sold through government stores. Washington wineries, however, escaped the markups and could sell through other channels. Consumers were supposed to only purchase through the government system and were required to pay markup on any imported wine brought back into the state (much like BC\’s current laws). Of course, in the U.S., it was not that difficult to circumvent the system by ordering or purchasing wine in another state at a lower cost and then bringing it back to Washington.
Eventually, after some prosecutorial blunders by the liquor board, public pressure forced the Washington state government to reform the system. Reform has resulted in nearly all wine and beer now being sold through private retailers. A network of state liquor stores has been maintained with a continued monopoly over the sale of spirits and a small portion of annual wine sales. Taxes are, of course, much lower in Washington than in BC so prices are also lower.
Following up on an item in my most recent newsletter, there is an excellent article on the current state of Canadian wine shipping laws in today\’s Globe and Mail. Beppi Crosariol provides an update on efforts to reform our archaic prohibition era laws. At the present time, the Canadian Vintners Association is attempting to convince CALJ (the Canadian Association of Liquor Jurisdictions – i.e. the provincial liquor boards) that reform is in everyone\’s best interest. In my view, reform is imperative at this time. The current Canadian laws are susceptible to challenge on numerous legal grounds and it is in both the industry\’s best interest and consumers\’ best interests for the system to be reformed.
A new legal analysis by a prominent Toronto lawyer, Ian Blue Q.C. (of Cassels Brock Blackwell LLP) has concluded that the Importation of Intoxicating Liquors Act (IILA) is likely unconstitutional. The IILA is the federal law that was passed immediately after prohibition and which effectively gives each of the provincial liquor boards their monopoly over the distribution of wine (and other alcohol) and which also prevents both consumers and wineries from shipping or bringing wine across provincial borders (see this article for the history of BC liquor laws).
Mr. Blue\’s article, On the Rocks? Section 121 of the Constitution Act, 1867, and the Constitutionality of the Importation of Intoxicating Liquors Act, has just been published in the April 2009 issue of the Advocates Quarterly at p. 306. The article traces the history of the IILA and provides a thorough analysis of the limited case law that has considered it over the years. Mr. Blue concludes that the previous case law (most of it very old) is not in line with a contemporary interpretation of constitutional provisions and probably would not be followed: \”[w]hen the IILA is tested against a purposive [contemporary] interpretation of s.121, it obviously violates it, leading to the conclusion that the IILA is probably unconstitutional\”.
This article provides ample food for thought. If the IILA was found to be unconstitutional (which could only happen if the matter was brought before a court), the provincial liquor boards would lose their ability to prevent inter-provincial trade in wine (and other alcohol). In other words, they would be forced to compete against one another. In B.C., that result would probably be good for consumers since we have some of the highest wine and liquor markups in the country. In addition, it seems likely that such a determination would be a catalyst for a general change in liquor regulation across the country.
Please contact me if you would like further information on this issue.
Effective April 8, 2009, the Alberta Government (through the AGLC – the Alberta liquor board) has increased the markup rates that apply to all alcohol flowing through their system. While Alberta has a privatized retail system, all product still technically flows through the government distributor which applies government markup (tax) to everything. The rate changes will increase the markup by $0.75 to $3.34 on a 750 ml bottle ($4.45 per litre). These increases are projected to add $180 million to general government revenue in the next fiscal year. The rate increases are very hefty percentage wise. Because the markup is per bottle, the impact is greatest on lower priced product and diminishes percentage wise as the bottle price increases. In addition, because the system is privatized, it remains to be seen how much of the increases will be passed on to consumers and how much will be absorbed by the retailers/distributors. See the AGLC website for details and a full markup schedule (PDF). The increases will not apply to stock currently in the system so Albertans may be wise to visit their nearest wine store quickly, particularly if they like drinking lower priced wine.
As is often the case, first the good news. For wineries, good news arrived as the federal government removed a 3% tarriff on barrels. This will reduce the cost to wineries for new barrels by about $30 each, a small amount but every little bit helps given the escalating cost of barrels. Read the story here: Canada Drops Wine Barrel Tariff.
Bad news for agents and wineries exporting wine to British Columbia. The BC LDB and the CRA have been reviewing the reporting process for GST which the LDB has been using for many years. Previously, the LDB reported the GST credits as the notional importer of all wine entering British Columbia. As a result, agents and wineries outside Canada did not have to register for GST. The CRA\’s position is that this procedure is incorrect and that from a date to be determined (perhaps October 1st) either the foreign winery will have to report the credits and register for GST or the agent will have to take possession of the wine before it arrives in Canada and do the reporting. This is obviously a huge change and will impose monumental administrative and reporting requirements on a business that runs on slim margins to begin with.
Our companion site, Free the Wine, was featured in an op/ed piece by Mark Hicken, of WineLaw.ca and the Executive Director of the Free the Wine Coalition, \”It\’s time to get B.C. wine regulations out of the dark ages\” in the Vancouver Sun today (Thursday, March 12). If you support the objectives of wine law reform and lower taxation rates on wine, please join Free the Wine. Most importantly, do not forget to contact your MLA. Thanks for your help!