abl

March 2018


NEWS


OVERVIEW


With Congress now in an election year, the legislative climate in Washington will continue to slow as November approaches. Republicans appear mostly content to run on the tax bill that was signed into law in late 2017. There are some must-pass bills that will be addressed – most likely in an omnibus bill to fund the government. Odds of a successful infrastructure package and entitlement reform have dwindled, replaced on front pages by hot-button issues like immigration, gun control and the opioid epidemic. ABL staff has been working on a handful of federal legislative issues. ABL has continued to support the Transparency in Music Licensing and Ownership Act (H.R. 3350), meeting with legislators and their staff to secure support for the legislation. Achieving broad consensus has been challenging as the House Judiciary Committee has been focused on other music bills that do not necessarily address ABL’s concerns.


A flurry of new reports on impaired driving have been released in the past weeks, though federal legislative activity has been limited. State efforts, however, continue with the ongoing debate in Utah – and now Delaware – over moving to a .05% BAC threshold for drunk driving .


MUSIC LICENSING


Transparency in Music Licensing & Ownership Act (H.R. 3350)


Since its introduction last year, the Transparency in Music Licensing & Ownership Act (H.R. 3350) has added cosponsors in the House of Representatives as ABL and its members make outreach to legislators. The bipartisan legislation is sponsored by Rep. Jim Sensenbrenner (R-WI) and would require the creation of a database containing music licensing and ownership information, to be overseen by the U.S. Copyright Office. That information would be made available in a machine-readable format to end-users (bars, restaurants, taverns), who would be on steering committee overseeing the database and to ensure it meets the needs of the retail community. Most importantly, it would allow courts to consider end-user reliance on the database in infringement cases.


Practically speaking, for beverage licensees this database would provide, for the first time ever, the ability to access reliable information regarding music licensing in a single, online location. It would also allows retailers to make informed, rational business decisions about which PRO licenses best meets their needs. Though this would require due diligence on the part of business owners, an online database would increase transparency and reduce members’ risk of copyright infringement while giving them greater control and choice over their options for licensing music. ABL and its members continue to make outreach to on Capitol Hill by ABL staff. The bill remains the primary legislative focus of ABL and the MIC Coalition. The MIC Coalition recently launched the MIC Coalition blog – https://medium.com/mic-coalition - which ABL members are encouraged to visit.


Something to keep in mind when thinking about the time in can take to move legislation in Congress. The last major music licensing bill to move in Congress – the Fairness in Musical
Licensing Act – was first introduced in Congress in 1994 but didn’t end up passing until the third Congress it was introduced. It’s also worth noting that 2019 will bring new House Judiciary
Committee leadership as Chairman Bob Goodlatte (R-VA) is retiring after this year. Second Circuit Finds for BMI in “Fractional Licensing” Challenge to Consent Decree
On December 19, 2017, the Second Circuit Court of Appeals affirmed the ruling by a lower court that BMI is not prevented by a consent decree from offering fractional licensing of song
compositions. It is unclear as to whether and how BMI will change its licensing practices as a consequence. It also remains to be seen whether the Department of Justice (DOJ) has an appetite to appeal to the Supreme Court.


A few years ago, during a review of the consent decrees governing ASCAP and BMI, the DOJ concluded that 100 percent licensing, or "full-works licensing," was required under the consent decrees. 100 percent licensing applies to songs with multiple writers where ownership is divided. For years, licensees have purchased “blanket licenses” which they believe have given them the right to legally play music covered by those licenses without risk of infringement. Songwriters and publishers, through BMI, now argue that they have always engaged in fractional licensing and that the music user must get a license from all owners of a song in order to play it. ABL co-filed an amicus curiae brief in the case, supporting the DOJ’s interpretation that the consent decrees do not allow for fractional licensing, citing (among other things) the very nature and understanding of “blanket licenses” that beverage licensees purchase from performance rights organizations.


POSTAL REFORM


United States Postal Service Shipping Equity Act (H.R. 4024)


On October 11, Rep. Jackie Speier (D-CA) introduced the United States Postal Service Shipping Equity Act (H.R. 4024), a bill that would allow for the first time in its history, the U.S. Postal Service (USPS) to ship beverage alcohol via mail. ABL has joined with other industry groups to share its concern about the bill with the House Oversight and Government Reform Committee. Chances for a sweeping postal reform bill are now in limbo with the January announcement by Committee Chairman Trey Gowdy (R-SC) that he would not seek reelection in 2018. Future prospects for this bill and postal reform in general could also be affected should the Democrats win control of the House in the 2018 elections.



