PROPOSED RULEMAKING
LIQUOR CONTROL BOARD
[40 PA. CODE CH. 13]
Promotion with Licensees
[52 Pa.B. 3318]
[Saturday, June 11, 2022]The Liquor Control Board (Board), under the authority of sections 207(i) and 208(j) of the Liquor Code (47 P.S. §§ 2-207(i) and 2-208(j)), proposes to amend §§ 13.81 and 13.231 (relating to samples of liquor; and general provisions) to read as set forth in Annex A.
Summary
This proposed rulemaking is part of the Board's ongoing process to update its regulations by updating the process by which licensed vendors may promote products with licensees. This proposed rulemaking adds language to clarify what is required of the regulated community, expands the monthly amount of liquor that can be used for promotion and adjusts the cost of promotional product to be consistent with the Liquor Code. This proposed rulemaking also eliminates certain procedures and records that the Board no longer considers necessary. Proposed language is added to §§ 13.81 and 13.231 to clarify that only unlicensed consumers may receive samples.
This proposed rulemaking clarifies to whom samples may be given. Licensees and the public often use the words ''tastings'' and ''samples'' interchangeably, but in the Board's regulations, they mean different things:
• A tasting is no larger than a standard-size alcohol beverage, § 13.201 (relating to definitions), although manufacturing licensees can be restricted to even smaller amounts by the Liquor Code. Tastings are consumed at the location where they are given.
• Samples, on the other hand, must be provided in ''unopened containers of the smallest commercially available size,'' as the regulation currently states. § 13.231 (relating to general provisions) (Emphasis added). Also, ''samples may not be opened or consumed on State Liquor Store premises or distributor or importing distributor licensed premises.'' Id.
To reduce confusion over these words, this proposed rulemaking deletes the word ''samples'' from § 13.81. When promoting a product with licensees, licensed vendors shall only be able to provide tastings, not opened or unopened bottles of product.
In subsection (a), the first sentence is proposed to be amended from the negative—''Each agent. . .may not use more than one case''—to the positive: ''Each agent. . .may use up to one case. . .'' Next, the quantity is changed from one case of each brand to one case of each product. The word ''brand,'' in this context, is synonymous with a line or style of products created by a manufacturer or company. The word ''product'' is a specific item within that brand. By changing the word from ''brand'' to ''product,'' the Board is expanding the quantity of items that may be used by licensed vendors for promotion to licensees.
Throughout § 13.81, the word ''licensed'' has been inserted in front of the word ''vendor'' for the sake of clarity. The phrase ''licensed vendor'' is a defined term in § 13.71 (relating to definitions) for this subchapter of the Board's regulations, and it includes ''A licensee holding a Manufacturer or Importer License, or a vendor's permit, and selling liquors to the Board.''
The phrase ''to promote that product to licensees, as that term is defined in § 13.71 (relating to definitions),'' is added to subsection (a) to distinguish the application of this section from § 13.231, which applies to unlicensed consumers.
The second sentence of subsection (a) clarifies that the product must be purchased at a State Liquor Store, if it is available there, or through the Board's special liquor order process, if the product or desired bottle size is not available at a State Liquor Store. The previous calculation of cost is also changed, from the cost price plus 25% to the retail price. It is unclear how ''cost plus 25%'' was developed as it is not found in the Liquor Code. Section 305(b) of the Liquor Code (47 P.S. § 3-305(b)) provides as follows (Emphasis added).
Every Pennsylvania Liquor Store shall sell liquors at wholesale to hotels, restaurants, clubs, and railroad, pullman and steamship companies licensed under this act; and, under the regulations of the board, to pharmacists duly licensed and registered under the laws of the Commonwealth, and to manufacturing pharmacists, and to reputable hospitals approved by the board, or chemists. Sales to licensees shall be made at a price that includes a discount of ten per centum from the retail price; except that special order sales to licensees authorized in subsection (a) shall not be subject to the ten per centum discount. The board may sell to registered pharmacists only such liquors as conform to the Pharmacopoeia of the United States, the National Formulary, or the American Homeopathic Pharmacopoeia. The board may sell at special prices under the regulations of the board, to United States Armed Forces facilities which are located on United States Armed Forces installations and are conducted pursuant to the authority and regulations of the United States Armed Forces. All other sales by such stores shall be at retail, except that incentives, such as coupons or discounts on certain products, may be offered to unlicensed customers of the board as provided under sections 207(m) and 493(24)(ii)(B).The statute does not include licensed vendors in the group of licensees that may purchase at wholesale, meaning a 10% discount from the retail price. Therefore, licensed vendors should pay the retail price.
