HBA-TYH H.B. 124 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 124 By: Keel Licensing & Administrative Procedures 2/9/1999 Introduced BACKGROUND AND PURPOSE In 1995, the Texas wine industry, consisting of 26 wineries, produced one million gallons of wine and $101.9 million. The largest producers in that group typically sell most of their wine through wholesale distributors, while 15 of the smaller wineries who each produce less than 10,000 gallons per year usually do not market through wholesalers. A large portion of their wine is sold at the Grapefest wine festival in Grapevine, Texas. Currently, wineries in dry areas may have tasting rooms, but may not sell their product to consumers. Wineries in wet areas may have tasting rooms and may sell their product directly to consumers for off-premise consumption; however, the sale of wine for on-premise consumption is prohibited. H.B. 124 creates a new category of winery called a farm winery. It allows wineries and farm wineries to hold wine festivals and sell and dispense wine at a wine festival. It allows a winery, farm winery, or wine bottler to furnish certificates of deposit or letters of credit in lieu of all or part of the bond requirement, and sets forth the language to be used in any local option election held to determine whether or not it will be legal to sell wine on the premises of a farm winery. It creates a tax on wine sold for resale, a system to collect the tax, and requires that the revenue generated by the tax be used for research and promotion of the wine industry. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the Texas Department of Agriculture in SECTION 28 (Section 207.09, Alcoholic Beverage Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 11.34(a), Alcoholic Beverage Code, to authorize a farm winery permit applicant to consolidate into a single application all the permits for which the person is eligible under this section. Makes conforming and nonsubstantive changes. SECTION 2. Amends Section 11.39(a), Alcoholic Beverage Code, to make conforming and nonsubstantive changes. SECTION 3. Amends Section 16.01(a), Alcoholic Beverage Code, to authorize a winery permit holder to manufacture and purchase, rather than import, grape brandy for fortifying purposes only and to be used on the holder's licensed premises. Makes conforming and nonsubstantive changes. SECTION 4. Amends Chapter 16, Alcoholic Beverage Code, by adding Section 16.08, as follows: Sec. 16.08. WINE FESTIVALS. Authorizes a winery permit holder, if the event is held on the winery premises, to sell wine to consumers for consumption on or off the holder's premises and to dispense wine without charge for consumption on or off the holder's premises. Authorizes a winery permit holder, if the event is held at a location other than the winery premises, to deliver and dispense wine to individuals attending the event if no charge of any kind is made for the wine, for the delivery of the wine dispensed, or for attendance at the event. Authorizes a winery permit holder to sell wine to appropriate temporary permit holders. SECTION 5. Amends Subtitle A, Title 3, Alcoholic Beverage Code, by adding Chapter 17, as follows: CHAPTER 17. FARM WINERY PERMIT Sec. 17.01. AUTHORIZED ACTIVITIES. (a) Authorizes a farm winery permit holder to manufacture, bottle, label, and package wine containing not more than 24 percent alcohol by volume; manufacture and purchase grape brandy for fortifying purposes only on the permit holder's premises; purchase and import wine only from nonresident sellers holding proper permits or their agents; purchase wine in this state from holders of wholesaler's, winery, farm winery, or wine bottler's permits; bottle, rebottle, label, package, and sell wine to permit holders in this state; sell wine in this state to wholesaler's, winery, farm winery, and wine bottler's permit holders; sell 25,000 gallons of wine annually, at most, to ultimate consumers in unbroken packages for off-premises consumption; sell wine outside this state to qualified persons; blend wines; dispense free wine for consumption on winery premises; sell wine manufactured and bottled on premises for consumer consumption on premises; and sell wine manufactured and bottled under a permit held by the holder for another premises for consumer consumption on the winery premises. (b) Authorizes the farm winery permit holder to manufacture and label a maximum of 50 gallons of wine annually for an adult's personal use. Provides that this amount is included in the annual total amount sold by the holder under Subsection (a) and that the adult for whom wine is manufactured and labeled under this section is not required to hold a license