HEARING ON HOUSE BILL 429, WINE LEGISLATION
House of Representatives, Consumer Protection Committee
May 2, 2007

Special to juliehamos.org
June 19, 2007

Representative Lang: I’m sure that everyone on the committee is aware that there was a US Supreme Court Case that had great impact on the sale and distribution of wine in the state of IL and many other states. As a result of that a year ago many people came to the table to figure out how to best deal with the system we have in IL in light of that Supreme Court Case. After long and hard and almost fruitful conversation almost a year ago, nothing happened, and the parties went back to the table this year.

And representatives from the Associated Beer Distributors, the Wine and Spirits Distributors of IL, the Wine Institute and Illinois Grape Grove and Vendors Association along with the IL Retail Merchants Association sat down and agreed on Amendment 2. This is an agreement between all the parties who were involved in the debate for over a year. This amendment will replace regulatory guidelines on the uncontrolled and unregulated shipment of wine to consumers; it will comply with the Supreme Court case. Further, it will permit all in-state and out-of-state wineries that produce less than 25,000 gallons to self-distribute up to 5,000 gallons of their wines directly to retailers. The amendment gives consumers a greater selection of wines, probably at lower prices, since this amendment would allow all states even those states who are not reciprocal states to ship directly to consumers. Under this amendment, any consumer in IL that wished to buy wine directly from a winery in America could do so, from the internet or any other way. In my view this is an excellent compromise, an excellent agreement, and I would ask your support

Representative Hamos: Ladies and gentleman of the Committee, I come to the Consumer Protection Committee representing consumers because I heard about this issue from consumers, my constituents. I didn’t know a thing about it a year ago, but I did take some time to try to understand their wine purchasing habits. And, what I found a year ago, and I have tried to inject myself into conversations for a year, is that consumers today are buying wine from stores, from catalogues, on the internet, lots of ways. Sometimes they buy from wineries or they buy it from what I think of as “everybody else,” who are retailers, in-state or out-of-state stores, sometimes they’re brokers, sometimes they are auction houses, online sellers. They come in different forms, but they are selling wine to our consumers. Our consumers are using the modern tool of commerce, which is the internet, to do this. For the last 15 years since we’ve had a reciprocity agreement they have been able to do this legally from all over the country where we have reciprocity agreements and they have been able to buy their wine on the internet. The internet, of course, became a blooming force of commerce in the last 15 years. Amendment 2 prohibits consumers from continuing to do that if that “everybody else” retailer is out-of-state.

Now Amendment 2 suffers from an additional problem which is that in an attempt to bring in IRMA over the past year, there is now a special provision for in-state retailers, which is basically that they don’t even need to get a shipper’s license and can ship directly to our consumers. I’m not objecting to that. I’d like to make shipments from retailers both in- and out-of-state available as well. But, what has happened now, is the underlying issue which took this to the US Supreme Court to begin with on an Interstate Commerce Clause issue, treating in-state wineries differently from out-of-state wineries, we are now doing with Amendment 2. We are treating in-state retailers differently than we are treating out-of-state retailers and there will be litigation five minutes after we pass this bill. There’s already litigation like this in other states. On the one hand, it’s not good for consumers. On the other hand, it’s not. I don’t believe, a constitutional bill at the moment; I think the underlying bill was more constitutional than Amendment 2.

Now, having said that, there is just one more thing I would add. Now, if we were to allow retailers to ship in-state and out-of-state retailers to ship to consumers – remember these are small, direct shipments, 12 cases a year – then it would also bring it under the regulatory arm of the state, including regulation and taxation. So, this is not only good for consumers, but I believe it is also good for the state to allow those shipper’s licenses because it does then regulate those out-of-state shipments and make them subject to taxation. This particular bill that Representative Lang is sponsoring will actually prohibit something in the year 2007 that consumers have been able to do legally for 15 years.

Committee Chair: Any questions from the committee?

Representative Hamos: I think it is important to get clarification from either the Liquor Commission or from IRMA that in fact my interpretation of Amendment 2 is correct: that under Amendment 2, which the committee and the industry seems to support even before taking a vote, that my interpretation is correct. That it would be interpreted to be illegal for out-of-state retailers to ship to IL consumers. I really would ask somebody to come up and explain that.

