By Will Cheek
As usual, alcohol-induced legislation was popular with the 2012 Tennessee General Assembly. Legislators quaffed mass quantities of liquor legislation. Some made it to the state bar; others fizzled. We distill the most interesting and important beer and liquor laws of the 2012 Session.
Wine Fails Again
Most visible was the failure of Wine in Food Stores legislation to gain traction. According to an MTSU poll, 69% of Tennesseans favor wine in groceries.
This year, some supporters revamped the legislation to allow citizens to vote on wine in grocery stores with a local option election. Local option election is the way that cities, towns and counties decide to allow package stores and liquor-by-the-drink in restaurants.
Local option responded to criticism that the state should not be telling local folks whether Kroger and Mapco could sell wine. The thought was that major cities would legalize wine sales in food stores, based on the popularity of the issue, but that more conservative, generally smaller towns, would not be forced to swallow something that was not palatable to more conservative voters.
The new wine legislation died early in the legislative session. Many observers were not surprised, given the upcoming elections this fall and the fear among incumbents of primaries that almost certainly will focus on conservative values – including an anti-alcohol constituency that remains very important in more rural districts.
Discounts: Game Changing Marketing Rules?
Some liquor stores quietly offered small discounts to military personnel and elderly citizens. Technically, the practice was not legal. Someone asked the ABC and was told to stop.
In response, the legislature created a huge exception to the ABC prohibition against coupons and other discounts at the retail level. It is now legal for package stores – as well as bars, restaurants and other LBD licenses – to offer discounts, as long as the price is not below wholesale cost.
Specifically struck down are the limitations on case discounts at package stores. There are no case discount rules, as long as the price is not below cost. The impact on LBD could be sweeping, depending on how the ABC harmonizes the new law with existing laws and ABC Regs. For example, the new discount rule appears to allow happy hour beyond 10 pm, which will put considerable pressure on marketing to binge drinkers late at night.
It also opens up the possibility of selling drinks at multiple prices, at the same time, allowing preferred pricing to groups or preferred patrons. Allowing multiple prices on drinks could create headaches for tax collection and new tools for unscrupulous owners to cheat the tax man.
The open-ended discounting law could be this year’s Pandora’s box. PC 947.
Package Store Tastings
Following the 2011 passage of a law that allowed tastings at retail package stores – without any rules – 2012 legislation clarified that retail tastings are subject to very few rules:
• Liquor stores do not have to file a notice with the ABC for each tasting. Retail stores are required to give the ABC an annual notice of intent to conduct tastings, concurrent with renewals. The notice does not have to specify when tastings might occur. The ABC cannot charge a fee for the notice.
• Tastings may be offered at any time the retail liquor store is open for business.
• The size of each sample may not exceed “approximately two ounces” for tastings of wine or high-alcohol beer. Samples of spirits are limited to “approximately one-half ounce.”
• Retail liquor stores are responsible for limiting the number of tastings per customer and the number of products available for tasting.
• A retail licensee or employee of the licensee “may participate” in tastings. The change apparently overrides the general prohibition against licensees and employees drinking on the job.
• A server permit is not required for employees conducting tastings, if the employee has an employee permit for the retail store.
The new legislation does not address whether liquor stores may pair food with tastings, or offer guidance about mixers and other critical details. Keep in mind that liquor stores can only sell liquor, lottery tickets and cash checks. The ABC could easily take the position that since mixers and ice cannot be sold, mixers and ice cannot be used in tastings. Of course, liquor stores cannot sell glassware or Red Solo Cups, which if banned, would complicate tastings.
Although the new law makes it clear that notices are not required for each tasting, the legislation is ambiguous about annual notices. To be safe, we encourage owners to give a general notice of intent to conduct tastings now, and then give the same notice again each time the license is renewed.
Plaintiff’s lawyers could have a field day with the open-ended language allowing stores to set their own policies about how much a consumer can taste, how many samples can be available at any given time and how much alcohol staff consumes while conducting a tasting. We encourage store owners to impose the same controls a responsible restaurant imposes concerning consumption of alcohol. Dram shop liability is a logical concern and owners should have insurance coverage.
Allowing owners and employees to sample wines and spirits at tastings is fraught with danger. For example, what if the tasting lasts all day and the imbibing employee is also selling alcohol at the register. After a tasting, we encourage employees that have sampled alcoholic beverages not to return to regular duty selling wine and spirits. Bottom line, it is apparently legal to be under the influence and sell alcohol, provided the owner or employee is “participating” in a tasting. We say it is a bad idea. PC 947.
