By Ashley Vulin

The recent privatization of the liquor industry in Washington made headlines all over the United States. Implementation, though, has not been without some hiccups. The Association of Washington Spirits and Wine Distributors (the Association) renewed focus on the law when it filed suit this spring against the Washington State Liquor Control Board (the Board).  No. 13-2-00049-8 (Wn. Sup. Ct. filed Jan. 8, 2013). Under the privatization Initiative 1183 (I-1183), spirits distributors were required to pay a license fee equal to 10% of total spirits sales. In order to ensure that the State received a guaranteed revenue flow, if the fees collected did not total $150 million by March 31, 2013 the distributors would be required to make up the difference. Each distributor would be required to contribute the missing portion based on the proportion of his or her sales during the calendar year. 

The shortfall for 2012 ended up being $104 million. When the state came to collect, though, a battle erupted over who was required to contribute to the missing $104 million. It began with a lawsuit filed after the passage of I-1183, where a number of retailers argued that they should not be required to pay the 10% license fee even if they act as distributors to themselves. A court ruled against them in Washington Restaurant Association v. Washington State Liquor Control Board.  Court’s Opinion, No. 12-2-013125 (Apr. 29, 2013). These entities included businesses like Costco Wholesale Corporation, whose business model operates by its acting as a distributor and retailer (and who was a very active supporter of I-1183).  

In the meantime, the Board adopted WAC 314-23-025, which held these distributor-retailers to paying the 10% fee, but excluded them from responsibility for any shortfall in the $150 million. Now, distributors are crying foul that these businesses do not have to help make up the shortfall to the state. The groups involved in the above named suit are now intervenors in the Association’s action against the Board, and include the Washington Restaurant Association, the Northwest Grocery Association, and Costco Wholesale Corporation.
Plaintiff, defendant, and intervenors all filed their opening briefs and held their first hearing on August 23. Just last week, the court issued its order denying the motion for declaratory judgment, holding that the Board did not act arbitrarily in passing the rule and that the rule is consistent with the language of the statute. It is unclear if the Association will appeal (which they must file by October 21) but this certainly is a development to keep in mind as the implementation of this new law continues.