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Alcoholic Beverage Group Provides a Recap of 2011 Liquor and Beer Laws

By Will Cheek and Rob Pinson

It was another busy year for liquor and beer laws at the Tennessee General Assembly.  Although most citizens were watching the wine in grocery stores legislation, a number of important liquor industry bills passed, and many failed.

Tastings Kosher at Package Stores.  State law now allows retail liquor stores to offer tastings inside the store.  This is a major change from prior law, which limited liquor stores to selling wine and spirits, selling lottery tickets and cashing checks.  Liquor stores could also do tastings off-site, but every other business was illegal. The new law simply provides:  "a retail licensee may offer complimentary samples of the products it sells for tastings to be held on the premises of the retail licensee. Such tastings shall be for sales, education and promotional purposes."  The law prohibits wholesalers from providing any products, funding, labor, support or reimbursement for tastings. Unlike LBD tastings, no notice is required and servers do not have to hold server ABC permits.  In fact, the law does not require servers, leaving open the possibility of self-service by customers.   There is no limitation on the number or duration of tastings - it may be legal to leave bottles up front for customers to sample as desired. The law raises many questions.  Liquor stores cannot sell mixers.  Can they provide mixers with spirits?  How about ice?  Can stores even provide glassware or plastic for serving wine and spirits - they certainly cannot sell it?  Can food be served? The ABC plans to adopt regulations for retail tastings and the process is set to begin this week.  Long Live the ABC.  In prior legislative sessions, there has been discussion about merging the ABC with another agency.  The ABC has been plagued by a bad audit that disclosed bad cash management procedures and employee theft auditors thought was not properly handled, among other issues.  Last year, the ABC was approved at the eleventh hour of the legislative session. The future of the ABC is a little brighter after this year’s legislature extended the life of the ABC through June 30, 2013, and did so relatively early in the session, without much fan fare.

 

Mail Order Wine to Dry Counties.  The legislature removed a restriction on the direct shipment license that previously limited direct shipment sales to “wet” cities and counties.  Now, you can order wine from any licensed winery by mail, anywhere in the State of Tennessee.

 

Shelby County.  This law fixes a problem in unincorporated areas outside Memphis.  For years, there has been confusion about Memphis’ city limits.  Over the years, a handful of restaurants were issued liquor licenses because they appeared to be in Memphis, but were actually located in dry areas of Shelby County.  Liquor by the drink is legal in Memphis and the suburban cities inside Shelby County.  Liquor by the drink was not legal in unincorporated areas of Shelby County, where the handful of restaurants were operating with liquor licenses, but not legally authorized to sell liquor.  This law legalizes liquor by the drink in unincorporated areas of Shelby County.

 

Adventure Tourism.  This law creates a significant tax credit for creation of “adventure tourism” jobs.  The law is complicated, but for qualifying businesses, we read the bill as providing a tax credit of $4,500 for three years for each new adventure tourism job.  The state department of tourist development is charged with defining what jobs are adventure tourism.  For creative entrepreneurs, this could be an attractive opportunity.  $13,500 over three years is a big incentive to create jobs.

Wholesalers Importing.  Rumor has it that some wholesalers have been acting as importers of wine and spirits, although the practice was not specifically authorized by Tennessee law.  With the proper permit, the practice is now clearly legit.
Lexington.  Most folks ask why we are reporting about a Kentucky law, but yes, Virginia, there is a Lexington, Tennessee.  The law authorizes Lexington, by ordinance adopted by a two-thirds vote, to levy an occupancy tax on the privilege of staying in any hotel or motel in Lexington.  Lexington can set the rate of the privilege tax; but the proceeds must be spent for “tourism development.”

 

A City United.  Goodlettsville, a city long divided by county lines for alcohol, will now be able to conduct a referendum for the sale of alcoholic beverages at retail package stores in the Sumner County portions of the city.

 

Sunday Sales. The law sets the hours for the sale of beer on Sunday in a county to be the same as the hours set by a municipality that adopts liquor-by-the-drink in a referendum. The law does not apply if the county legislative body by a 2/3 vote has already set the hours for the sale of beer on Sunday in areas outside the municipality.

As usual, a few pet projects in dry areas were designated as Premier Type Tourist Resorts.  Here is our best guess at who gets liquor:

  • Buffalo River Resort in Perry County, which has 95 acres, three log cabins, 20 RV pads and a 40-seat restaurant.

  • East Fork Stables in Jamestown, with space to hold up to 220 horses and a restaurant.

  • The nonprofit Franklin Theatre may sell alcoholic beverages for consumption on  premises.

  • Blue Porch Inn in Rutherford County may sell alcoholic beverages for consumption on premises.

  • Woodlake Golf Club in the East Tennessee town of Tazewell may sell alcoholic beverages for on-premises consumption.

  • The National Ornamental Metal Museum in Memphis may sell alcoholic beverages..


The special license in dry areas known as “Tennessee River Resort District” now includes a limited service restaurants, which is last year’s new license for places that sell less than 50% food.

Down and Out for 2011
Here are some bills of interest that failed.

 

Wine in Grocery Stores The bill was not expected to advance this year, and indeed it did not.  Insiders reported that last legislative session, a deal was struck to defer serious consideration of wine until 2012.  Read more about our analysis at Will Cheek's Blog.

Pay the Piper.  The bill would have required that all ABC fines be paid before renewal of liquor licenses and specifically authorize the ABC to charge costs from setting citations for hearing.  The ABC has historically required payment of all outstanding citations at renewal, and this bill would have made it law.  In addition, the bill would have required licensees to pay the expenses of setting a citation for hearing, even if the citation settled.  This would have been an effective tool for the ABC to clear a backlog of older citations. Currently, some licensees ignore citations because there are no clear consequences.  The bill died in the House for no apparent reason.

LBD Audits.  The bill would have changed the method to audit taxes paid on alcoholic beverages sold in restaurants.  The current system simply taxes restaurants based on a formula derived from the wholesale sales to the restaurant.  The bill would have directed the commissioner of revenue to explore the possibility of developing an on-line filing system which would permit the automatic deduction from the collector's business account for the payment of the tax due on sales of mixed drinks and setups.

Selling on Satellite.  As introduced, would have allowed TN licensed wineries to conduct business at up to two satellite locations, allowing wineries to locate in urban tourist areas, among other places.

New License Fees.  This bill would have required the ABC to implement a new licensing fee structure for restaurants and limited service restaurants based on liability insurance codes. Present fees are based on percentages of food service.  Some saw this as a way to assess higher fees for riskier businesses such as nightclubs.

Order Up Red Bull and Vodka.  With caffeinated alcohol drinks being banned at the federal level, legislators tried to extend the ban to mixed “energy” drinks at bars.  The bid to say goodbye to selling caffeinated mixed drinks this year failed.  In all fairness, it is difficult to craft a law that bans Red Bull and Vodka, but allows Jack and Coke.

For Profit Movie Theaters Stay Dry.  Bills to allow liquor sales at a Knox County Theatre and two Nashville theaters were rejected.  The Davidson County proposal required one auditorium to be restricted to patrons 21 years of age or older.  Although a few nonprofit theaters have been approved for liquor, the legislature clearly declined to extend the right to for profit businesses.

*Many thanks to our intern, Eliot Goldfarb, for his research and input to this year's Legislative Recap. Eliot is a recent graduate of USN and is part of our service center team for the summer.
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