ABC Gets the Hammer for Admin Hearings
The ABC can now be awarded costs at administrative hearings. This puts considerable power into the hands of the ABC to press for settlement of citations. The ABC can use the threat of being awarded costs at an administrative hearing as a hammer to convince reluctant licensees to pony up for settlement or close the doors for a suspension.
Under the new law, in any administrative proceeding where sanctions are imposed, the ABC can be awarded costs. Costs include legal fees for the investigating and prosecuting attorney (generally the ABC Director or Assistant Director), the administrative judge, experts, and agents and other “persons” investigating and prosecuting the charges. Rates were not set, but are required to be “reasonable.”
“Reasonable” legal fees can be horrendously expensive. We expect that the hammer will be especially effective against licensees that try to ignore citations. We do not foresee a change for the vast majority of licensees that respond to citations. PC 1063.
Help Me, I’m Hungry
Tipped employees are no longer entitled to a 30 minute break for meals. The new law imposes a complex set of rules for employers to institute a “voluntary” program for tipped employee’s to waive their right to a 30 minute meal break. We see this law as fodder for bottom-feeding plaintiff’s employment attorneys. PC 760.
Limited Service License Fees
Previously, new limited service restaurants, commonly known as bars, were automatically presumed to sell less than 20% food and therefore had to pay the maximum $4,000 license fee. The law now allows new bars to submit a business plan projecting their percentage of alcohol and food sales. This should help future aspiring bar owners that plan on selling more than 20% food.
At renewal, the limited service licensee must file a sworn statement of food sales. If the projection in the business plan does not match the percentage in the sworn statement, the restaurant will either retroactively pay the difference between the higher license fee or receive a refund.
Buried in the change is language that arguably strips the ABC of authority to investigate the accuracy of the business plan and sworn statement. This favors the unscrupulous at the expense of honest bar owners. PC 947.
Farmer Brown’s Wine Bar
Tennessee’s bucolic farm country is now ripe for wine tastings and sales of farm wines. Farmers can now become farm wine producers. A farm winery grows its own grapes and contracts with a licensed winery to make wine from the grapes and bottle the wine in custom labeling for the farm.
Back on the farm, Farmer Brown can offer tastings of the wine and sell the wine by the bottle, in a separate room. There are no location restrictions, which we read as opening up dry rural areas to wine sales for Farmer Brown. Perhaps the most interesting provision of the farm wine producer law is the omission of the wholesale tier. Wineries can transport wine directly to the farm. Farm wine does not have to pass through wholesalers.
The farm wine law imposes almost no restrictions on sales. Hours are not set and server permits are not required for tastings, for example. The law does not expressly allow a charge for tastings, although the law does not prohibit charging admission to a tour that includes
As expected, a handful of dry restaurants were licensed as a premier type tourist resort and are now able to serve booze. Included are:
1) Catfish Place in Cheatham County. PC 661. 2) Long Branch on Dale Hollow Lake. PC 1005. 3) East Fork Stables. PC 0503. 4) Blue River Resort in Perry County had its license revised. PC 0440.
Cocke County can roll out the red carpet for distilleries. Cocke County, home of world famous moonshiner Popcorn Sutton, is now allowed to have distilleries in their county. PC 515. Four new specific businesses were added to the list of special licenses for LBD:
1. Woodland Golf Club. PC 136. 2. National Ornamental Museum in Memphis. PC 110. 3. Franklin Theater. PC 053. 4. The convention center at Tellico Lake. PC 1035.
If You Can’t Buy… Stay Out of the Liquor Store
The law for many years has outlawed people under 21 and people who are “visibly intoxicated” from buying liquor in liquor stores. The law has been extended. Now anyone “visibly intoxicated,” under the age of 21 or otherwise disruptive can be criminally charged, if asked to leave to store. Anyone under the age of 18 without a parent can be criminally charged just for entering a liquor store.
We wonder if the change has anything to do with wine in grocery store legislation. We doubt Publix will restrict minors from its stores, if groceries are allowed to sell wine. PC 899.
The prohibition against hiring LBD employees for eight years after conviction of a felony was reduced to four years. Employees convicted of crimes involving the sale, manufacture or transportation of alcohol are still precluded from holding sever permits for eight years.
