SUBCOMMITTEE ON COURTS AND INTELLECTUAL PROPERTY

COMMITTEE ON THE JUDICIARY

U.S. HOUSE OF REPRESENTATIVES

LEGISLATIVE HEARING ON

H.R. 1063

TO AMEND THE WEBB-KENYON ACT

AND

H.R. 1534

THE "PRIVATE PROPERTY IMPLEMENTATION ACT OF 1997"



Thursday, September 25, 1997

Room 2237 Rayburn Building, 10:00 am



Testimony of Mr. Jim Simpson

Statement of Jim Simpson

on behalf of the National Licensed Beverage Association

in Support of H.R. 1063

Before the

House Courts and Intellectual Property Subcommittee

September 25,1997

Mr. Chairman, members of the Subcommittee, I am Jim Simpson, Chairman of the Government Affairs Committee of the National Licensed Beverage Association (NLBA), past President of both the NLBA and the Maryland State Licensed Beverage Association and owner of The Liquor Store, Waldorf, MD. I am testifying on behalf of the NLBA, representing retailers of alcohol beverages throughout the United States.

Mr. Chairman, December 5, 1997 will mark the sixty-fourth anniversary of the ratification of the 21st Amendment to the United States Constitution. This, of course, is popularly known as the amendment which ended Prohibition of alcohol beverages. But it did more than end an unpopular experiment - it crafted a new system for the regulation of beer, wine, and liquor. Congress, indeed this Committee, debated what form that new system should take, and the language they added to our Constitution is quite explicit. They did not grant a choice to the federal government but rather an obligation to the states to control alcohol beverages within their state borders. This is an important point Mr. Chairman, and the language is very instructive for our hearing today. The second clause of the Twenty-First Amendment reads as follows:

"The transportation or importation into any state, territory or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited."
Congress rejected "one-size fits all" federal control and chose instead a new dimension in democracy, granting the people of each state an extraordinary degree of control over how alcohol beverages would be regulated within their borders. States determine, under their own laws, their requirements as to the "importation" into their state of alcohol beverages. Throughout this long history it has always been accepted that the control of alcohol beverages is one of the powers that the states did not relinquish to the federal government. The NLBA and its members across the country feel very strongly regarding this prerogative of states rights.

If the Constitution of the United States of America is not clear enough on this states rights issue, Congress passed the "Webb-Kenyon Act" in 1913 and re-enacted in l935 (27 USC 122) prohibiting the interstate shipment of alcohol beverages in violation of state law. NLBA members have become greatly alarmed at the increasing frequency of consumers being solicited to buy beverage alcohol directly through catalogues, magazines, direct mail, and the Internet. These direct sales to consumers by out-of-state businesses circumvent the licensed three-tier system of lawful and orderly beverage alcohol distribution and sale. Direct sales, in most cases, avoid state excise and sales taxes, bypass laws against selling to underage persons, and sidestep the laws in "dry" areas that prohibit or severely restrict the availability of beverage alcohol.

Forbes magazine estimates that direct shipments of wine approach $1 billion in sales annually. This estimate does not include direct sales of beer and liquor, which are substantial and growing. It is reasonable to assume that taxes are not paid on these sales. The loss in state revenues from excise and sales taxes could amount to as much as $100 million.

This hemorrhage of tax revenue will only increase as mail order, telephone, and Internet sales become more popular. The explosion of alcohol beverage product offerings on the Internet has created a virtual 24 hour open bar for anyone, of any age, to order wine, beer, and spirits.

NLBA members, indeed all licensed retailers of beverage alcohol, have a strong interest in maintaining the orderly and regulated alcohol beverage marketplace which has been crafted in each state. Those state systems are the result of more than sixty years of refinement, balancing concerns about public health, public safety, public revenue, and of course, the legitimate commercial interests of those who have invested their life savings and careers to serve the public desire for these products. The explosion of Internet and other marketing technologies now pose a real threat to the stability of these state systems. Once one part starts to break down, it is reasonable to expect that other parts will become stressed as well. Merely because modern communications, credit cards and shipping techniques make it possible to easily circumvent these state regulatory systems is no excuse for it to be permitted.

Therefore the NLBA joined with the two organizations of state alcohol beverage control officials, the National Alcohol Beverage Control Association (NABCA) and the National Conference of State Liquor Administrators (NCSLA), as well as with the wine, liquor, and beer wholesale community represented by the National Beer Wholesalers Association (NBWA) and the Wine and Spirits Wholesalers of America (WSWA) in supporting the introduction and passage of H.R. 1063 this Session of Congress.

The issue is simply this -- current federal law does not provide sufficient ability for STATE regulatory officials to enforce STATE law prohibitions against interstate shipment of alcohol beverages. The bill does not create new federal enforcement authority, nor does it prohibit legitimate interstate shippers of alcohol beverage products from shipping their products across state lines. The legislation simply gives state alcohol beverage enforcement authorities, who choose to take action, the authority to enforce against illegal interstate activity. It is our understanding that the Bureau of Alcohol, Tobacco, and Firearms (BATF) has issued industry circulars on mail order sales, but illegal shipments have not stopped and BATF will not aggressively prohibit these shipments. States need the authority of H.R. 1063 to enter federal courts to enforce their state laws in this area.

Let me reemphasize, Mr. Chairman, we are not testifying against wineries or the small wine operators today. We are not advocating limited markets for their products. We are not against any seller of alcohol beverages who conforms to state law requirements.

Mr. Chairman, the NLBA urges this Subcommittee to report favorably to the full House Judiciary Committee H.R. 1063 as introduced. We are joined by the regulators of our business from all 50 states and from the wholesaler community in all 50 states. We look forward to working with you and the members of this Subcommittee on this legislation .

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