Topic:
STATE BOARDS AND COMMISSIONS; LIQUOR;
Location:
LIQUOR; BOARDS AND COMMISSIONS;

OLR Research Report


January 30, 2003

 

2003-R-0053

LIQUOR CONTROL COMMISSION RESPONSIBILITIES

By: Daniel Duffy, Principal Analyst

You asked for the responsibilities of the Liquor Control Commission, especially as they affect the price of liquor.

SUMMARY

The Department of Liquor Control was merged with the Department of Consumer Protection (DCP) in 1995 and most of its responsibilities transferred to that department. This report identifies state statutes administered by DCP that either have a strong indirect affect on prices, such as the law limiting the number of package stores a single business can operate or are concerned with prices, such as “price posting.”

The laws having an indirect effect on liquor prices (1) establish the three-tier system (manufacturers, wholesalers, and retailers); (2) protect wholesaler distributorships and their geographic territories; (3) limit the number of package store permits a business can have; (4) prohibit groceries from selling any kind of alcoholic liquor other than beer; and (5) require all liquor brands to be registered with DCP before they can be sold in the state.

The laws directly concerned with prices (1) prohibit wholesalers from extending credit to retailers for more than 30 days, (2) require manufacturers to give all purchasers the same price discounts, (3) require sellers to post their prices for the month with DCP, (4) require manufacturers and wholesalers to post a schedule of suggested consumer resale prices with DCP; (5) require wholesalers to sell to each retailer in their geographic territory; (6) prohibit selling at prices intended to destroy or prevent competition, (7) prohibit sales below cost and prescribe how “cost” must be calculated for this purpose; and (8) allow retailers to advertise the net price after manufacturer rebates are deducted.

This report does not address laws outside of the scope of the Department of Consumer Protection, such as the alcoholic beverage tax, that also affect the price of liquor.

LIQUOR CONTROL COMMISSION

The Liquor Control Commission was established in 1933 when the current Liquor Control Act was adopted. Until July 1, 1995, the commission oversaw the activities of the Department of Liquor Control, adopted regulations, and heard and ruled on complaints. In 1995, the Department of Liquor Control was made a division of the Department of Consumer Protection (DCP), the consumer protection commissioner was made the chairman of the commission, and most of the commission's duties were transferred to DCP. Today, the commission holds hearings on matters affecting liquor permits.

STATUTES AFFECTING AND CONCERNED WITH LIQUOR PRICES

Many statutory requirements affect the cost of doing business and may thereby affect the price of a commodity. The following list does not include all such requirements. Instead, it presents statutes and regulations that directly affect the price of liquor and those that have a strong indirect effect. For example, a statute that directly affects the price of liquor requires all brands to be registered with the state and their prices posted. A statute that has a strong indirect effect is the limit of two on the number of package store permits a business may obtain.

Three-Tier System

Liquor is a regulated substance—the law prohibits its sale to minors (someone younger than 21), intoxicated persons, and habitual drunkards (CGS 30-86). As part of the regulatory scheme, most liquor sold in this state goes through the “three-tier system.” In the system, a manufacturer's sales are generally made to a wholesaler; a wholesaler's sales are generally made to a retailer. The law prohibits most backers or

permittees of one class of permit from being backers or permittees of another (CGS 30-48). This provision serves to keep the three tiers of the industry financially separate. By limiting who may sell to whom, the law limits the number of possible suppliers of a product.

Wholesaler Permits

Among other things, a wholesaler permit allows its holder to sell alcoholic liquor to retailers. Once a wholesaler has had a distributorship for at least six months, the law prohibits a manufacturer from terminating reducing its geographic territory except (1) if the wholesaler agrees in a stipulation and DCP approves or (2) for just and sufficient cause. When DCP is notified that a manufacturer intends to terminate or reduce a distributorship's territory, it must hold a hearing to determine if just and sufficient cause exists.

A manufacturer may appoint additional distributors in a territory for an alcohol, spirits, or wine product, but it must first send a six-month notice to the distributor. A beer manufacturer may appoint additional distributors, but only if it has just and sufficient cause and has sent a notice of its intent to the original distributor and DCP. For this purpose, “just and sufficient” cause means the existence of circumstances which, in the opinion of a reasonable person considering all of the equities of both the wholesaler and the manufacturer…warrants a termination or diminishment of distributorship as the case may be” (CGS 30-17). This provision may affect prices by limiting the number of suppliers and reducing competition among suppliers.

Package Store Permits

The law limits to two the number of package store permits a single person or business may have (CGS 30-48a). The limit means that a business cannot benefit from economies of scale. Further, the law prohibits package stores from selling any other commodity with 12 statutorily determined exceptions for things such as bar utensils, ice, and nonalcoholic beverages (CGS 30-20).