TAXES


Federal Excise Tax (FET) on Alcohol


The Tax Cuts and Jobs Act of 2017, passed and signed by the President in December 2017, makes extensive 2-year changes to federal excise taxes on alcohol. Most notably, it:

 

Beer

  • Reduces the federal excise tax to $3.50 per barrel on the first 60,000 barrels for domestic brewers producing fewer than 2 million barrels annually;

  • Reduces the federal excise tax to $16 per barrel on the first 6 million barrels for all other brewers and all beer importers; and

  • Keeps the federal excise tax at the current $18 per barrel rate for barrelage over 6 million .

 


Distilled Spirits

  • Reduces the federal excise tax from $13.50 to $2.70 per gallon for the first 100,000 proof gallons removed from bond per year;

  • Reduces the federal excise tax from $13.50 to $13.34 per gallon for production over 100,000 but less than 22,130,000 proof gallons; and

  • Keeps the federal excise tax rate of $13.50 per gallon for all production over 22,130,000 proof gallons.


Wine

  • Expands the excise tax credit for all wineries by allowing all wineries to claim a credit of between $.535 and $1 per gallon on the first 750,000 gallons of production;

  • Allows sparkling wine to qualify for the credit mentioned above;

  • Increases the Alcohol by Volume (ABV) allowed for the $1.07 tax rate from 14% to 16% ABV; and Increases the carbonation allowed in certain low alcohol wines.


Estate Tax


The Tax Cuts and Jobs Act of 2017 temporarily doubles the exemption amount for estate, gift and generation-skipping taxes from $5.6 million to $11.2 million per individual and $22.4 million per couple, effective January 1, 2018, and good for tax years 2018 through 2025. With the law’s sunset language, without further Congressional action, the exemption would revert to the $5.6 million base (indexed for inflation) after 2025.


S-Corp/Pass-Through Entities


The Tax Cuts and Jobs Act of 2017 temporarily gives the majority of companies organized as “pass through” entities (e.g. S corporations, LLCs, partnerships and sole proprietorships) a 20 percent reduction of their income tax. However, the deduction comes with caveats:


• In general, the deduction cannot exceed 50% of your share of the W-2 wages paid by the business.

• Alternatively, the limitation can be computed as 25% of your share of the W-2 wages paid by the business, PLUS 2.5% of the unadjusted basis (the original purchase price) of property used in the production of income.

• The W-2 limitations do not apply if you earn less than $157,500 if single; $315,000 if married filing jointly.

• Certain "personal service businesses" -- i.e., accountants, doctors, lawyers, etc... -- are not eligible for the deduction, unless their taxable income is less than $157,500 if single; $315,000 if married.


ABL encourages its members to consult with their tax professionals to determine how best to position their businesses under the new federal tax policies.



IMPAIRED DRIVING


NAS, NGA and MADD Reports


On January 17, ABL issued a statement in response to the release of the National Academy of Sciences (NAS) study, Getting to Zero Alcohol-Impaired Driving Fatalities: A Comprehensive Approach to a Persistent Problem. ABL pointed out:


“The report reflects a battery of recycled recommendations and, more disturbingly, represents a squandered opportunity to be inclusive and forward-looking when it comes to drugged and
distracted driving."

“It also raises serious questions about what the $2 million spent on the report could have funded to more directly address impaired driving."


“Perhaps most troubling is the study’s unserious suggestion to reject meaningful contributions of the alcohol industry – and any groups that receive funding from the industry – when it comes to fighting impaired driving."


“To suggest that local bars, taverns and package stores have no role to play in this fight ignores those who are already on the front lines of preventing impaired driving and limits our societal efforts to address this problem.”

 

On the media conference call to highlight the report, representatives of the Committee that produced the report stated that:


  • They are looking to tie “excessive” and “binge” drinking to 0.05 BAC;

  • Lowering the BAC threshold to 0.05 would save ~1,500 lives per year in the U.S.;

  • Individuals who later report driving after “probably drinking too much” said they consumed at least 8 drinks;

  • The Committee found that designated driver programs don’t have an impact on alcohol-impaired driving rates;

  • The report did not address marijuana/drugged driving, distracted driving, etc.;

  • The committee felt widespread adoption of self-driving vehicles is too far in the future to consider as a factor to reducing alcohol-impaired driving.

