In The News

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.

July 13, 2011 Newsletter Features Recap of Beer and Liquor Legislation

The Bone McAllester Norton Alcoholic Beverage Group has kindly published a legislative recap to help you stay aware of beer and liquor laws.  To read the rest of our newsletter click here.

To Drink or Not To Drink

2011 has seen several cities voting on whether to expand liquor sales, either on premises or off premises.  Below are a few of the 2011 developments.

  • In May, voters in the city of Lawrenceburg overwhelmingly approved the sale of liquor, 806 to 597.

  • Also in May, Pigeon Forge voters defeated liquor in restaurants for the second time in 2 years, 590 to 482.  Establishments in the city were already allowed to sell beer and wine, but not liquor.  We see this as unusual since Pigeon Forges’ largest business is tourism, and many tourists expect full liquor service at restaurants.  We hear that the town’s biggest attraction, Dollywood, worked against LBD, perhaps to foster aold-fashioned family-oriented appeal.

  • Around the same time, voters in Sevierville rejected allowing liquor stores in the city, 785 to 614.  Gatlinburg remains the only city in the tourism-dominated county.

  • Early this year, the Sparta BOMA unanimously approved liquor-by-the-drink (“LBD”) sales.  It appears the measure was approved in order to increase city revenue through the 15% LBD tax (50% of which goes to the city) and through a new annual privilege tax.


Undoubtedly, these, and other locations, will continue to vote on the expansion of liquor sales.  Stayed tuned for future developments in and around your part of the state.

Bone McAllester Norton Hosts Tennessee Bankers Association "Day on the Hill" Luncheon


Cheeseburgers in paradise?  What do Jimmy Buffett and a group of bankers and lawyers have in common?


Our financial institutions team hosted banking professionals from across the state at Jimmy Buffett’s Margaritaville in downtown Nashville a few weeks ago as part of their annual “Day on the Hill” event.  As a proud associate member of the Tennessee Bankers Association and committed legal partner in the Tennessee banking community, Bone McAllester Norton enjoyed supporting this annual program as the luncheon sponsor for the second year.


Held annually, the “Day on the Hill” program is organized by the Tennessee Bankers Association’s Young Bankers Division to provide an opportunity for current and future leaders from banks across the state to explore the inner workings of the Tennessee legislative process.  Trace Blankenship, one of our attorneys who advises bank executives and boards of directors on strategic transactions and regulatory matters, emceed the event, which featured a keynote address from the commissioner of the Tennessee Department of Financial Institutions, Greg Gonzales, and remarks about Tennessee’s banking industry from the law firm’s chairman, Charles W. Bone.  Several attorneys from our financial institutions team described “Eleven Things That Could Keep a Banker Awake at Night” (and some hair-raising stories to illustrate) including Jack Stringham, Charles Robert Bone, David Anthony, Andrea Perry, Johnny Garrett, Rob Pinson and Tucker Herndon.  Tracie Lomax, immediate past president of the Young Bankers Division, and Jay England, incoming president, welcomed the group, and officials of the Tennessee Bankers Association, Tim Amos, Colin Barrett, Amy Smith, were responsible for organizing the “Day on the Hill” event.


 

Change at the TABC

In March we saw a change in the  composition of the Tennessee Alcoholic Beverage Commission.  Governor Haslam appointed two new members,  and in an unusual political move, reappointed longtime TABC member John  Jones.  Given his historical ties to the  Democratic party, Jones was likely reappointed to provide continuity and  historical perspective to the three person commission and bring consistent  application of the complicated and often arcane laws that regulate liquor in Tennessee.  Jones’ father served on the original TABC  when it was established in the 1960’s, and a Jones family member has always  served as a TABC Commissioner.  We see the appointment of Jones as being consistent with the Governor’s broad vision  of enhancing Tennessee's  reputation as a business-friendly state.

The two new Commissioners are  Mary McDaniel and Bryan Kaegi.

Commissioner Kaegi, the Middle  Tennessee representative, has a long history of support for prominent  Republican campaigns.  He currently works  with Persuasion Partners, a high-profile political campaign service.  Commissioner Kaegi served on the 2010  Tennessee Victory Leadership Team that led and funded the successful TNGOP get  out the vote campaign, was Finance Director for Senator Lamar Alexander and  also the former Finance Director for the Tennessee Republican Party. He served  as Finance Director for the Tennessee Victory program for President Bush in  2000 and 2004.  His sister, Kim Kaegi,  was Governor Haslam’s finance director.