Grocery Beer Permits

The law allows groceries to sell beer, but it does not allow them to sell any other type of alcoholic liquor (CGS 30-20). This restricts the number of retailers of products other than beer.

Brand Registration

The law requires all brands to be registered with the state. The fee for a three-year registration is $100 for out-of-state shippers and $3 for instate shippers (CGS 30-63). The requirement can reduce the number of brands being sold in the state by creating a barrier for smaller, boutique-type brands.

STATUTES CONCERNED WITH PRICES

Period of Credit

The law prohibits a permittee or backer from receiving credit in any form for a period longer than 30 days from a manufacturer or a wholesaler. If a manufacturer or wholesaler has not received payment within 30 days of extended credit, it must give a written notice of obligation to the retailer stating: the amount due, the date credit was given, the date the 30-day payment period ended, and that the retailer is in violation. If a retailer disputes the charge, it must send a written response to the manufacturer or wholesaler and send a copy to the Department of Consumer Protection. The response must state: the basis for the dispute and the amount, if any, that the retailer admits to owing. This amount must be sent to the manufacturer or wholesaler. The Liquor Control Commission chairman, or his designee, must hold an informal hearing.

If the chairman decides in favor of the manufacturer or wholesaler, he must order the manufacturer or wholesaler to send a “Notice of Delinquency” to all manufacturers and wholesalers. The notice must: identify the delinquent retailer, the amount due, and the date the payment period expired. The law prohibits any manufacturer or wholesaler from giving credit to the retailer identified in the notice of delinquency until the manufacturer or wholesaler sends them a notice of satisfaction about the retailer.

If the chairman or his designee decides in favor of the retailer, he must prohibit the manufacturer or wholesaler from sending a notice of delinquency.

The losing party must pay the costs of the proceeding (CGS 30-48).

Credit When There is a Change of Ownership

Whenever a package store changes hands, the law requires the seller to execute an affidavit stating all unpaid obligations and the purchasing party to execute another stating that all such obligations have been paid (CGS 30-48(c).

Price Discrimination

The law prohibits manufacturers, wholesalers, and out-of-state shippers from discriminating in any manner in price discounts among permittees (CGS 30-63(b)).

Price Posting

The law requires manufacturers and wholesalers to post their prices with the department each month. The price, once posted, is the controlling price for the entire month. Notice of all prices must be given to all permittees by direct mail or advertising in a trade journal. Wholesalers are also allowed by give notice by hand delivery. A manufacturer or wholesaler may amend their prices for a month to meet a lower priced posted by another manufacturer or wholesaler (CGS 30-63(c)).

Suggested Consumer Resale Prices

The law requires manufacturers and wholesalers to post a schedule of suggested consumer resale prices for each brand (and each size) with DCP. The suggested consumer resale price must be uniform throughout the state. The law states that retailers may sell for less than the suggested consumer resale price (CGS 30-64).

Sales Within a Wholesaler's Geographic Territory

The law requires wholesalers to sell their products to each retailer in their territory. It allows wholesalers, where distance, road conditions, travel time, or similar factors substantially affect cost of delivery, to file a schedule of proposed delivery charges with DCP. The schedule can apply only after the department holds a hearing and gives written approval (CGS 30-64a).

Unfair Pricing Practices

The law prohibits unfair pricing practices, defined as selling alcoholic liquor at a price intended to destroy or prevent competition. DCP can revoke or suspend the permit of anyone it finds, after hearing, of committing an unfair pricing practice (CGS 30-64b).

Minimum Selling Price of Wine at Wholesale

The law prohibits selling wine to a retailer for less than the “minimum base cost” and defines “cost” for this purpose (CGS 30-68).

Minimum Selling Price of a Distributor or Manufacturer

The law prohibits an out-of-state shipper or manufacturer from selling alcoholic liquor (all four types of alcoholic beverages: alcohol, beer, spirits, and wine) below their cost and defines “cost” for this purpose (CGS 30-68i).

Price Discrimination Prohibited

The law prohibits wholesalers from charging retailers different prices (CGS 30-68k).

Wholesalers Prohibited From Selling Below Cost

The law prohibits wholesalers from selling to retailers below cost and defines “cost” for this purpose (CGS 30-68l).

Retailers Prohibited From Selling Below Cost

The law prohibits off-premises retailers (primarily package stores and groceries) from selling below cost and defines “cost” for this purpose. (CGS 30-68m).

Advertising Manufacturer Rebates

The law allows retailers to advertise the existence of a manufacturer's rebate or the net price after the rebate amount has been deducted if the advertisement also states the price before deducting the rebate and the amount and expiration date of the rebate (CGS 30-68n).

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