The third sentence of subsection (a) is proposed to be deleted since this proposed rulemaking now requires the licensed vendor to purchase the promotional product at retail. The fourth sentence of subsection (a) is also proposed to be deleted, since the Board no longer requires a separate order to be placed for each agent. In the fifth sentence of subsection (a), the word ''shall'' replaces the word ''may'' because the Board does not wish to exercise discretion in allowing a licensed vendor to purchase and distribute promotional product to its agents; this activity shall be permitted. The final sentence of subsection (a) is proposed to be deleted, since the Board no longer requires a licensed vendor to file a statement giving the name of the licensed vendor's authorized supervisor, together with the territories and names of all agents under his supervision.
Subsection (b) is proposed to be rewritten to clarify that, for promotion with licensees, agents shall only use product to give tastings, as provided in § 13.211 (relating to tasting events). Agents shall not leave any bottle of product with a licensee, whether opened or unopened. This language is proposed to be added because current § 13.81 does not clearly state that an agent may not leave a bottle of product with a licensee.
Subsection (c) proposes to clarify that the agent is required to label each bottle. It is no longer necessary for the bottles to be labeled before leaving the State Store, the bottles must simply be labeled before the agent promotes the product with a licensee. The language of the label has been updated, replacing the word ''Sample'' with ''For tastings only.''
The first sentence of subsection (d) is proposed to be amended to bring the recordkeeping requirement of the licensed vendor into alignment with recordkeeping required of other licensees. The phrase ''in hard copy or electronic media consistent with generally accepted accounting procedures, for a period of at least 2 years'' is also used in §§ 5.101 and 9.13 (relating to breweries; and records and reports). The type of information that must be kept is proposed to be amended to be consistent with the changes made to subsection (a) in that the word ''brand'' is changed to ''products.'' The remainder of subsection (d) is proposed to be deleted as the Board no longer requires this information.
Section 13.231 is proposed to be renamed ''Samples for unlicensed consumers,'' to clarify that samples may be given to unlicensed consumers. The first sentence of subsection (a) is proposed to be amended by adding the word ''only'' to further strengthen the understanding that samples may only be given to unlicensed consumers. The second sentence of subsection (a) is proposed to be deleted since this proposed rulemaking eliminates the permissibility of allowing a licensed vendor to give samples of product to licensees.
Affected Parties
The affected parties include all manufacturing and importing licensees of liquor, including wine, as well as any vendor permittees. As of May 3, 2022, there are approximately 250 licensed vendors that could be affected by this proposed rulemaking. However, note that there are a significant number of manufacturers that get their product into this Commonwealth through the Board or an importer but are not licensed by the Board, such as out-of-State manufacturers. Since these entities are not licensed by the Board, it is difficult to quantify how many there are, let alone how large or small they are, and therefore the Board does not have enough information to evaluate the small business status of all entities that will be affected by this proposed rulemaking.
Paperwork Requirements
This proposed rulemaking would not require any additional paperwork to be filed. On the contrary, this proposed rulemaking eliminates existing paperwork requirements that the Board no longer deems necessary.
Fiscal Impact
This proposed rulemaking changes the cost of promotional product for licensed vendors, from the cost price to the Board plus 25% to the retail price, since there is no basis in the Liquor Code for charging a licensed vendor ''cost plus 25%.'' The Board analyzed a list of new products, introduced in September 2021 and October 2021, that were all 750 milliliters in size. The list excluded products that were identified as Luxury or Holiday products. Of the products the Board analyzed, the change in price from cost plus 25% to retail price resulted in an average increase of $5.81 per unit, with a mean of $5.60 per unit. However, licensed vendors have complete control over what and how much product to offer retail licensees in promotion—within the size restrictions set forth in § 13.211—and therefore can mitigate whatever fiscal impact might occur because of the change in pricing. A change in cost to suppliers for lawfully procuring promotional product can also likely be offset by profits derived from future sales of the products for which the product is being used.
Effective Date
This proposed rulemaking will become effective upon final-form publication in the Pennsylvania Bulletin.
Public Comments
Interested persons are invited to submit written comments about this proposed rulemaking to Rodrigo Diaz, Chief Counsel, Jason M. Worley, Deputy Chief Counsel, or Norina Foster, Assistant Counsel, Office of Chief Counsel, Liquor Control Board, Room 401, Northwest Office Building, Harrisburg, PA 17124-0001, or RA-lblegal@pa.gov, within 30 days after publication of this proposed rulemaking in the Pennsylvania Bulletin. E-mail is preferred. When commenting, individuals should indicate if they wish to be apprised of future developments regarding this proposed rulemaking, and include a name, address and e-mail address. Comments submitted by facsimile will not be accepted.
