Some months back, I wrote about an appellate decision that came down against the Washington State Liquor and Cannabis Board, the effect of which was to invalidate the LCB’s requirement that Washington state distilleries pay a distributor fee (of up to 10%) in connection with product they self-distribute.
This decision was hailed by members of the state’s distilling community but, unfortunately, not much more. Specifically, the LCB itself didn’t seem to react. For my own edification (and for the benefit of several clients), I reached out to the LCB on numerous occasions in the roughly five months since the decision was announced, each time inquiring how the agency intended to address the ruling. What should distillers do? How could they obtain refunds of fees that they had paid under the regulation—now that the appeals court had ruled it was invalid?
Each time I reached out to the agency, I received the same response. Namely, the LCB was examining the ruling and awaiting the advice of its attorneys on how to proceed.
This past Friday, we received our first indication that the LCB has finished at least some of those conversations.
Specifically, on January 5, 2018, the Spirit Fees Unit of the LCB sent licensees a relatively cryptic message, the pertinent part of which reads as follows:
Per the Washington State Court of Appeals Division Two No. 48807-8-II, Craft Distiller, Distiller and Spirit Certificate of Approval Licensees are no longer responsible to pay the distributor license fee. Even though the distributor fee is no longer remitted [to] the Washington State Liquor and Cannabis Board (LCB) the Monthly Activity Report must be submitted to the LCB by the 20th of each month.
So… the LCB has now acknowledged that the distributor fee is “no longer” required. That is helpful in that it gives comfort to licensees that they can stop paying the fee (and they probably should) without violating the law or otherwise drawing the LCB’s ire.
But of course the Court’s decision actually provided that the LCB never had any authority to collect or impose the fee in the first place. In other words, licensees shouldn’t have ever been required to pay it over. It wasn’t authorized by the statute. And for that reason, every licensee who has paid the fee in Washington has—in fact—overpaid.
The LCB’s Spirit Fee Reporting Guide provides licensees with a roadmap of how to seek refunds in the case of overpayment. In an effort to recover these prior overpayments, many licensees are taking advantage of that process—either individually or with the benefit of strongly worded letters from counsel. If you are a licensee who has paid this fee, you may wish to consider doing the same. And note that while the Spirit Fee Reporting Guide suggests that the LCB will only honor refund requests that are made within two years of the calendar year and month in which the request is made, the savvy licensee should note that this limitation (like the original decision by the LCB to collect the fee) appears to be without support. Taxpayers in Washington State are generally entitled to pursue refunds of overpaid tax for three years, not two.
We will continue to monitor the situation and report back. In the interim, if you’ve had any experience with the LCB and the self distribution fee that you’d like to share, shoot me an email. I’d love to hear your tale.