BILL ANALYSIS �
AB 1812
Page 1
ASSEMBLY THIRD READING
AB 1812 (Chesbro)
As Amended March 27, 2012
Majority vote
GOVERNMENTAL ORGANIZATION 15-0
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|Ayes:|Hall, Nestande, Atkins, | | |
| |Block, Chesbro, Cook, | | |
| |Garrick, Gatto, Hill, | | |
| |Jeffries, Ma, Perea, V. | | |
| |Manuel P�rez, Silva, | | |
| |Torres | | |
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SUMMARY : Declares that beer aged in an empty wooden barrel
previously used to contain wine or distilled spirits shall be
defined exclusively as "beer" and shall not be considered a
dilution or mixture of any other alcoholic beverage.
Specifically, this bill revises the definition of "beer" for
purposes of the Alcoholic Beverage Control Act (Act) to also
provide beer aged in an empty wooden barrel previously used to
contain wine or distilled spirits shall be defined exclusively
as "beer" and shall not be considered a dilution or mixture of
any other alcoholic beverage.
EXISTING LAW :
1)Establishes the Department of Alcoholic Beverage Control (ABC)
and grants it the exclusive authority to administer the
provisions of the Act in accordance with laws enacted by the
Legislature.
2)Defines "beer" as any alcoholic beverage obtained by the
fermentation of any infusion or decoction of barley, malt,
hops, or any other similar product, or any combination thereof
in water, and includes ale, porter, brown, stout, lager beer,
small beer, and strong beer but does not include sake, known
as Japanese rice wine.
3)Defines "distilled spirits" as an alcoholic beverage obtained
by the distillation of fermented agricultural products and
includes alcohol for beverage use, spirits of wine, whiskey,
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rum, brandy, and gin, including all dilutions and mixtures
thereof.
4)Recognizes three types of alcoholic beverages for tax
purposes, namely, distilled spirits, beer, and wine.
FISCAL EFFECT : Unknown. This bill is keyed non-fiscal by the
Legislative Counsel.
COMMENTS :
Purpose of the bill : This bill seeks to clarify in Business and
Professions (B & P) Code Section 23006 that "beer" aged in empty
wooden barrels previously used to contain wine or distilled
spirits will continue to be defined as "beer" in order to
protect the existing regulatory and licensure structure in
California.
The California Craft Brewers Association, the sponsor of this
bill are "concerned that current law creates ambiguity on how
wooden barrel-aged craft beers are defined and categorized for
purposes of regulation for licensure of manufacturing,
distribution, and retail sales, as well as, taxation."
The sponsor states that in the last 15 years, California's craft
beer industry has gained worldwide acclaim for their use of
traditional Belgian-style brewing techniques that incorporate
the use of wooden barrels to age craft beers. These empty
wooden barrels are expensive and are recycled by craft brewers
from previous use by the wine or distilled spirits industries.
The sponsor states that "many California craft beers receive
flavor with minute amounts of distilled alcohol from the wood in
this process and because of this it is believed these beers
could be defined as "distilled spirits" upsetting the stability
of existing regulatory and licensure structures." This bill
will provide clarity that beer aged in repurposed wooden barrels
will continue to be defined as beer under B & P Section 23006.
Alcohol regulation : The enactment of the 21st Amendment to the
U.S. Constitution in 1933 repealed the 18th Amendment and ended
the era of Prohibition. Accordingly, states were granted the
authority to establish alcoholic beverage laws and
administrative structures to regulate the sale and distribution
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of alcoholic beverages. In California, this responsibility was
originally entrusted to the Board of Equalization (BOE). In
1955, however, the State Constitution was amended to shift this
responsibility to the newly established ABC. ABC has the
exclusive authority to administer the provisions of the Act in
accordance with laws enacted by the Legislature. This involves
licensing individuals and businesses associated with the
manufacture, importation and sale of alcoholic beverages in this
state and the collection of license fees or occupation taxes for
this purpose.
BOE adopts regulation in 2008 : BOE adopted a regulation in 2008
to address issues with "Flavored Malt Beverages" (FMB) in
California by declaring a rebuttable presumption that all
alcoholic beverages, except for wine, are to be considered
"distilled spirits" for tax purposes. The BOE established a
threshold of 0.5% distilled alcohol by volume as the boundary
for manufacturers to rebut the presumption and declare under
penalty of perjury that their products have less than 0.5%
distilled alcohol and are therefore legally considered "beer"
for purposes of taxation. The legal theory used by the BOE to
support their regulation hinged on the broad interpretation of
the words "dilutions and mixtures thereof" within the existing
definition of "distilled spirit."
Currently, BOE taxes beer at $0.20 per gallon and distilled
spirits at $3.30 per gallon. After the BOE regulation was
implemented, most manufacturers of flavored beverages
reformulated their products to avoid the higher tax rate.
BOE regulation recently overturned : In May 2012, the Third
District Court of Appeal in Sacramento ruled to overturn the BOE
regulation by stating FMB's are a "hybrid" of beer and distilled
spirits but said they have been classified as beer by ABC for
purposes of licensing and regulation.
The appeals court stated that ABC, not the BOE, defines and
regulates alcoholic beverages in California. The ruling states
that, "The Legislature did not delegate authority to the BOE to
adopt its own classification of alcoholic beverages." The court
further stated, "The Board instead adopted regulations that
utilize different classifications than those adopted by ABC.
The Board's regulations therefore cannot stand."
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Prior legislation : AB 346 (Beall), Chapter 624, Statutes of
2008, provides that any container of beer or alcoholic beverage,
other than sake, that is approved for labeling as a malt
beverage under the Federal Alcohol Administration Act (FAAA),
that derives 0.5% or more of its alcoholic content by volume
from flavors or other ingredients containing distilled alcohol
and that is sold within this state on or after July 1, 2009,
shall bear a distinctive, conspicuous, and prominently displayed
label, or firmly affixed sticker, as defined.
AB 2013 (Saldana) of 2006, would have required all surtaxes,
penalties, and interest, resulting from the reclassification of
an alcoholic beverage from a beer to a distilled spirit, be
transferred to the Youth Alcohol Problem Prevention Fund. (Held
in the Assembly Governmental Organization Committee at the
request of the author.)
AB 417 (Aghazarian) of 2005, would have modified the definition
of beer to include any alcoholic beverage that qualifies as a
malt beverage under federal law. (Vetoed by the Governor.)
Analysis Prepared by : Eric Johnson / G. O. / (916) 319-2531
FN: 0003514