Texas bill re direct wine sales to consumers

Sara Shackleton
Enron North America Corp.
1400 Smith Street, EB 3801a
Houston, Texas 77002
713-853-5620 (phone)
713-646-3490 (fax)
sara.shackleton@enron.com
----- Forwarded by Sara Shackleton/HOU/ECT on 02/13/2001 08:54 AM -----

Sara Shackleton
02/13/2001 08:45 AM

To: sshackl@swbell.com
cc:
Subject: Texas bill re direct wine sales to consumers

Sara Shackleton
Enron North America Corp.
1400 Smith Street, EB 3801a
Houston, Texas 77002
713-853-5620 (phone)
713-646-3490 (fax)
sara.shackleton@enron.com
----- Forwarded by Sara Shackleton/HOU/ECT on 02/13/2001 08:45 AM -----

Dan Lyons
02/12/2001 03:37 PM

To: Sara Shackleton/HOU/ECT@ECT
cc:
Subject: Texas bill re direct wine sales to consumers

Thought you might find this interesting
----- Forwarded by Dan Lyons/HOU/ECT on 02/12/2001 03:35 PM -----

"Michael Schofield" <michaelschofield@hotmail.com<
02/12/2001 01:43 PM

To: maryanne_lyons@bakerbotts.com, dan.lyons@enron.com
cc:
Subject: Texas bill re direct wine sales to consumers

Just thought you might be interested in this.

mike

Dueling wine-shipping measures ferment Legislature and lobbyists

By Laylan Copelin
American-Statesman Staff
Monday, February 12, 2001

In this parched state, Texas lawmakers are fond of saying that whiskey is
for drinking and water is for fighting. But legislators are busy turning
wine into water, squabbling over the selling of wine directly to customers
-- whether over the Internet or via tourists shipping wine home to Texas.

For the second legislative session, the state's small wineries and the Wine
Institute of California are squaring off against the powerful Texas
distributors. Two years ago, the Licensed Beverage Distributors of Texas
tried to make it a felony to ship wine across state lines, while the
California wineries tried to circumvent the four Texas companies that
dominate distribution of liquor and wine.

"We fought to a standstill," said Austin lobbyist Sharon Hull, who
represents the Wine Institute of California.

Now for Round Two. Both sides have their flag-waving issues. On one side are
e-commerce and questions about the right to free trade among states. On the
other side are warnings that taxes will go uncollected, wine will be sold
over the Internet to minors and out-of-state wineries will be bootlegging if
they ship to the state's many "dry" precincts that never approved the sale
of alcohol.

The real issue is money. And the fight is between two business models of how
to deliver wine to the customer. One eliminates the middleman; the other
honors a delivery system that Texas has used since the end of Prohibition.

With rare exceptions, Texas' so-called three-tier system kept brewers,
wholesalers and retailers from joint ownership or ventures. It prevented a
few companies from dominating the alcoholic-beverage industry from
fermentation to final sale.

The law did not keep a handful of companies from dominating the wholesaling
segment of the industry. Glazer's Distributing Co. of Dallas competes
statewide with Republic Beverage Co. of Houston and Block Distributing of
San Antonio. (Block owns 51 percent of Republic.) A fourth, Longhorn Liquors
of Arlington, competes in the Dallas area. Among them, they control all the
distribution of distilled spirits and an estimated 85 percent of the wine
wholesale market in Texas.

That's why some lawmakers want to make changes.

"If the two big (wholesale) guys don't anoint your wine," said state Rep.
David Swinford, R-Dumas, "you're toast."

In addition to major out-of-state brands, Texas distributors sold
three-fourths of the 1.6 million gallons of wine produced in Texas in 1999.
Yet almost all of that was from the state's four biggest wineries: Llano
Estacado, St. Genevieve, Cap Rock and Fall Creek.

So-called boutique wines from California or from small Texas wineries almost
never make it to the grocery shelves.

Current law says Texans cannot bring into the state more than 3 gallons
(about two cases) of wine per month. And buyers must accompany the wine,
instead of shipping it. There are similar limits on beer and liquor.

Also, Texas wineries can sell only 25,000 gallons a year to customers at a
winery if it is in a "wet" precinct that allows the sale of alcohol. And
they can ship only limited amounts of wine to a customer who lives in a wet
precinct.

Last year, a federal judge in Houston said the 3-gallon limit is an
unconstitutional restriction on free trade among states. The judge has
withheld a final ruling, probably waiting to see what the Legislature will
do. Meanwhile, a federal appeals ruling in Indiana upholding a state's right
to regulate alcohol sales has given wholesalers hope that Texas can win on
appeal.

Yet two lawmakers, Swinford and Rep. Anna Mowery, R-Fort Worth, have taken
two different tacks to promote wine sales.

Mowery's House Bill 1046 would keep the 3-gallon limit but create a direct
wine-shipper's permit, allowing wineries to ship to Texans. A person 21
years or older -- with proper identification -- would be required to sign
for the delivery. And the holder of the shipper's permit would be required
to pay all taxes. Wine could not be shipped into a dry precinct.

Only 28 Texas counties allow the sale of alcohol countywide. Eighty-nine
percent of the state is either dry or a patchwork of small precincts where
alcohol can be sold.

Alan Gray, director of the Licensed Beverage Distributors, opposes the bill.
He said he believes that minors would be able to buy wine off the Internet,
that local sales taxes would not be collected and that the shippers have no
easy way to determine where alcohol sales are legal.

"We think it creates nothing more than an honor system," Gray said.

Mowery insists that allowing direct shipping of a small amount of wine to
customers won't affect wholesalers' profits. Gray argued that if wine wins
an exception, liquor could be next.

The Texas Alcoholic Beverage Commission, which enforces the state's laws, is
not allowed to support or oppose legislation. Randy Yarbrough, the agency's
assistant director, said Mowery's bill could provide equal treatment to
Texas wholesalers and out-of-state wineries. Yet the agency would have to
work out collection and payment of sales taxes to cities.

Also, there is no easy way, such as a database, for shippers to determine
areas of the state where alcohol can be sold.

"No one (at the state level) knows where the wet and dry areas are,"
Yarbrough said.

As for sale to minors, Yarbrough said states that allow Internet sales have
used minors in sting operations. But he believes that sales to minors remain
a bigger problem for local retailers.

"Kids generally do not want to buy alcohol over the Internet," Yarbrough
said. "They want it for tonight."

Swinford, the Panhandle Republican, takes a Texas-only approach. House Bill
892 would allow Texas wineries to ship up to two cases of wine per month
within the state, even into dry areas. Wineries in dry counties also could
sell wine on the premises just as private clubs do with memberships.

"I call this bill `Direct-Ship Lite,' " joked Swinford.

Swinford said his bill will develop the Texas wine industry. Gray argues
that it may be illegal because it would favor Texas wineries over
out-of-state ones.

Swinford said Texas wineries need the help. California produces 400 times
the wine that Texas does but consumes only three times as much.

"This is not a booze bill," he said. "I don't even like wine. I like
agriculture."

You may contact Laylan Copelin at lcopelin@statesman.com or 445-3617.

_________________________________________________________________
Get your FREE download of MSN Explorer at http://explorer.msn.com