RULES AND REGULATIONS
LIQUOR CONTROL BOARD
[ 40 PA. CODE CH. 13 ]
Promotion with Licensees
[53 Pa.B. 501]
[Saturday, January 21, 2023]
The Liquor Control Board (Board), under the authority of sections 207(i) and 208(j) of the Liquor Code (47 P.S. §§ 2-207(i) and 2-208(j)), amends §§ 13.81 and 13.231 (relating to promotion with licensees; and samples for unlicensed consumers) to read as set forth in Annex A.
This final-form rulemaking is part of the Board's ongoing process to update its regulations by updating the process by which licensed vendors may promote products with licensees. This final-form rulemaking adds language to clarify what is required of the regulated community, expands the monthly amount of liquor that can be used for promotion and adjusts the cost of promotional product to be consistent with the Liquor Code. This final-form rulemaking also eliminates certain procedures and records that the Board no longer considers necessary. Language is added to §§ 13.81 and 13.231 to clarify that only unlicensed consumers may receive samples.
This final-form rulemaking clarifies to whom samples may be given. Licensees and the public often use the words ''tastings'' and ''samples'' interchangeably, but in the Board's regulations, they mean different things:
• A tasting is no larger than a standard-size alcohol beverage, § 13.201 (relating to definitions), although manufacturing licensees can be restricted to even smaller amounts by the Liquor Code. Tastings are consumed at the location where they are given.
• Samples, on the other hand, must be provided in ''unopened containers of the smallest commercially available size,'' as § 13.231 (relating to general provisions) (Emphasis added) currently states. Also, ''samples may not be opened or consumed on State Liquor Store premises or distributor or importing distributor licensed premises.'' Id.
To reduce confusion over these words, this final-form rulemaking deletes the word ''samples'' from § 13.81. When promoting a product with licensees, licensed vendors shall only be able to provide tastings, not opened or unopened bottles of product.
In subsection (a), the first sentence is amended from the negative—''Each agent. . .may not use more than one case''—to the positive: ''Each agent. . .may use up to one case. . .'' Next, the quantity is changed from one case of each brand to one case of each product. The word ''brand,'' in this context, is synonymous with a line or style of products created by a manufacturer or company. The word ''product'' is a specific item within that brand. By changing the word from ''brand'' to ''product,'' the Board is expanding the quantity of items that may be used by licensed vendors for promotion to licensees.
Throughout § 13.81, the word ''licensed'' is inserted in front of the word ''vendor'' for the sake of clarity. The phrase ''licensed vendor'' is a defined term in § 13.71 (relating to definitions) for this subchapter of the Board's regulations, and it includes ''A licensee holding a Manufacturer or Importer License, or a vendor's permit, and selling liquors to the Board.''
The phrase ''to promote that product to licensees, as that term is defined in § 13.71 (relating to definitions),'' is added to subsection (a) to distinguish the application of this section from § 13.231, which applies to unlicensed consumers.
The second sentence of subsection (a) clarifies that the product must be purchased at a State Liquor Store, if it is available there, or through the Board's special liquor order process, if the product or desired bottle size is not available at a State Liquor Store. The previous calculation of cost is also changed, from the cost price plus 25% to the retail price. It is unclear how ''cost plus 25%'' was developed as it is not found in the Liquor Code. Section 305(b) of the Liquor Code (47 P.S. § 3-305(b)) provides as follows (Emphasis added):Every Pennsylvania Liquor Store shall sell liquors at wholesale to hotels, restaurants, clubs, and railroad, pullman and steamship companies licensed under this act; and, under the regulations of the board, to pharmacists duly licensed and registered under the laws of the Commonwealth, and to manufacturing pharmacists, and to reputable hospitals approved by the board, or chemists. Sales to licensees shall be made at a price that includes a discount of ten per centum from the retail price; except that special order sales to licensees authorized in subsection (a) shall not be subject to the ten per centum discount. The board may sell to registered pharmacists only such liquors as conform to the Pharmacopoeia of the United States, the National Formulary, or the American Homeopathic Pharmacopoeia. The board may sell at special prices under the regulations of the board, to United States Armed Forces facilities which are located on United States Armed Forces installations and are conducted pursuant to the authority and regulations of the United States Armed Forces. All other sales by such stores shall be at retail, except that incentives, such as coupons or discounts on certain products, may be offered to unlicensed customers of the board as provided under sections 207(m) and 493(24)(ii)(B).