Commissioner McDaniel, the West Tennessee representative, is recently retired FedEx  Vice President of Aircraft Materiel.  Her  career with FedEx spanned 30 years and she managed aircraft parts inventory and  technical support for the FedEx global fleet.   She is President of the Board of Trustees for Southwest Tennessee   Community College, her  alma mater, and leads fundraising efforts for the college.

We say farewell to Senator Harlan  Matthews and Cynthia Bond, who served the state as Commissioners for the past  eight years, and welcome Commissioners Kaegi and McDaniel to our insane little  world.  We are glad to see the return of  Commissioner Jones for another term.

At the conclusion of April's  regular TABC meeting, Commissioner Jones announced that he was stepping down as  chair. Commissioner Jones has chaired the Tennessee ABC for longer than we  recall.  Commissioner McDaniel was  appointed the new Chair and promised to spend a lot of time with the staff  helping out with TABC functions.  For  example, Commissioner McDaniel attended the National Conference of State Liquor  Administrators and spoke to the group.

Commissioner McDaniel’s  assistance could not come at a better time.  The staff at the TABC is pretty thin and seems to be getting thinner all  the time.  There are numerous high level  vacancies.  Acting Assistant Director  Melinda Arrington departed in May. Former Assistant Director Carolyn Smith  departed late last year. Senior ABC agents Mike Cawthon and Al Watson have  retired.  Hiring freezes have left a  number of key positions vacant.

The ABC was already a thinly staffed agency charged with overseeing several thousand licenses.  Director Danielle Elks is now filling the role of three staff attorneys and also leading the agency. ABC agents are  sparse.  Although licensees do not look  forward to stings, ABC agents are vital to conducting inspections necessary for  issuance of licenses to new businesses and changes of ownership.  In addition, the General Assembly is passing laws that create more classes of licenses and opening up the number of eligible  locations and entities that can obtain licenses; thus, further increasing the workload of a diminished staff.

So far, the ABC has done an admirable  job of working through this tough time. We hope that help is on the way, as  backlogs are certain to build up and morale can easily suffer.

Rob Pinson to Present Top 10 Year-End Tax Planning Strategies

Bone McAllester Norton attorney Rob Pinson will present the Top 10 Year-End Tax Planning Strategies on November 18th from 8:30am – 10:30am.


  This event is designed for business owners and hosted by KraftCPAs, Accelerent and Bone McAllester Norton.


Topics Include (but not limited to)
• Best ways to take cash out of the company
• Rules for related party deductions
• Research & development tax credits you might have overlooked
• Accelerated depreciation options and strategies
• Using retirement plans to their full tax benefit potential
• Tennessee state tax issues and opportunities
• Update on new and/or expiring tax legislation
• The pros and cons of Roth IRA conversions this year
• Gifting strategies to avoid taxation
• Making charitable contributions from retirement plans


Location: KraftCPAs’ Nashville Office, 555 Great Circle Road (Metro Center)


 

Rob Pinson to Speak on Rules Governing Tax-Exempt Organizations

Bone McAllester Norton attorney Rob Pinson will present at the National Business Institute’s one-day live seminar How to Keep Tax-Exempt Organizations in Compliance on July 22 at the Millennium Maxwell House Hotel.


Rob will be speaking on the topics of “Maintaining Tax-Exempt Status”, “Dealing with Unrelated Business Income” and “Intermediate Sanctions” along with speakers David Parsons (Baker, Campbell & Parsons), Carolyn Schott (Baker Donelson, Bearman, Caldwell & Berkowitz, PC) and Sallye Williams (Carr, Riggs & Ingram, LLC).


Five benefits of attending:




  • Gain strategies for safeguarding directors, officers and executives from potential liability.

  • Create an environment of accountability by establishing comprehensive internal controls.

  • Follow annual reporting requirements and comply with the rules governing disclosures and solicitation.

  • Know how to identify what qualifies as unrelated business income – and what the exceptions are.

  • Adhere to the accepted guidelines for determining appropriate executive compensation.