The Three Tier System
Balancing Commerce and Regulation

The 21st Amendment to the United States Constitution, and the Federal Alcohol Administration Act establish a unique federal-state regulatory system for alcohol beverages. While state laws differ in certain details, they share a common basic framework known as the three tier system of beer distribution. In the beer industry, brewers and beer importers are known as the supplier tier and are accountable to federal and state regulatory agencies. The suppliers sell their products to approximately 1,800 beer distributors, each of which holds a federal permit and a state license. Distributors provide customized beer inventory to more than 750,000 state-licensed retail outlets of all types, sizes, and locations throughout the United States. Licensed retailers sell beer to consumers of legal drinking age convenience or package stores, restaurants, bars, stadiums, and other venues.

The Distribution System Balances Appropriate Social Controls With A Competitive Marketplace.
From a public policy standpoint, the system provides strong incentives for industry self-regulation. Each participant makes a substantial investment in its business. The licenses to produce, distribute, or sell beer are significant assets that are subject to strict compliance with federal and state law.

From an economic standpoint, the three tier system provides retailers and consumers with significant value, including:

• A clear chain of custody from the supplier to the point of sale with each party subject to government criminal and credit background checks, economic regulation, and other measures to maintain integrity, commercial independence, and accountability;
• A transparent and accountable system that:

1. Ensures efficient and effective tax collection
2. Deters development of illegal channels of alcohol beverage distribution, such as black market sales and unregulated Internet or mail order sales
3. Helps prevent oversupply and resulting economic pressures in the system
4. Ensures product safety, integrity, and freshness through monitoring of perishable inventory for damaged or outdated products
5. Enables rapid response to product recalls and other business contingencies;

• Responsible sales practices and voluntary compliance with laws;
• An efficient means of disseminating industry-sponsored programs to prevent access to alcohol beverages by intoxicated persons and individuals under the legal drinking age;
• Fair competition through equitable treatment and reliable service to retailers of all types and sizes; and
• Availability of a variety of products for retailers and legal drinking age adults.

Will you make a visit to a distributor over the next few months to learn more about our role in balancing social controls with a competitive marketplace?

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Ensuring Appropriate Control for Malt Beverages

For decades, Congress has funded law enforcement, education, treatment, prevention, and highway safety programs to address issues such as illegal underage drinking and drunk driving. These efforts are built upon a comprehensive federal-state regulatory structure that underscores the clear intent of Congress and state lawmakers to tax and regulate production, distribution, and sale of alcohol beverages.

At the federal level, the Treasury Department’s Tax and Trade Bureau (TTB) has unique authority from Congress to regulate production, advertising, labeling, excise tax collection and a range of business activities. The Federal Trade Commission (FTC) specifically oversees industry advertising, while other federal agencies maintain general authority over industry members.

The 21st Amendment empowers the states to craft regulations governing the production, distribution and consumption of alcohol within their respective borders.
State alcohol regulation and enforcement policies that are focused on distribution, and sales practices are critical in the fight against illegal underage access and abusive drinking. State-by-state approaches enable policy makers to direct their resources and adopt solutions best suited for their particular circumstances and needs.

In recent years, state authority over alcohol beverage distribution has been challenged in courts and legislatures by economic interests that ignore the intent and the history of the 21st Amendment, the Federal Alcohol Administration Act, and the laws of the 50 states. These efforts culminated in a 2005 United States Supreme Court decision that overturned Michigan and New York laws regulating on-line or mail order wine sales originating in other states because they discriminated against out-of-state wineries. The decision has created pressures in some state legislatures to hastily abandon traditional safeguards, such as the requirements that alcohol beverages be purchased via face-to-face transactions or that alcohol beverage retailers maintain a physical presence in a state.

A small segment of producers and retailers is seeking to expand the Supreme Court’s holding by new attacks on state laws governing beer and wine distribution and sales.
These proposals would undermine basic components of federal and state alcohol regulation and law enforcement by allowing out-of-state suppliers to ship beer or wine directly to retailers in other states. State regulatory and licensing systems form the foundation for a range of programs and processes addressing important societal issues, such as prevention of illegal underage drinking and drunk driving. We cannot allow sensible state policies enacted in the public interest to be weakened in this way.

Can we count on you to support federal policies that uphold the 21st Amendment of the United States Constitution by maintaining a coordinated state and federal system to regulate and control malt beverages?