The law muddied an age-old ABC practice of disregarding crimes resolved by “judicial diversion,” a common way for someone with a good record to dismiss criminal charges after doing community service and avoiding a subsequent arrest for a few months. The new law specifically approved of disregarding non-alcoholic beverage crimes resolved by judicial diversion. By omitting judicial diversion for alcoholic beverage crimes, does the law require the ABC to deny a server permit where a sale to minor was resolved by judicial diversion?
Note that the law does not apply to employee permits for retail liquor stores. Judicial diversion may not be an option for package store clerks. PC 1063.
Hours for Beer Sales
Two laws change the hours for beer sales in many cities and counties, most likely impacting more rural areas. For establishments holding LBD licenses, the hours for the sale of beer are now the same as the hours for the sale of wine and liquor. PC 027.
Another law expands the areas for Sunday 10 am sales to the entire county, where one city has LBD. Counties can opt out by 2/3 vote of the county commission.
We were astonished to see legislation that mentioned Sunday and alcoholic beverages in the same legislation. The general wisdom is that bills that expand the availability of alcoholic beverages on the Lord’s Day are dead on arrival. Perhaps it confirms that Legislators treat beer differently than alcoholic beverages, presumably based on antiquated assumptions that beer poses a lower risk than wine or spirits. Need we remind Legislators that this is an election year? PC 231.
Smoking Bath Salts and Plant Food
Unscrupulous convenience stores across Tennessee have been selling plant food, incense, bath salts and other seemingly innocuous products that have a popular use among youth bound for a buzz. When smoked, inhaled or injected, these substances create marijuana and hallucinogenic-type effects. The downside? The stuff is really dangerous, all too often leading to hospitalization and sometimes serious permanent injury. Every now and then, someone dies.
The Legislature created a new Class E felony to manufacture, sell or posses for sale an “imitation controlled substance.” Importantly, the law declares the building where the substance was sold to be a public nuisance. Beer boards should be able to close public nuisances by suspending or revoking beer permits.
It is very difficult to criminalize variations of synthetic drugs. Manufacturers tweak the formula to avoid criminal laws and suddenly have a legal product. With this law, Legislators took a broad approach, seeking to ban all “imitation controlled substances.” Look for court challenges by defendants. PC 843.
Important Technical Changes
• Full Bars in Smaller Restaurants. This new law fixes an inconsistency that came about with the adoption of limited service restaurants. Now, a restaurant with as few as 40 seats can sell alcohol, even if the restaurant sells more than 50% food. Two years ago, the limited service license lowered the seating requirement to 40 for bars, but not for restaurants. Restaurants with 40 seats could only serve wine. PC 790.
• Charities in the Hinterland? Special occasion licenses can now be issued to dry areas of a county that contains at least one city that has LBD. Charities can now hold special events in dry areas of major counties with wine and spirits. The law does not address beer. PC 447.
• Alcohol on Golf Courses Legalized? The premises for a private club now includes the golf course, tennis courts and areas immediately surrounding the swimming pool. Previously, many clubs allowed patrons to imbibe while golfing, but technically, the practice was not legal at most clubs. The law did not legalize duffing with beer and does not apply to for profit clubs.
• Due Process? Legislators developed a pilot program that authorizes the beer boards in Hancock, Union, Grainger, Claiborne, Cocke, Jefferson, Hawkins, Hamilton and Knox counties to suspend or revoke the beer permits if the ABC suspends or revokes alcohol licenses of any establishment. The law is complicated and amends an existing attempt to coordinate prosecution against establishments charged with selling alcohol to patrons under the age of 21. PC 881.
• Report Cards for Beer Boards. Beer boards are required to file yearly reports with statistical information identifying: (a) the number of beer permits issued, (b) information surrounding violations for the sale of beer for off-premises consumption and (c) any penalties imposed by the beer board for these violations. The ABC is required to compile the data and file a report with the Legislature by March 15. Copies of the report are available upon request. We suspect a number of beer boards will ignore the law, saying that the beer board does not have access to the information required pursuant to the law, which is a specific exception to the unfunded mandate. The other problem with this law is constitutional: the law goes far beyond the caption of the bill. PC 964.
• ABC’s High Alcohol Research Project. This law was created in response to the death of an 18 year old from consuming Everclear. This law requires the ABC to research and report information regarding beverages with high alcohol content to state and local government committees by January 30, 2013. New laws may come from this research next year. Stay Tuned? PC 730.
