Analysis

Topic: Liquor
Sponsor: Representative Cassis
Date Ordered Enrolled: June 21, 2000
Date of Analysis: June 26, 2000

Position: The Department of Consumer and Industry Services supports the bill.

Background: The sale of alcohol to persons under 21 years of age accounted for 35 percent of all liquor violations in 1999. The advent of the Internet has made it easier for underage drinkers to circumvent the law, because such sales do not involve face-to-face transactions with a picture identification. Recently, several supervised Internet purchases with underaged participants were conducted under the supervision of Liquor Control Commission staff.

Michigan has a very strict regulatory framework for sales of alcohol. Only licensed retailers may deliver alcohol directly to consumers, and retailers can only buy alcoholic products directly from licensed wholesalers, who buy from licensed suppliers. Internet and mail order companies that ship alcohol directly to consumers are in direct violation of the three-tier system established by the Michigan Liquor Control Code. These shipments circumvent Michigan's tax structure for alcoholic beverages, thereby reducing revenue to the General Fund and School Aid Fund.

In an effort to eliminate these types of violations, the Attorney General's office has begun prosecuting out-of-state liquor retailers. To date, two purchases have resulted in criminal charges being filed against liquor retailers in Illinois who sold and shipped alcohol to Michigan minors without asking the minor's age or requiring proof of identification. Four "Notices of Intended Action" have also been issued to other on-line businesses who shipping alcohol into Michigan without a license. On February 10, United Parcel Service became the first shipping company to enter an "assurance of discontinuance" in which the company has agreed that it will not ship alcohol into Michigan.

Bill Content: The bill amends Section 203 of the Michigan Liquor Control Code of 1998 by requiring that a retail sale, delivery, or importation of alcoholic liquor transacted by mail order, Internet, telephone, computer, device, or other electronic means must comply with all of the following:

- Be appropriately licensed under the laws of Michigan;
- Pay any applicable taxes to the Commission;
- Comply with all prohibitions in Michigan law, including, but not limited to, sales to minors;
- Verify the age of the individual placing the order;
- Upon request of the Commission, make available any document used to verify the age of the individual ordering the alcoholic liquor;
- Stamp, print, or label on the outside of the shipping container language that clearly establishes in a prominent fashion that the package contains alcoholic liquor and that the recipient at the time of the delivery is required to provide identification verifying his or her age along with a signature;
- Place a label on the top panel of the shipping container containing the name and address of the individual placing the order and the name of the designated recipient, if any.

The person who delivers the alcoholic liquor is required to verify that the individual accepting delivery is of legal age and is either the individual who placed the order or the designated recipient residing at the same address. Alternatively, the Commission may authorize other persons to receive alcoholic liquor by rule. The delivery person is required to make a diligent inquiry to determine that the purchaser or designated recipient is of legal age. If it cannot be determined that the purchaser or designated recipient is of legal age, the delivery person is required to return the alcoholic liquor to the retailer. The delivery person is not liable for any damages suffered by the purchaser or retailer due to the inability of the delivery person to obtain the purchaser's or designated recipient's legal age.

Subsection 7 has been rewritten at the request of the Department and the Commission. The authorization to import from another state for a person's personal use not more than 312 ounces of alcoholic liquor has been clarified. Under the bill a person would be authorized to personally transport from another state, once in a 24-hour period, not more than 312 ounces of alcoholic liquor for that person's personal use. Alternatively, alcoholic liquor could be shipped or imported from another state for a person's personal use as long as that personal importation is done in compliance with the other provisions in the bill.

Arguments For: Underage drinking is a serious problem in Michigan. The expansion of electronic commerce on the Internet has unfortunately made it easier for underage drinkers to circumvent the law. Although companies may require a date of birth and a credit card number to purchase alcohol, it is comparatively easy to report a false birth date and use parents' credit card numbers. Furthermore, most deliveries are made while parents are at work, making it easy for underage drinkers to gain possession of the alcohol without their parents' knowledge. The bill addresses these problems by requiring better record keeping and documentation of transactions by the retailer, packages clearly marked as containing alcohol, and verification of the age of the recipient by the delivery person.

The bill creates a level playing field for Michigan businesses and retailers in other states by requiring that all sales to Michigan consumers fit into the state's regulatory framework. This assures that these businesses are properly licensed and that all taxes are paid. The bill will not hinder electronic commerce. Three companies selling liquor on the Internet operate legally within Michigan, and all others can easily follow suit.

The authorization to import 312 ounces of alcoholic liquor for a person's personal use has always been interpreted by the Liquor Control Commission and the Attorney General as meaning "personally transport". It was intended to deal with the situation of a Michigan resident traveling to Chicago and bringing back alcoholic liquor. Although this interpretation has been successfully defended in court, the Liquor Control Commission feels that it is important to clarify it now that Section 203 has been amended by the Legislature.

Arguments Against: The bill is not needed. The Liquor Control Code already prohibits the importation, transport, delivery, and sale of alcohol by anyone other than licensees and grants the Liquor Control Commission authority to prosecute any person or business circumventing the law. The Commission has recently taken enforcement action against an Illinois retailer.

Fiscal Information: Growing use of the Internet to make purchases of alcoholic liquor will deprive the General Fund, School Aid Fund, and substance abuse programs of tax revenue. The amount is currently small, but the potential exists for significant increases as electronic commerce grows.

Administrative Rules Impact: The Liquor Control Commission's Rule 27 may have to be modified. This rule prohibits an off-premises licensee from making a delivery to any person under the age of 21 years. This existing rule covers the situation envisioned in Subsection 4 of the bill by authorizing other persons to receive a shipment of alcoholic liquor. The Commission will consider whether this rule has to be fine-tuned to conform to the revised requirements of Section 203, but it substantially satisfies the intent of the bill in its current form.