or permit. (c) Authorizes the farm winery permit holder to conduct wine samplings at a retailer's premises. Authorizes an employee of the permit holder to open, touch, or pour wine, make a presentation, or answer questions at a wine sampling. Prohibits holding a wine sampling at a location otherwise prohibited by law. (d) Authorizes the farm winery permit holder to dispense wine for consumption on winery premises under Section 17.07. Sec. 17.02. FEE. Establishes a $300 annual state fee for a farm winery permit. Sec. 17.03. IMPORTATION FOR BLENDING. Authorizes the farm winery permit holder to import grape brandy or wines, for blending purposes only, from holders of nonresident seller's permits. Provides that the state tax on wines imported for blending purposes does not accrue until the wine has been used for blending purposes and the resultant product is ready for sale. Sec. 17.04. FEDERAL PERMIT REQUIRED. Authorizes the granting of a farm winery permit only upon presentation of a winemaker's and blender's basic permit of the federal alcohol tax unit. Sec. 17.05. LOCATION OF PREMISES. Authorizes a farm winery permit to be issued in a dry area. Prohibits the sale of wine in a dry area, except that the permit holder may sell up to 25,000 gallons of wine in Texas annually to permit holders authorized to sell wine to the consumer for off-premises consumption. Authorizes the permit holder to sell wine in Texas to holders of wholesaler's permits, winery permits, and wine bottler's permits. Authorizes the permit holder to bottle, rebottle, label, package and sell wine in Texas to authorized wine retailers. Sec. 17.06. ORGANIZED WINE TASTING COMPETITION. Authorizes a farm winery permit holder to deliver wine manufactured by the holder to a wine tasting, evaluation, competition, or literary review at unlicensed locations for evaluation by unlicensed persons or wine reviewers attending the event, provided that no charge is made for the wine, delivery, or attendance at the event and if the commission consents in writing to the delivery. Authorizes the permit holder to dispense wine to individuals attending such events and discuss with them the manufacture and characteristics of the wine Sec. 17.07. WINE SAMPLING. (a) Authorizes a farm winery permit holder to conduct and charge for wine samplings on the winery premises. (b) Prohibits the advertising of sampling events except through on-site communication or by direct mail. (c) Prohibits persons other than the permit holder or the holder's agent or employee from participating in the dispensing of wine. (d) Authorizes serving more than one sample to a person. Prohibits serving a sample to a minor or to an obviously intoxicated person. (e) Prohibits the recipient of a wine sample from removing the sample from the permitted premises. (f) Provides that a permit holder is not considered to be authorized to sell alcohol for consumption on the premises and is not considered to have received revenue from alcohol sales on the premises during the wine sampling. Sec. 17.08. WINE FESTIVALS. Authorizes a farm winery permit holder, if the event is held on the winery premises, to sell wine to consumers for consumption on or off the holder's premises and to dispense wine without charge for consumption on or off the holder's premises. Authorizes a farm winery permit holder, if the event is held at a location other than the winery premises, to deliver and dispense wine to individuals attending the event if no charge of any kind is made for the wine, for the delivery of the wine dispensed, or for attendance at the event. Authorizes a farm winery permit holder to sell wine to appropriate temporary permit holders. SECTION 6. Amends Section 18.01(2), Alcoholic Beverage Code, to make a conforming change. SECTION 7. Amends Section 19.01(1), Alcoholic Beverage Code, to make a conforming change. SECTION 8. Amends Section 20.01(1), Alcoholic Beverage Code, to make a conforming change. SECTION 9. Amends Sections 21.01(1) and (3), Alcoholic Beverage Code, to make conforming and nonsubstantive changes. SECTION 10. Amends Sections 22.01(1) and (2), Alcoholic Beverage Code, to make conforming and nonsubstantive changes. SECTION 11. Amends Section 24.01(1), Alcoholic Beverage Code, to make a conforming change. SECTION 12. Amends Section 41.05, Alcoholic Beverage Code, to make conforming changes. SECTION 13. Amends Section 42.01(a), Alcoholic Beverage Code, to make conforming and nonsubstantive changes. SECTION 14. Amends Section 42.04(d), Alcoholic Beverage Code, to make a conforming change. SECTION 15. Amends Section 45.03(a), Alcoholic Beverage Code, to make a conforming change. SECTION 16. Amends Section 45.04, Alcoholic