BILL ANALYSIS �
------------------------------------------------------------
|SENATE RULES COMMITTEE | AB 1812|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
CONSENT
Bill No: AB 1812
Author: Chesbro (D)
Amended: 3/27/12 in Assembly
Vote: 21
SENATE GOVERNMENTAL ORGANIZATION COMM. : 13-0, 6/26/12
AYES: Wright, Anderson, Berryhill, Calderon, Cannella,
Corbett, De Le�n, Evans, Hernandez, Padilla, Walters,
Wyland, Yee
ASSEMBLY FLOOR : 73-0, 5/10/12 (Consent) - See last page
for vote
SUBJECT : Alcoholic beverages: beer
SOURCE : California Craft Brewers Association
DIGEST : This bill 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.
ANALYSIS :
CONTINUED
AB 1812
Page
2
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, 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.
Comments
Purpose of this bill . This bill seeks to clarify in
Business and Professions Code (BPC) 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, is "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.
CONTINUED
AB 1812
Page
3
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 BPC Section 23006.
Alcohol regulation . The enactment of the 21st Amendment to
the United States 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 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."
CONTINUED
AB 1812
Page
4
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."
Prior Legislation
AB 346 (Beall), Chapter 624, Statutes of 2008, provided
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, 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, 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. The bill was held in the Assembly
Governmental Organization Committee at the request of the
author.
AB 417 (Aghazarian, 2005) would have modified the
definition of beer to include any alcoholic beverage that
CONTINUED
AB 1812
Page
5
qualifies as a malt beverage under federal law. The bill
was vetoed by the Governor.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 6/26/12)
California Craft Brewers Association (source)
ASSEMBLY FLOOR : 73-0, 5/10/12
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Cedillo, Chesbro, Conway, Davis, Dickinson,
Donnelly, Eng, Feuer, Fong, Fuentes, Beth Gaines,
Galgiani, Garrick, Gatto, Gordon, Gorell, Grove, Hagman,
Hall, Harkey, Hayashi, Roger Hern�ndez, Hill, Huber,
Hueso, Huffman, Jones, Knight, Lara, Logue, Bonnie
Lowenthal, Ma, Mansoor, Mendoza, Miller, Mitchell,
Monning, Morrell, Nestande, Nielsen, Norby, Pan, Perea,
Portantino, Silva, Skinner, Smyth, Solorio, Swanson,
Torres, Valadao, Wagner, Wieckowski, Williams, Yamada,
John A. P�rez
NO VOTE RECORDED: Cook, Fletcher, Furutani, Halderman,
Jeffries, Olsen, V. Manuel P�rez
DLW:k 6/27/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
CONTINUED