• ABC Regs. The ABC is now required to file a report by March 1 each session covering each new Reg enacted in the previous year and specifying the rationale for the new Reg. PC 947.
• Fines. The ABC is required to state the particular rule or statute in all citations, codifying a process that we believe has been in effect for decades at the ABC. PC 947.
• What’s better than receiving a letter from a loved one in the military? Receiving a bottle of wine with that letter. Tennessee passed a law allowing military men and women overseas to ship wine to Tennessee for personal consumption, but only once, and with a $100 license. PC 968.
• Wholesale Importing Now Legit. The law specifically provides for licensed wholesalers to become importers. Tennessee wholesalers can import wine and spirits from abroad and sell the spirits to other wholesalers throughout the US, with proper federal permitting and an ABC permit. PC 448.
• Jack Trucks. Manufacturers are now allowed to transport product out of state without using common carries. Jack, George and other Tennessee distilleries can use their own trucks to haul spirits out of state. Manufacturers and wineries can also store product at other locations in the county where their manufacturing facility is located. PC 448.
• Nonresident Sellers. The scope of the nonresident seller permit was modified and we encourage holders to view the changes in Section 6 of PC 448.
• The exemption for wholesalers selling to out of state wholesalers was reduced from 20 to 10 years. The Attorney General has since thrown out the residency requirement, which makes the law meaningless, in our humble opinion. Read our story here
. PC 592.
• High Alc Beer. Beginning at Section 7, Public Chapter 448
cleared up a number of provisions of the high alc beer laws and brewers are encouraged to review the changes. PC 448.
THE FOLLOWING BILLS WERE DEFEATED:
• Open container law fails again. For the fifth consecutive year, a bill regarding open containers in motor vehicles has failed. This year, the bill limited the offense to only passengers sitting in the front seat, yet it still failed. Many think the General Assembly’s love for golf and UT football is to thank for the bill’s failure.
• A bill redefining beer to include beverages with up to 12 % alcohol failed, mostly because of the fiscal impact on the state. High alcohol beverages have a different tax structure, and this would decrease state revenue’s by nearly $800,000 per year, which we think would grow significantly over time. With such a fiscal impact, do not expect to see high gravity beers in gas stations anytime soon.
• Self-checkout beer purchases remain legal. The apparent purpose behind this bill was to prevent minors from using the “swipe and swap” method. This is where someone “swipes” a 12 pack of cokes and “swaps” it for a 12 pack of booze. This failed, primarily because it would be easier for minors to simply steal the beer. Also, almost all grocery stores monitor self-checkout services. The main impact of the law would have made it more inconvenient for the vast majority of purchasers that are of age.
• Another bill with the purpose of protecting minors authorized the commissioner of revenue to revoke business licenses for the illegal sale of synthetic drugs and the local beer boards to revoke the beer license of a business selling such drugs.
• In response to many high profile drinking and driving accidents, investigating officers of fatal traffic accidents involving alcohol would have been required to forward the accident report to the ABC. One of the primary reasons this failed is because it is unnecessary, since the ABC can simply read about high profile drunk driving accidents in the newspaper.
• The ABC will continue to randomly conduct background checks on alcohol permit/license holders, as a bill requiring checks on all holders failed.
• It is currently a Class E felony for persons without a direct shipper’s license to ship alcohol in this state. A law requiring the ABC to contact the Federal Alcohol and tobacco tax trade bureau was introduced, but defeated this year.
• Pick TN/ Don’t Pick TN. Two bills were introduced with the intent of preserving the authenticity of Tennessee alcohol products. The first would have prohibited labeling whiskey, rum, and other “spirits” from being advertised as Tennessee products, unless they were actually distilled in Tennessee. The second required products sold as “Tennessee Wine” or “Tennessee Sour Mash whiskey” to contain a certain percentage of products grown in Tennessee.
We have seen at least one Tennessee-style whiskey that appears to have absolutely no connection to Tennessee – it is not distilled, aged or bottled in Tennessee. This is an issue that probably requires a fix at the federal level, since Tennessee cannot regulate what folks do in other states.
• Wineries - The law in Tennessee will continue to prevent wineries from having more than one location after a bill authorizing satellite locations was defeated. Coincidentally, the sponsors of this bill happen to be from the areas where Arrington Vineyards, (Williamson County) and Tennessee Valley Winery (Loudon County) areas.
*Special thanks to Bone McAllester Norton law clerk Thomas Austin for his assistance with this year’s summary.