Beverage Code, to make conforming changes. SECTION 17. Amends Section 46.03(b), Alcoholic Beverage Code, to make a conforming change. SECTION 18. Amends Section 102.03(a), Alcoholic Beverage Code, to make a conforming change. SECTION 19. Amends Section 102.04(a), Alcoholic Beverage Code, to make a conforming change. SECTION 20. Amends Sections 102.07(a), (d), and (f), Alcoholic Beverage Code, to make conforming changes. SECTION 21. Amends Section 102.16(a), Alcoholic Beverage Code, to make conforming and nonsubstantive changes. SECTION 22. Amends Section 102.17, Alcoholic Beverage Code, to make a conforming change. SECTION 23. Amends Section 102.19, Alcoholic Beverage Code, to make a conforming change. SECTION 24. Amends Section 102.32(a)(1), Alcoholic Beverage Code, to make a conforming change. SECTION 25. Amends Section 109.33(f), Alcoholic Beverage Code, to make a conforming change. SECTION 26. Amends Sections 204.01(d), (f), and (i), Alcoholic Beverage Code, to include a winery, farm winery, or wine bottler's permit holder to the list of holders who are authorized to furnish one or more certificates of deposit or savings or letters of credit in lieu of all or part of the bond requirements and are not required to furnish a bond if the holder has paid all taxes and fees required for the preceding 36 months in a timely fashion. Makes a conforming change. SECTION 27. Amends Section 204.06, Alcoholic Beverage Code, to make conforming changes. SECTION 28. Amends Title 5, Alcoholic Beverage Code, by adding Chapter 207, as follows: CHAPTER 207. WINE TAX Sec. 207.01. TAX ON WINE. Imposes a tax of five cents on each gallon of wine sold for resale in Texas. Sec. 207.02. DUTY TO PAY TAX; DUE DATE. Requires a permit holder who is authorized to sell wine for resale to pay the wine tax on the 15th day of the month following the month the wine is sold. Sec. 207.03. COMMISSION TO COLLECT TAX. Requires the commission to collect and deposit the wine tax in a separate account in the general revenue fund. Sec. 207.04. STATEMENTS. Authorizes the commission to require information as to sales. Authorizes the commission to seize or withhold from sale the permit holder's wine for failure or refusal to supply the information or to allow the commission to conduct an investigation. Sec. 207.05. PAYMENT OF TAXES. Requires that the tax be paid by remittance payable to the state. Sec. 207.06. EVIDENCE IN SUIT. Establishes that in the event of a suit to enforce the collection of taxes due, a certificate by the commission showing the delinquency is prima facie evidence of the levy or delinquency of the tax and of compliance by the commission with the provisions of this chapter. Sec. 207.07. SUMMARY SUSPENSION. Authorizes the commission to suspend, without a hearing, the permit of a holder who fails to file a report or return or fails to make a tax payment. Establishes that Chapter 2001, Government Code, does not apply to the commission in the enforcement and administration of this section. Establishes an effective date of suspension. Specifies conditions for the termination of a suspension. Sec. 207.08. USE OF REVENUE. Requires that the revenue collected from taxes imposed be appropriated only to the Department of Agriculture. Requires that 70 percent of the tax revenue be spent for viticulture and enology research and 30 percent of the tax revenue be spent for marketing and promotion, unless the advisory council appointed under Section 207.09 advises otherwise. Sec. 207.09. ADVISORY COUNCIL. Requires the commissioner of the Department of Agriculture to appoint an advisory council consisting of members and nonvoting members representing various groups. Requires the commission, by rule, to define the terms "small wineries" and "large wineries." SECTION 29. Amends Sections 251.14(b) and (e), Alcoholic Beverage Code, to include the legal sale of wine on the premises of a holder of a winery or farm winery permit among the issues required on the ballot in a local option election. SECTION 30. Effective date: September 1, 1999. SECTION 31. Authorizes a holder of a winery permit and a wine bottler's permit to convert those permits to a farm winery permit subject to Chapter 17, Alcoholic Beverage Code, as added by this Act, if notification of intent to operate under Chapter 17, Alcoholic Beverage Code, is provided to the commission prior to the expiration of the holder's permit. Requires the commission to treat an application for an original or renewal winery permit and wine bottler's permit from the same applicant pending on September 1, 1999, as an original or renewal application for a farm winery permit. Makes application of this Act prospective. SECTION 32. Emergency clause.