 


On February 6, the National Governors Association released its new report, State Strategies to Reduce Highway and Traffic Fatalities: A Road Map for States.


The impaired driving strategies recommended in the NGA Roadmap report include:


•  Increase the use of sobriety checkpoints and saturation patrols;

• Increase the number of DWI courts and encourage other courts to impose appropriate penalties;

• Promote the use of ignition interlock devices and require them for first-time offenses;

• Consider license plate and vehicle impoundment penalties for DWI offenders;

• Develop standard detection-enforcement methods for law enforcement to identify drug impairment, including from prescription drugs and marijuana.

 


On January 24, MADD released its 2018 Campaign to Eliminate Drunk Driving “Rating the States” report. It rates the states based on the following laws/programs: Ignition interlocks, sobriety checkpoints, administrative license revocation, child endangerment, and alcohol test refusals. The report gives partial credit vs. full credit based on quality of laws or programs such as endorsement of expedited warrants to deal with refusal; more credit to states that conduct checkpoints at least once a month; and more credit for states that require interlocks for refusal and/or during any license suspension.

 


States are eligible for a 5-star rating, but no state received 5 stars. The five states with a 4.5 rating: Arizona, Maryland, Mississippi, Nevada and West Virginia. Montana had the lowest at a .05 rating. Right behind Montana were Michigan (1), Idaho (1.5), Iowa (1.5), Rhode Island (1.5), South Dakota (1.5) and Wyoming (1.5)

 

Utah .05 BAC


In Spring 2017, a bill lowering the blood alcohol content level for DUI to .05 passed in the Utah Legislature. It was subsequently signed into law by the governor. The governor had initially called for a special legislative session in Summer/Fall 2017 to address concerns about the bill, but then decided to let the legislature work on the law in the 2018 regular session.


In June 2017, ABL sent a letter to the Utah Transportation Interim Committee in advance of a hearing, urging Utah to amend the law, which is set to take effect in 2019, to reflect a .08 BAC limit and bring Utah back in line with the other 49 states. This winter, Rep. Karen Kwan filed H.B. 345, a bill that would delay Utah’s .05% BAC law from taking effect until 2022.


End Drunk Driving Act (H.R. 3374)


Rep. Kathleen Rice’s (D-NY) End Drunk Driving Act of 2017 (H.R. 3374) does not have any cosponsors and no similar legislation has been introduced in the Senate.
As a reminder, the bill:


• Requires that within 10 years, all new cars sold in the U.S. must be equipped with advanced
technology that prevents the car from moving if the driver’s BAC is at or above the legal limit.

• Boosts funding for the Driver Alcohol Detection System for Safety (DADSS) program to help ensure the technology is fully developed within 10 years.

• Withholds highway funding from states that don’t have mandatory use of ignition interlock devices for all offenders.


ADA REFORM


ADA Education and Reform Act of 2017 (H.R. 620).


On February 15, 2018, the House passed the ADA Education and Reform Act of 2017 (H.R. 620). The bill closes the loophole in the Americans with Disabilities Act (ADA) Title III that has unintentionally produced “drive-by” lawsuits, and adds safeguards that incentivize the remedy of alleged violations – without taking away the right to pursue “bad actors” who ignore compliance. Specifically, the bill adds a “notice and cure” component to Title III of the (ADA), the Title that guarantees access to public accommodations. The proposed provision would require that, before a lawsuit can be filed, a person with a disability who has been unable to access a public
accommodation must:

 

  1. Provide “written notice” of the alleged barrier to the owner of the accommodation;

  2. Wait sixty days to see if the owner of the accommodation responds; and

  3. Prove that the owner either did not respond or has not made “substantial progress” toward fixing the issue within 120 days, before filing a suit.



The legislation is a simple fix to the problem of “drive-by” lawsuits, which can cause undue hardships to small businesses. These suits have arisen predominantly in states that provide for recovery of money damages in their state laws. The federal ADA does not provide for damages, only injunctive relief and attorney’s fees.