Mr. Jerry Rosen, Executive Director of Beverage Retailers Alliance of IL, representing family owned retailers throughout the state: I apologize for my inappropriate attire today, but I found out about this meeting late yesterday and I live in east central IL and I was in Chicago when I got the news, so in order to get here for the 9:00 AM meeting I came the way I was. The very first thing is that we are talking about the Granholm Supreme Court case that dealt specifically with wineries. We are discussing now retailers. I took a logic course in college and the very first class they gave us an example of faulty logic. A dog is an animal. A cat is an animal. Therefore a dog is a cat. Well, this faulty logic is being applied here in that a winery can sell wine to a consumer. A retail store can sell wine to a consumer. Therefore a retail store is a winery. That’s not the case.

Also, in the Granholm Supreme Court case they reaffirmed this three-tier system in that every state had the right to make its own liquor laws pertaining to is own specifications. The only thing they were arguing about is that it should be the same for out-of-state as in-state. The state of IL has the right to make laws and it has the law that liquor licensing in IL is a local option. And the local option means that every municipality and in the absence of a municipality, a county, has the right to issue the license. And only after the local government issues the license does the state issue the license, not before, only after. This whole retail point of view here that has been presented completely negates that process. It leaves the investigation up to the state. All the investigations presently are made at the local level. Now it goes to the state, which becomes very complicated because you are talking about fingerprinting, running it through the FBI and Homeland Security, and it becomes a major project. These retailers want to pay 50 or 100 bucks to get a license to ship into the 12 million people in IL and the IL retailers are paying $500 for a state license. We are paying anywhere from $750 to $6,000 for a local license and of course we’re paying for all the local taxes.

They would be paying, if they went through with this deal the way it was being presented; they would be paying state taxes at 6.5%. If you look at Chicago, for example, the tax is 9.75%, the rest of that money goes to the city. Of course there’s the ad valorem taxes, the local liquor taxes, of which there is the Chicago tax, the county tax, the Evanston tax, the Naperville tax, all of these liquor taxes would be circumvented by the proposal of letting out-of-state retailers ship into IL. It creates a totally unfair playing field for the existing retailers. And the fact that they’ve been shipping into IL and they’ve been shipping not only wine but liquor and everything else, it’s obviously never been totally legal, it’s been a gray area in the law. And what they’re looking for is a license to legalize bootlegging to put in bluntly. I am saying that we vehemently oppose the proposal to allow out-of-state retailers to ship into IL. And if you have any questions about this, I’ll be happy to answer. I failed to mention that besides being….I’m also an adjunct professor at Roosevelt University in the Hospitality Management Program so I am considered somewhat of an expert on the subject.

Representative Hamos: So you do agree that Amendment 2 makes it illegal for out-of-state retailers to ship into IL?

Rosen: They do not have a license to ship into IL

Representative Hamos: Therefore, it’s illegal, correct?

Rosen: If anybody is enforcing. IL retailers and this has been something that has been a misinformation on the table is that IL retailers have the right to ship anywhere in IL. They are not losing anything, they aren’t gaining anything. All they have is the right they’ve always had. This issue here is that this bill deals with wineries as that’s what at issue. That’s the Granholm case, period. And to try and insert another class of licensee on out-of-state retailers is in appropriate and has nothing to do with that. Its like mixing applies and oranges and coming up with fruit salads.

Representative Hamos: I think these are kind of quaint metaphors, but…

Rosen: Let me try to simplify this a little. So if we were to follow Rep. Hamos’ logic, all retailers from all over the country would be able to ship into IL at a time where IL retailers can only ship into 12 states, but you would have us to go into a situation that while IL retailers can only ship into 12 states, retailers in 49 states would be able to ship into IL.

Representative Hamos: Oh, I bet those 12 states will change their laws pretty quick…

Rosen: Well, that may or may not be the result. But it’s illogical to allow retailers from other states an opportunity to do things that that IL retailers cannot do.

Representative Hamos: Representing consumers…they are using the internet, it’s a tool of commerce. We live in a global economy. This is a protectionist piece of legislation that starts from the industry’s perspective and doesn’t go far enough to understand the consumer’s perspective.

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Any further questions for the committee…

Votes for Amendment 2: 10 votes YES, 1 vote NO (by Rep. Hamos)

Votes for Amendment 3: 1 YES (by Rep. Hamos), 10 NO