Senate OKs change in wine-sales rules

OLYMPIA — The Senate passed a bill Thursday that would allow out-of-state wineries and breweries to distribute directly to Washington stores, a move that settles a legal ruling but doesn't necessarily translate into savings at the cash register.

The measure was approved 48-0, with one lawmaker excused. It now heads to the House.

Under current law, which U.S. District Court Judge Marsha Pechman ruled unconstitutional in December, in-state vintners can sell directly to retailers but out-of-state producers must first sell their products through Washington distributors.

Issaquah-based Costco Wholesale sued, arguing that the law artificially inflated the cost of non-Washington wine and beer.

That case is still pending, but the Legislature has to pass a remedy to the court's decision by April 14 or in-state producers will lose all self-distribution rights.

Sen. Jeanne Kohl-Welles, D-Seattle and the prime sponsor of the bill, said the version passed was a compromise "that all parties determined they can live with."

"We want to support our growing wineries and breweries," she said. "We believe they're going to do just fine with competition from other states. We have wonderful wine and wonderful beer here."

The final bill was a compromise on three bills supported separately by Costco, the state Liquor Control Board and the Washington Beer & Wine Wholesalers Association, a trade group for distributors.

Kohl-Welles originally proposed the control board's measure to force all large producers, both in- and out-of-state, to use the state's 200 licensed distributors, at a markup of at least 10 percent above cost. The distributors would then sell to retailers, such as Costco, at another 10 percent markup.

The Liquor Control Board argued that the markups help reduce alcohol consumption.

While prices filed by any brewery or winery must be uniform to all distributors and retailers, nothing would stop a retailer that is saving money from passing on those savings to customers.

Whether there actually will be savings to wine and beer drinkers is something even Costco agrees is hard to tell.

Costco attorney John Sullivan said that would depend on whether wineries and breweries take advantage of the right to ship directly to retailers.

"We expect that the majority of beer and wine will continue to be sold through distributors," he said. But "it's a matter of opportunity. Until you create the legal opportunity, you don't know how it will play out in the commercial world."

Phil Wayt, executive director of the Washington Beer & Wine Wholesalers Association, said the measure had his organization's "very reluctant support."

"The whole philosophy is that we wish that this was not happening," he said, adding that the ruling in Costco's litigation has put lawmakers in a difficult position. "This was indeed a compromise bill, which is not to say we like it a lot."

Wayt disputes Costco's claims that it may be able to sell out-of-state wine cheaper. Just because distributors can be removed from the equation doesn't mean distribution costs will be lower, he said.

Under the measure, which expires June 30, 2008, a task force would be created to look at all of the state's liquor laws and report to the Legislature on its findings by Dec. 15. Depending on the outcome of the Costco case, lawmakers may have to revisit the issue.

Last year, the U.S. Supreme Court ruled that if states allow residents to buy directly from in-state wineries, they must also let them buy directly from wineries in other states.