The statute does not include licensed vendors in the group of licensees that may purchase at wholesale, meaning a 10% discount from the retail price. Therefore, licensed vendors should pay the retail price.
The third sentence of subsection (a) is deleted since this final-form rulemaking now requires the licensed vendor to purchase the promotional product at retail. The fourth sentence of subsection (a) is also deleted, since the Board no longer requires a separate order to be placed for each agent. In the fifth sentence of subsection (a), the word ''shall'' replaces the word ''may'' because the Board does not wish to exercise discretion in allowing a licensed vendor to purchase and distribute promotional product to its agents; this activity shall be permitted. The final sentence of subsection (a) is deleted, since the Board no longer requires a licensed vendor to file a statement giving the name of the licensed vendor's authorized supervisor, together with the territories and names of all agents under his supervision.
Subsection (b) is rewritten to clarify that, for promotion with licensees, agents shall only use product to give tastings, as provided in § 13.211 (relating to tasting events). Agents shall not leave any bottle of product with a licensee, whether opened or unopened. This language is added because without it, the existing language is not clear that an agent may not leave a bottle of product with a licensee.
Subsection (c) clarifies that the agent is required to label each bottle. It is no longer necessary for the bottles to be labeled before leaving the State Store; the bottles must simply be labeled before the agent promotes the product with a licensee. The language of the label has been updated, replacing the word ''Sample'' with ''For tastings only.''
The first sentence of subsection (d) is amended to bring the recordkeeping requirement of the licensed vendor into alignment with recordkeeping required of other licensees. The phrase ''in hard copy or electronic media consistent with generally accepted accounting procedures, for a period of at least 2 years'' is also used in §§ 5.101 and 9.13 (relating to breweries; and records and reports). The type of information that must be kept is amended to be consistent with the changes made to subsection (a) in that the word ''brand'' is changed to ''products.'' The remainder of subsection (d) is deleted as the Board no longer requires this information.
Section 13.231 is renamed ''Samples for unlicensed consumers,'' to clarify that samples may be given to unlicensed consumers. The first sentence of subsection (a) is amended by adding the word ''only'' to further strengthen the understanding that samples may only be given to unlicensed consumers. The second sentence of subsection (a) is deleted since this final-form rulemaking eliminates the permissibility of allowing a licensed vendor to give samples of product to licensees.
The affected parties include all manufacturing and importing licensees of liquor, including wine, as well as any vendor permittees. As of September 2, 2022, there are approximately 250 licensed vendors that could be affected by this final-form rulemaking. However, note that there are a significant number of manufacturers that get their product into this Commonwealth through the Board or an importer but are not licensed by the Board, such as out-of-State manufacturers. Since these entities are not licensed by the Board, it is difficult to quantify how many there are, let alone how large or small they are, and therefore the Board does not have enough information to evaluate the small business status of all entities that will be affected by this final-form rulemaking.
This final-form rulemaking will not require any additional paperwork to be filed. On the contrary, this final-form rulemaking eliminates existing paperwork requirements that the Board no longer deems necessary.
This final-form rulemaking changes the cost of promotional product for licensed vendors, from the cost price to the Board plus 25% to the retail price, since there is no basis in the Liquor Code for charging a licensed vendor ''cost plus 25%.'' The Board analyzed a list of new products, introduced in September 2021 and October 2021, that were all 750 milliliters in size. The list excluded products that were identified as Luxury or Holiday products. Of the products the Board analyzed, the change in price from cost plus 25% to retail price resulted in an average increase of $5.81 per unit, with a mean of $5.60 per unit. However, licensed vendors have complete control over what and how much product to offer retail licensees in promotion—within the size restrictions set forth in § 13.211—and therefore can mitigate whatever fiscal impact might occur because of the change in pricing. A change in cost to suppliers for lawfully procuring promotional product can also likely be offset by profits derived from future sales of the products for which the product is being used.
This final-form rulemaking will become effective upon publication in the Pennsylvania Bulletin.
Questions regarding this final-form rulemaking should be addressed to Rodrigo Diaz, Chief Counsel, Jason Worley, Deputy Chief Counsel or Norina Foster, Assistant Counsel, Office of Chief Counsel, Pennsylvania Liquor Control Board, Room 401, Northwest Office Building, Harrisburg, PA 17124-0001.
