IT'S BETTER TO GIVE (LEGALLY) THAN TO RECEIVE (A FINE)

DISCLAIMER: This post does not constitute legal advice. It merely sums up changes in the alcohol beverage laws to assist businesses in planning for the changes. If you have questions, then please speak to your legal professional.​

Some of the most common questions I get are about the new nonprofit donation law. If you’ll remember in the last few years, THIS happened. Well, thanks to a coalition of the beer industry (including the SC Brewers Guild and SC Wholesalers Association), the hospitality industry, and others, Senate Bill 114 became law in May of 2017. Although, it didn’t actually go into effect until the end of November. So, what does it mean and how can you as a producer or nonprofit get in on it? That’s what I want to get into today.

BACKGROUND

Ok, so you’ll recall that before this law, we had a crackdown on donations in 2016 and 2017. Producers could not provide people, equipment, or product. Nonprofits were classified as retailers, the same as would be a liquor store.  And so, nonprofits had to purchase alcohol for their events, which created some real problems for many of them. The reasoning for that is because the law didn’t specifically provide for a distinction between nonprofit events and regular special events. Remember, South Carolina is a fairly strict three-tier system state, so producers couldn’t give anything to any retailer without being in violation of that regulatory scheme.

Need a three-tier refresher? Very simply, it’s the way that alcohol gets from a producer to a consumer. The three tiers are the producer tier, the wholesale tier, and the retail tier. In practice, here is how it works – a producer makes alcohol and then sells it to a wholesaler. The wholesaler then picks up the alcohol, stores it at their facility, and then sells it and delivers it to a retailer when an order is received. The retailer then sells it to the consumer at the retailer’s place of business. In its purest form, producers can only sell to wholesalers, wholesalers can only sell to retailers, and retailers can only sell to consumers. There are exceptions of course, such as brewery taprooms. The system was adopted after Prohibition and was created to control consumption and to ensure taxes were paid on alcohol. South Carolina has carried the system for quite awhile, but the most recent incarnations of the laws that are on the books come from the 1990s. As a part of the law, producers were not allowed to provide any kind of alcohol or service to retailers, as it provided an incentive for the retailers to sell the producer’s products while potentially excluding others. This is what DOR was relying on when it made the determination that donations were no longer proper - that alcohol was being provided to free to the nonprofit (as a retailer).

Again, if you want a complete reset and refresh on the background, then go check out the old blog which has a real deep dive into what went on.

​WHAT IS THE NEW LAW?

Happy days are here again if you’re a nonprofit. A lot of money and funding for nonprofits come from various special events that are held throughout that year. And having to use operating funds on alcohol really hurt a lot of them. Now, the new law doesn’t do much for those that like to have monthly happy hours or regular events like that. But, it does give relief to those with bigger events that are held annually or quarterly. Let’s breakdown exactly what the new law does:

• It’s for SC nonprofit organizations only. So, no out of state nonprofit organizations can use this provision.
• The specific permit can only be used four times per year. Keep in mind that this specific permit was created so that nonprofits could solicit donations. Even after it has exhausted the four permits, a nonprofit could still get the old special event permits like it used to, but it wouldn’t be able to solicit donations.
• The permit can be used to solicit beer, wine, and spirits from wholesalers and producers. Either can donate to a nonprofit special event. 
• The donated alcohol has to come through a South Carolina licensed wholesaler in the territory where the event is to be held. Transfer can occur in one of two ways - delivery to the event location or the nonprofit can come to the wholesaler's warehouse and pick up the donation. Just remember, the wholesaler can’t transfer the alcohol until the license is issued and the invoice presented to the nonprofit.
• Producers can provide employees to pour and serve alcohol so long as they have received proper training. Producers and wholesalers can also provide equipment to pour the alcohol. 
• The permit costs $40.
• Donations can come from breweries, brewpubs (for the first time), distilleries, wineries, and wholesalers.​

WHAT ELSE?

With many laws that get passed, there are often winners and losers. For the most part, this law is a win for many. Producers win in that they now get to legally help out their favorite charities and causes, and those charities and causes win by not having to shell out a lot of their budget on alcohol for fundraising efforts. So, are there other winners and/or losers, or other quirks that need to be paid attention to?

• Well, larger nonprofits (or at least nonprofits that host a lot of events) could lose given the limitation on number of events. But that will just make the events that they do host matter more in terms of alcohol donations. Also, if a nonprofit is holding an event longer than 72 hours, then it will need to pull another permit. But, for the vast majority of nonprofits, this won’t be a big deal. It would probably impact larger scale events that go on for a week. Not a big deal for most.
• The law didn’t do anything for home brewers or home vintners, who aren’t able to participate in any event legally. Their liquid can only be consumed at home or in competition.
• DOR is a winner here. The law ensures that taxes get collected on the product being donated by requiring a wholesaler to make the delivery of the products. This is the normal system of business in the South Carolina alcohol system as wholesalers pay the excise taxes on alcohol it purchases from producers and sells to retailers. That money is reported and paid to DOR. 
• Nothing really happens with three-tier. The system stays as is with just this exception being made to how retailers are treated by other tiers. Nonprofits become a carve out that are separated from regular retailers for this specific and limited license type. Likewise, wholesalers are still able to make delivery and collect taxes on products. Producers may not make deliveries directly to nonprofits.
• Out-of-state or territory producers are able to make donations so long as a willing wholesaler will do it. Because South Carolina requires a contract between the parties, you might see a spike in one day event contracts between certain producers and wholesalers. That allows both to do good - certainly, make a donation, but to also get some experience with each other for future collaborative efforts, and also to expose the producer’s products to a market that it might not normally be in.
• Brewpubs also win. For the first time, beer will be able to travel legally beyond the walls of the facility. Previously, brewpubs could not legally serve at any festival or event. While they are still prohibited from going to for profit events, having the ability to attend nonprofit events should provide added exposure and enable them to help the causes and charities that they support.

HOW DOES IT WORK?

It's pretty simple. 

1. A South Carolina nonprofit organization applies for and is granted a nonprofit special event permit.

2. The nonprofit then (or prior to getting the license) informs the producers and/or wholesalers that it wishes to solicit for the special event. Now, keep in mind that either producers or wholesalers can donate alcohol. So, the nonprofit could approach either. 

3. The nonprofit presents the nonprofit special event permit to the producer and/or wholesaler.

4. Whether it is wholesaler or producer donated, the wholesaler will transfer the donation to the nonprofit organization at the location that is licensed for the event, or the nonprofit can pickup the donation from the wholesaler up to 3 days before the event.

5. The wholesaler reports the donation and pays the excise tax on the product. (Typically, a producer will reimburse the wholesaler for the tax if the producer is going to donate.)
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6. The wholesaler will give the nonprofit organization an invoice for the product. The nonprofit needs to keep this invoice at the event and have it for review just in case it is requested. The invoice will be for zero dollars and then the wholesaler would then invoice the donating producer for the excise tax that it paid or in the case where the wholesaler had already purchased the alcohol from the producer, it would invoice the producer for that amount and the tax. If a wholesaler just donated on its own, then it would just pay the excise tax.

7. The nonprofit holds the special event with the donated alcohol. 

All in all, it's a good law that will benefit a lot of great causes. If anyone has any questions, feel free to reach out.

BROOK BRISTOW

Brook Bristow is a South Carolina-based lawyer at Bristow Beverage Law, who primarily counsels companies in the alcohol industry on business and employment laws, as well as on compliance, licensing, and intellectual property. You may reach him directly at brook@bristowbeveragelaw.com