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Small Business Owners and Their Employees
Need Permanent Death Tax Relief

Now Is The Time To Give Family Businesses Certainty In Estate Planning.
Small business owners need certainty to plan for the future of their businesses. The House of Representatives voted to repeal the death tax by passing H.R. 8, the “Death Tax Repeal Permanency Act of 2005,” in April 2005. The Senate is expected to take up this issue this month, and we encourage Senators to provide permanent relief to family-owned businesses this year.

As long as Congress fails to act, business owners will be forced to divert economic resources from investments that grow businesses, create jobs, and boost the economy. Instead, they will use those funds to pay for estate planners, lawyers, and accountants to navigate them through the uncertainties of the current tax structure and execute estate planning vehicles.

Growing businesses create more jobs and stimulate economic growth as a whole. A strong economy is necessary for the future of these businesses and the generations to come.

The Death Tax Results In Loss Of Family Businesses.
Beer distributors directly employ more than 92,000 American workers nationwide, and the beer industry as a whole supports nearly 1.8 million employees. Many distribution companies have been family-owned and -operated since the repeal of Prohibition in 1933. Due to the looming threat of the death tax, these family businesses and their employees could be at risk if Congress fails to act.

Bipartisan Polling Shows Strong Public Support.
According to a nationwide survey, 85 percent of those polled want the death tax permanently abolished or significantly reduced. On principle, Americans strongly oppose the concept of anyone being taxed upon their death.

Permanent Relief Has Bipartisan Support.
Full repeal will occur in 2010, however, the death tax burden will return in full force in 2011 due to the sunset language that was included in the Economic Growth and Tax Relief Reconciliation Act of 2001.

We urge the Senate to demonstrate leadership on this issue by passing permanent relief this year. Congress should make permanent death tax relief a priority by sending President Bush legislation for his signature.

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Beer Is A Unique Product With Individual Attributes, Distinct Among Alcohol Beverages.
The distilled spirits industry has attempted to convince policymakers that all alcohol beverages are equal. But it is misleading to suggest that there is no difference between a mug of beer, a glass of wine, or a shot of liquor.

There are key differences among alcohol beverages that have been recognized by policymakers since the country’s founding, including alcohol concentration, the way these different drinks are consumed, the way they are regulated, and contributions to the American economy. The spirits industry has used many venues to communicate its misleading equivalency message to policymakers and regulators: in advertising; in comments to federal and state regulators on alcohol labeling; and on websites frequented by consumers.

Regulatory Proceedings Should Not Be Used To Seek Marketplace Gains.
The Alcohol and Tobacco Tax and Trade Bureau (TTB) regulates the labeling and advertising of alcohol beverages. In 2005, the TTB released an advance notice of proposed rulemaking encompassing several labeling proposals, including ones that would:

• Confuse consumers by creating a new way to describe a product’s alcohol content and concentration, or potency, by including two new measurements on labels and in ads that are based on the false notion that all alcohol beverages are the same. One measure is a “standard serving size” that is inaccurate and unrealistic in the real world. The second measurement of “absolute alcohol” would not indicate the significant differences in alcohol strength between liquor and wine and beer. Additionally, a “standard serving size” does not clearly reflect product differences and is not based upon actual drinking habits, widely used drink recipes, or practical considerations, such as the different pouring tendencies of individual bartenders and consumers; and
• Mislead consumers about the potency of distilled spirits with text or a graphic depiction of a beer mug, a wine glass, and a large shot glass with equal signs between the glasses. This graphic illustrates an untruth that beer, wine, and liquor are all equal.

While everyone favors providing information beneficial to all consumers that is clear and easy to understand, these proposals present factually inaccurate and misleading information to the consuming public. Members of Congress should not be misled by these proposals and should not sign letters or sponsor legislation to promote this agenda for the following reasons:

• These proposals would mislead the public. We support longstanding TTB regulations requiring display of the percentage of alcohol by volume as the best means of indicating alcohol content on a product label or in advertising. Consumers understand the meaning of alcohol by volume and have used this information when making drinking decisions for years. Displaying alcohol content in terms of “fluid ounces” of pure alcohol per “standard serving” is a difficult calculation. It is also misleading, irresponsible, and potentially dangerous as consumers may not be aware of the concentration of the alcohol beverage they are drinking.
• The concept of a “standard drink” is a myth. Liquor comes in many strengths and mixtures, and mixed drinks can vary dramatically in alcohol content based on the brand, recipe, and individual pouring. For example, a martini contains three ounces of gin or vodka and a dash of vermouth, and a Manhattan contains two ounces of whiskey and one ounce of vermouth. These basic cocktails contain at least twice the amount of alcohol that the liquor industry claims is in their definition of a “standard drink.” In fact, a single mixed drink, made according to many liquor company recipes, often contains more alcohol than the total daily alcohol intake for men and women in the USDA Dietary Guidelines. A person drinking one or two martinis will be affected in a much different way than another drinking one or two beers.
• All alcohol beverages are not the same. The liquor industry’s proposals attempt to undermine long-standing alcohol policies that recognize the clear differences among beer, wine, and liquor. Federal and state laws and regulations have properly imposed greater restrictions on vodka, tequila, whiskey, and other liquors, which have a far higher alcohol content and concentration than most wines and beer.

Beer Serves The American Economy.
The misguided equivalence campaign favors an industry that contributes disproportionately fewer jobs and tax dollars to the U.S. economy when compared to the beer industry. The Beer Serves America website (www.beerservesamerica.org) details the significant contribution of the beer industry to the U.S. economy in every state and congressional district. Directly and indirectly, beer-related businesses, including brewers, importers, beer distributors, retailers, and suppliers, employ approximately 1.8 million Americans, paying them $54 billion in wages and benefits. The industry also pays $30 billion in business, personal, and consumption taxes each year, including nearly $3.7 billion in federal excise taxes alone.

Can we count on you to reject the false theories of “equivalency” and a “standard drink?”

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1 “Guide to good hosting.” 2001. Distributed by state alcohol boards including the Pennsylvania Liquor Control Board and the North Carolina Alcohol Beverage Control Board.

Beer Industry’s Commitment to Progress

Brewers, importers, and distributors have joined parents, educators, law enforcement officials, highway safety experts, and all levels of government in a variety of efforts to help address important issues such as illegal underage drinking, drunk driving, and responsible consumption of alcohol beverages by legal drinking age adults.

Many factors contribute to the significant progress in the fight against illegal underage drinking and drunk driving in the past twenty years, but we believe that collaboration among the stakeholders to support effective strategies to address these serious issues is central. The importance of collaboration was recognized in the recently-released Interagency Coordinating Committee on the Prevention of Underage Drinking (ICCPUD) report to Congress. Brewers, importers, and distributors have committed substantial resources to create and support initiatives that address illegal underage drinking and drunk driving.

As a sign of progress in the fight against illegal underage drinking, the University of Michigan Monitoring the Future survey showed that in 2005, the percent of high school seniors who had consumed alcohol in the last month is 6 percent lower than it was in 2000 and at the lowest level ever recorded in the study’s 30-year history. Additionally, the 2005 American Freshman Survey sponsored by UCLA showed that beer drinking among college freshmen is 10 percent lower than it was in 2000 and at a record low since the survey began in 1966.

America’s brewers, importers, and distributors are leaders in providing information to the public to encourage responsible alcohol consumption among legal drinking age adults. To do this, we sponsor varied programs at professional sporting events, party planning guides that include best practices for safe celebrating, and training in several languages for servers and sellers of alcohol to teach them how to properly check IDs, understand the effects of alcohol, and how to effectively intervene to prevent potential alcohol abuse situations. Additionally, we have worked to reduce youth access to alcohol by supporting tough state laws for the manufacture or use of fake ID’s and by providing retail signage and national advertising reminding parents and other adults not to purchase alcohol to minors or provide it to them at parties.

According to the National Highway Traffic Safety Administration, drunk driving fatalities have also declined significantly. Fatalities in drunk-driving crashes decreased 39 percent from 1982 to 2004, including a 3 percent drop since 2000. These decreases occurred despite an 86 percent increase in vehicle miles traveled, a 32 percent increase in licensed drivers, and a 56 percent increase in registered motor vehicles. Specifically, fatalities in crashes involving teenage drunk drivers (ages 16-20) decreased 64 percent from 1982 to 2004, including a 12 percent decline since 2000.

Members of the beer industry have consistently supported effective government policies to reduce drunk driving, such as increased enforcement along with graduated penalties for repeat and high BAC offenders. In addition, we have strongly supported designated driver and safe ride efforts that have served as a major factor in reducing drunk driving.

While this nation has seen great progress in these areas, there is still more work to be done. We will continue to invest in effective public/private strategies to reduce illegal underage drinking and drunk driving and look forward to working collaboratively with Members of Congress on these important issues. 

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