Under section 5(a) of the Regulatory Review Act (71 P.S. § 745.5(a)), on May 24, 2022, the Board submitted a copy of the notice of proposed rulemaking, published at 52 Pa.B. 3318 (June 11, 2022), to the Independent Regulatory Review Commission (IRRC) and to the Chairpersons of the House Liquor Control Committee and Senate Committee on Law and Justice for review and comment.
Under section 5(c) of the Regulatory Review Act, the Board is required submit to IRRC and the House and Senate Committees copies of comments received during the public comment period, as well as other documents when requested. The Board did not receive any comments from the public or from IRRC.
Under section 5.1(j.2) of the Regulatory Review Act (71 P.S. § 745.5a(j.2)), on November 30, 2022, the final-form rulemaking was deemed approved by the House and Senate Committees. Under section 5.1(e) of the Regulatory Review Act, IRRC met on December 8, 2022, and approved the final-form rulemaking.
The Board finds that:
(1) Public notice of intention to adopt the administrative amendments adopted by this order has been given under sections 201 and 202 of the act of July 31, 1968 (P.L. 769, No. 240) (45 P.S. §§ 1201 and 1202) referred to as the Commonwealth Documents Law and the regulations thereunder, 1 Pa. Code §§ 7.1 and 7.2 (relating to notice of proposed rulemaking required; and adoption of regulations).
(2) The amendments to the Board's regulations in the manner provided in this order are necessary and appropriate for the administration of the Liquor Code.
The Board, acting under authorizing statute, orders that:
(a) The regulations of the Board, 40 Pa. Code Chapter 13, are amended by amending §§ 13.81 and 13.231 to read as set forth in Annex A.
(b) The Board shall certify this order and Annex A and deposit them with the Legislative Reference Bureau as required by law.
(c) This order shall become effective upon publication in the Pennsylvania Bulletin.
(Editor's Note: See 52 Pa.B. 8009 (December 24, 2022) for IRRC's approval order.)
Fiscal Note: Fiscal Note 54-96 remains valid for the final adoption of the subject regulations.
TITLE 40. LIQUOR
PART I. LIQUOR CONTROL BOARD
CHAPTER 13. PROMOTION
Subchapter B. MARKETING BY VENDORS AND AGENTS; SPECIAL ORDERS; LUXURY ITEM ORDERS; PROMOTION WITH LICENSEES AND UNLAWFUL ACTS
§ 13.81. Promotion with licensees.
(a) Each agent of a licensed vendor may use up to one case of each product of liquor sold by the licensed vendor to promote that product to licensees, as that term is defined in § 13.71 (relating to definitions), during any calendar month. The product shall be purchased only through the Board, at a State Liquor Store, if the product is available for purchase at a State Liquor Store, or through the Board's special liquor order purchase process, if the product or desired bottle size is not available for purchase at a State Liquor Store, at the retail price plus any required taxes. The licensed vendor (or the licensed vendor's authorized supervisor) shall be permitted to purchase and distribute the product to agents under the licensed vendor's supervision.
(b.1) For promotion with licensees, agents shall only use product to give tastings, as provided in § 13.211 (relating to tasting events). Agents may not leave any bottle of product with a licensee, whether opened or unopened.
(c) The agent shall affix to each bottle, before promoting the product with a licensee, a separate label, or lettering on the commercial label, at least 1/4 inch high, reading: ''For tastings only. Not to be sold. Possession of this bottle by licensee unlawful.''
(d) Each licensed vendor shall keep, in hard copy or electronic media consistent with generally accepted accounting procedures, for a period of at least 2 years, a record of all bottles purchased, the names of the agents to whom samples were issued, and the quantity and products.
Subchapter E. SAMPLES
§ 13.231. Samples for unlicensed consumers.
(a) Samples may be provided by manufacturers or their representatives, licensed distributors and importing distributors only to unlicensed consumers.
(b) Samples shall be in unopened containers of the smallest commercially available size.
(c) Providing samples may not be conditioned upon any purchase requirement.
(d) Samples may not be opened or consumed on State Liquor Store premises or distributor or importing distributor licensed premises.
(e) Samples are limited to one container per patron in any offering.
[Pa.B. Doc. No. 23-74. Filed for public inspection January 20, 2023, 9:00 a.m.]
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