Public comments will be posted on the Independent Regulatory Review Commission's (IRRC) web site. Personal information will not be redacted from the public comments received.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P.S. § 745.5(a)), on May 24, 2022, the Board submitted a copy of this proposed rulemaking and a copy of a Regulatory Analysis Form to IRRC and to the Chairpersons of the House Liquor Control Committee and Senate Committee on Law and Justice. A copy of this material is available to the public upon request.
Under section 5(g) of the Regulatory Review Act, IRRC may convey comments, recommendations or objections to the proposed rulemaking within 30 days of the close of the public comment period. The comments, recommendations or objections must specify the regulatory review criteria in section 5.2 of the Regulatory Review Act (71 P.S. § 745.5b) which have not been met. The Regulatory Review Act specifies detailed procedures for review prior to final publication of the rulemaking by the Board, the General Assembly and the Governor.
TIM HOLDEN,
ChairpersonFiscal Note: 54-96. No fiscal impact; (8) recommends adoption.
Annex A
TITLE 40. LIQUOR
PART I. LIQUOR CONTROL BOARD
CHAPTER 13. PROMOTION
Subchapter B. MARKETING BY VENDORS AND AGENTS; SPECIAL ORDERS; LUXURY ITEM ORDERS; [SAMPLES] PROMOTION WITH LICENSEES AND UNLAWFUL ACTS § 13.81. [Samples of liquor] Promotion with licensees.
(a) Each agent of a licensed vendor may [not use more than] use up to one case of each [brand] product of liquor sold by the licensed vendor to promote that product to licensees, as that term is defined in § 13.71 (relating to definitions), during any calendar month. The [samples] product shall be purchased only through the Board, at a State Liquor Store, if the product is available for purchase at a State Liquor Store, or through the Board's special liquor order purchase process, if the product or desired bottle size is not available for purchase at a State Liquor Store, at [a sum equal to the cost price to the Board plus 25% and] the retail price plus any required taxes. [The purchase of samples at retail in any State Store is prohibited. A separate order for samples shall be placed for each agent, and the name of the agent shall appear on the order.] The licensed vendor (or the licensed vendor's authorized supervisor) [may] shall be permitted to purchase and distribute the product to [the vendor's agents the prescribed allotment for all] agents under the licensed vendor's supervision. [The vendor shall, upon request, file with the Board a statement giving the name of the vendor's authorized supervisor, together with the territories and names of all agents under his supervision.]
(b) [The samples described in subsection (a) shall be restricted in size to half pints of distilled spirits, and to half bottles or smaller sizes of wine, except when operating conditions do not permit supplying the sizes, in which cases the Board may, upon proper application setting forth satisfactory reasons, permit the use of other sizes as samples] [Reserved].
(b.1) For promotion with licensees, agents shall only use product to give tastings, as provided in § 13.211 (relating to tasting events). Agents may not leave any bottle of product with a licensee, whether opened or unopened.
(c) [Sample bottles, before leaving the State Liquor Store, shall have affixed thereto] The agent shall affix to each bottle, before promoting the product with a licensee, a separate label, or lettering on the commercial label, at least 1/4 inch high, reading: ''[Sample] For tastings only. Not to be sold. Possession of this bottle by licensee unlawful.''
(d) Each licensed vendor shall keep, in hard copy or electronic media consistent with generally accepted accounting procedures, for a period of at least 2 years, a [permanent stock ledger] record of all [the] bottles purchased [by him], the names of the agents to whom samples were issued, and the quantity and [brand. Each authorized supervisor of a vendor shall keep in his office in this Commonwealth a permanent stock ledger record of all samples purchased and distributed by him to his agents as provided in this section. A requisition shall be prepared for each package removed from sample stock, bearing the signature of the agent receiving the merchandise] products.
Subchapter E. SAMPLES § 13.231. [General provisions] Samples for unlicensed consumers.
(a) Samples may be provided by manufacturers or their representatives, licensed distributors and importing distributors only to unlicensed [customers. Samples of liquor to licensed customers shall conform to § 13.81 (relating to samples of liquor)] consumers.
(b) Samples shall be in unopened containers of the smallest commercially available size.
(c) Providing samples may not be conditioned upon any purchase requirement.
(d) Samples may not be opened or consumed on State Liquor Store premises or distributor or importing distributor licensed premises.
(e) Samples are limited to one container per patron in any offering.
[Pa.B. Doc. No. 22-851. Filed for public inspection June 10, 2022, 9:00 a.m.]
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