Legislators say they will need more time to work on a bill that puts new restrictions on companies which distribute wine and liquor to retail outlets across South Carolina.
A state Senate judiciary subcommittee last week delayed voting on a measure that would require wholesalers store all wine and liquor in their warehouses for at least 24 hours after buying it from a winery or distillery.
The Department of Revenue and State Law Enforcement Division both support the change, saying it will help them crack down on “sham wholesalers” that try to evade South Carolina alcohol taxes. The bill passed the House last year in an 88-11 vote.
But chain retail stores and smaller producers are strongly against the idea, saying the law will add to their costs and only benefit the three companies (Ben Arnold/Sunbelt, Republic National, and Southern Wine & Spirits) who effectively control most wine and spirits distribution in South Carolina.
“Those big three wholesalers are asking you to use the heavy arm of state policy to either force their small competitors to adopt the inefficiencies of their own business decisions or go out of business,” said Baylen Moore, a lobbyist who represents Total Wine & More in state government matters. Moore called the law “protectionist” and argued it’s an unnecessary hurdle for smaller distributors who market themselves on low-cost, quick delivery.
But tax investigators say they are trying to crack down on retail outlets that use out-of-state distributors and illegally avoid paying state alcohol-related taxes. South Carolina is one of several states nationwide that uses a “three-tier” system: suppliers, wholesalers/distributors, and retailers. Brewers, distillers or wineries cannot sell or deliver directly to stores or restaurants and must instead rely on independent distribution companies. Those companies must have facilities in South Carolina (although they do not have to be based in the state) and must be licensed by the state.
Frank O’Neil, who oversees the narcotics and alcohol division at the State Law Enforcement Division, said the rule is needed so law enforcement can better inspect those facilities to ensure the beverages on-hand match what the distributor is reporting.
“What happens sometimes with these paper companies is they come in and the packaging is already shrink-wrapped,” he told the Senate panel last week. “You could put cases of beer and hide wine in the middle and we’d never see it if you get it off one truck and put it another truck, turn around, and head the other way.”
But members of the panel were skeptical the 24-hour requirement was necessary for SLED and state tax officials to do their jobs. State Sen. Brad Hutto, questioned if it would be easier for SLED to only require trucks be unloaded if inspectors were already on-site. “If y’all aren’t there, nobody is auditing this, nobody is requesting that this truck be audited, why make them unload it, then turn right back around and load it back up?” he asked O’Neil.
State tax officials have begun more thorough inspections of distribution facilities in recent years, according to Department of Revenue officials, as they try to make sure wholesalers are not skirting the law. “A lot of times it’s just a little office or an empty warehouse, so it’s kind of weird,” said SCDOR attorney Lauren Acquaviva. “But at least we can go check and see that you actually have a premise… So we’ve now kind of started delving into this a bit more. And we’re also finding sham wholesalers.”
The law would also require that beer distributors temporarily store their beverages at warehouses, but it does not have the 24-hour requirement. Brook Bristow of the South Carolina Brewers Guild said most wholesalers already transfer alcohol that way. The Brewers Guild has not taken a position on the proposed law.
Senators said they needed more time to learn about the complexities of South Carolina’s liquor laws and the bill’s potential impact before voting.