Resources for ADA compliance include these Department of Justice resources:


https://www.ada.gov/regs2010/smallbusiness/smallbusprimer2010.htm

https://www.ada.gov/restriping_parking/restriping2015.html


MARKETPLACE FAIRNESS


Marketplace Fairness Act (S.976) & Remote Transactions Parity Act (H.R. 2193)


Two bills that would grant states the right to require that out-of-state businesses – such as those selling online or through catalogs – collect state sales taxes on purchases sold into their states, continue to linger in the Senate and House. The Marketplace Fairness Act (MFA) (S. 976), introduced by Sen. Mike Enzi (R-WY) and the Remote Transactions Parity Act (RTPA) (H.R. 2193), introduced by Rep. Kristi Noem (R-SD), are supported by ABL and the Marketplace Fairness Coalition.


Under current federal law, states are unable to collect state sales taxes on purchases from remote businesses, so they often go unpaid. The growth of direct-to-consumer alcohol (wine, in particular) shipping has increased the importance of this issue for beverage retailers. The Senate approved a previous version in 2013, but that bill never received a vote in the House. The RTPA has 50 cosponsors.


There is some inkling that there will be a push to add the RTPA to an omnibus spending package for FY 2018, though there would be natural opposition to Congress acting on the issue with the pending Supreme Court case. Speaking of which...


South Dakota v. Wayfair


The U.S. Supreme Court has scheduled oral arguments for South Dakota v. Wayfair, et al for April 17, 2018. The wheels for this were set in motion on December 14, 2017, when the South Dakota Supreme Court ruled on this case, determining that the state cannot force out-of-state sellers to collect and remit sales tax. The U.S. Supreme Court’s decision to take the case signals that it wants to revisit Quill Corp v. North Dakota, a 1992 decision that forbade states from requiring retailers
without a physical presence to collect sales tax.


The case, South Dakota v. Wayfair, Inc., stems from a 2016 South Dakota law that requires out-of-state retailers to collect and remit sales tax if they transact more than $100,000 of business in the state or more than 200 sales. The law passed overwhelmingly by the state legislature and was introduced following a ruling issued by the U.S. Supreme Court in which Justice Anthony Kennedy noted that “it is unwise [for the US Supreme Court] to delay any longer a reconsideration of the Court’s holding in Quill” and asked the “legal system [to] find an appropriate case for this Court to reexamine Quill.”


WAGES


Tip-Pooling


The Department of Labor (DOL) is under fire for the December proposed rule that would make it easier for employers to require servers and other workers who earn tips to share them with non- tipped workers like kitchen staff. This rule would rescind a 2011 rule prohibiting businesses from including nontipped workers in tip pools. Previously, the DOL only blocked employers that took the so-called tip credit - an option allowing them to pay tipped workers at below minimum wage if the difference is made up with tips - from maintaining tip pools.


Soon after its proposal, the rule was before the 10th Circuit Court, which opened a circuit split with the earlier rulings of the 9th and 4th Circuit Courts on similar cases. Supporters of the proposed rule – including the NFIB, National Restaurant Association and American Gaming Association – have asked the Supreme Court to settle the circuit split. On February 2, the DOL sought its seventh extension of time to file its brief in response to the National Restaurant Association’s request for the
U.S. Supreme Court to review the 2011 regulation.

 

Overtime Rule


Since the comment period closed on September 25, 2017, and having received over 140,000 comments, the DOL has not made any announcements on its plans to change the threshold for employees who are exempt from overtime pay. Recall that in May 2016, under the Obama Administrations, the DOL announced that it was raising the threshold for employees who are exempt from overtime pay to $47,476 – more than double the current salary threshold of $23,660.


That rule was struck down in court first in 2016 and then finally in 2017. It is expected that the DOL will make its position known in 2018 through a Notice of Proposed Rulemaking (NPRM), with a more modest increase in the exemption level.


IN BRIEF


Sports Betting...After hearing oral arguments in December 2017, the Supreme Court is expected to rule in Spring 2018 on a case challenging the Congressional ban on sports wagering. Currently, Nevada is the only state that permits single-game sports betting.


TTB...The Alcohol and Tobacco Tax and Trade Bureau (TTB) recently published additional CraftBeverage Modernization and Tax Reform guidance that addresses issues related to tax credits/reduced tax rates on wine, distilled spirits, and beer, including issues relating to transfers in  bond.


Trade Tariffs...The Beer Institute and NBWA have come out in opposition to President Trump’s plan to impose tariffs on imported aluminum, which could cost upwards of $347 million.


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