Opinion Issued On DLC’s Wholesale Vs. Retail Status

SNOW HILL — The Maryland Attorney General’s Office last week issued a long-awaited opinion, ruling the Worcester’s Department of Liquor Control (DLC) can be defined at times as a wholesaler and at other times as a retailer, but the implications on an ever-changing liquor distribution landscape in the county remain uncertain.

In July 2012, Worcester County officials sought the opinion of Maryland Attorney General Doug Gansler on the issue of whether the DLC should be considered a wholesaler or retailer for tax purposes and in terms of fairness in pricing. The issue arose with the creation of the DLC in the wake of the abolition of the old Liquor Control Board (LCB) of Worcester County in 2011 and the not-so-subtle definition distinction had potential implications on how liquor is distributed, priced and taxed in the county.

County officials asserted the DLC at most times was a wholesaler that purchased liquor in bulk for distribution to the hundreds of licensees in and around the resort area and throughout Worcester. County officials maintained the DLC could be considered both a wholesaler when it purchased and distributed alcohol to the licensees and a retailer when it sold alcohol directly to consumers from its various dispensaries around Worcester.

However, the Maryland Comptroller’s Office considered the newly formed DLC as strictly a retail operation for tax purposes, an opinion that curtailed the DLC’s ability to purchase liquor from in-state and out-of-state manufacturers and distributors at the same discounted rates as private sector wholesalers.

In 2012, the Worcester County Commissioners, through their representatives in Annapolis, asked the Attorney General’s Office for a formal opinion to clarify the rather muddy wholesale versus retail issue for the DLC.

“The Comptroller’s office recognizes that under law, the definition of a wholesaler includes the DLC, however, when it comes to the DLC purchasing from another wholesaler, it requires the DLC to be treated as a retailer,” the County Commissioners’ letter to Gansler reads. “The county feels that this interpretation by the Comptroller’s office is erroneous and puts the DLC at an economic disadvantage with the wholesalers we purchase from because they must treat us the same as all of the retailers they sell to and can’t give us any reduction in price other than what they give to other retailers,” the commissioners’ letter to Gansler reads.

The Attorney General’s Office last week released its formal opinion essentially ruling the DLC fit both descriptions at different times.

“In summary, we conclude that when the Worcester DLC purchases alcohol from a wholesaler, it should be treated as a wholesaler for tax purposes and under the anti-discrimination provision if it is selling the alcohol to other retailers,” the opinion released last week reads. “Conversely, the DLC is a retailer for both of these purposes when it purchases alcohol from a wholesaler for sale in its own dispensaries.”

It’s important to note, the description was clarified somewhat last year when the General Assembly passed separate legislation regarding the DLC that included language about the agency’s definition as a wholesale operation. Worcester County Attorney Sonny Bloxom said this week while the Attorney General’s formal and final opinion was welcomed, it had little bearing on the overall operations of the DLC.

“Basically, they based the opinion on the fact the law was changed by the General Assembly last year,” said Bloxom this week. “It means very little in terms of the operation of the DLC because it has largely been operating under the changes approved by the General Assembly last year.”

However, the Attorney General’s opinion suggests the distinction between the wholesale and retail definitions for the DLC could have unforeseen repercussions. As it stands at the moment, liquor distribution in Worcester County is a four-tiered system with the manufacturers and producers of alcoholic spirits selling to regional and local wholesalers, which then sell to the DLC, which in turn sells spirits to the licensees.

Starting in July, liquor license holding establishments in Worcester will have the opportunity to buy directly from the wholesalers and bypass the DLC altogether. Some will choose to buy directly from private wholesalers, while others will continue to deal directly with the DLC. Most will likely utilize both, buying some product directly from wholesalers while supplementing their needs with DLC products.

The Attorney General’s Office opinion last week suggests those issues including prices and markups for example will have to be worked out and considered.

“The answers to these unresolved questions may have important policy ramifications both for the Worcester DLC and other Maryland liquor control boards,” the opinion reads. “If, for example, a liquor control board receives the same prices from out-of-state producers as other private wholesalers regardless of whether the board is operating as a wholesaler or as a retailer, a functional approach could change the business models for these boards in unanticipated ways.”

The Attorney General Opinion did not include specifics on the implications of its ruling, but suggested the clearer definition puts the county’s DLC on a level playing field with other private wholesalers.

“We express no opinion about how our conclusions today will affect the prices the DLC pays for alcohol other than to say that when the DLC is acting as a wholesaler, it must be charged the same rate that is charged to other wholesalers,” the opinion reads. “If a wholesaler does not offer a discount to other wholesalers or charges those other wholesalers the same amount as it charges retail dealers, nothing in the statute would compel it to reduce the price currently charged to the Worcester DLC.”

In 2011, the Maryland General Assembly abolished the Worcester County LCB after a series of problems with the old agency. In the same legislation, state lawmakers created the new DLC operated by the county to perform the same basic functions as the original LCB. The DLC purchases liquor wholesale, sometimes directly from the distilleries, but more often from other licensed wholesalers in the state. The DLC also runs a retail operation through its dispensaries sprinkled throughout the county.

However, since its inception, the state Comptroller’s Office has considered the Worcester DLC strictly as a retail operation from a tax standpoint, a designation that has curtailed the county’s efforts to take advantage of reduced prices and other incentives offered by the licensed wholesalers.