BEFORE THE DEPARTMENT OF REVENUE
OF THE STATE OF MONTANA
In the matter of the adoption of New Rule l and amendment of ARM 42.11.105 relating to the mark-up on liquor sold by the state
TO: All Concerned Persons
1. On September 27, 2011, at 9:00 a.m., a public hearing will be held in the Third Floor Reception Area Conference Room of the Sam W. Mitchell Building, at Helena, Montana, to consider the adoption and amendment of the above-stated rules. Individuals planning to attend the hearing shall enter the building through the east doors of the Sam W. Mitchell Building, 125 North Roberts, Helena, Montana.
2. The Department of Revenue will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing or need an alternative accessible format of this notice. If you require an accommodation, contact the Department of Revenue no later than 5:00 p.m., September 19, 2011, to advise us of the nature of the accommodation that you need. Please contact Cleo Anderson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-5828; fax (406) 444-4375; or e-mail firstname.lastname@example.org.
3. The proposed new rule does not replace or modify any section currently found in the Administrative Rules of Montana. The proposed new rule provides as follows:
NEW RULE I REDUCTION IN STATE MARK-UP FOR DISTILLERIES AT OR BELOW 25,000 PROOF GALLONS (1) For purposes of applying 16-2-211, MCA, the department will assume that for distilleries that manufacture, distill, rectify, bottle, or process 25,000 proof gallons or less of liquor nationwide annually, all ingredients contained in the liquor from such distilleries is comprised of 100 percent Montana-produced ingredients. A reduced mark-up rate of 20 percent will be applied to liquor products from such distilleries.
(2) The 20 percent reduced mark-up rate is determined using a 100 percent reduction in mark-up after agency liquor store commissions and discount costs and the costs to operate the state liquor warehouse have been accounted for. These costs account for half of the standard mark-up normally collected on product sold by the department. The department will annually review the associated agency liquor store commissions and discount rate costs and the costs to operate the state liquor warehouse to ensure these costs do not exceed the reduced mark-up. The department will publish any adjustments to the reduced mark-up based on the results of the annual review.
(3) A distillery requesting a reduction in the state mark-up must certify with a sworn statement, on a form supplied by the department, that the number of proof gallons they have manufactured, distilled, rectified, bottled, or processed nationwide annually is at or below the 25,000 proof gallon threshold.
(4) A distillery requesting a reduced mark-up rate must submit this form and meet the specified requirements at the time of initially registering with the department and by February 15 of each of the following calendar years in order to receive the reduced mark-up rate.
(5) The following effective dates will apply for those distilleries that meet the reduced mark-up rate criteria:
(a) the department will apply the reduced mark-up rate to existing liquor products effective November 1, 2011;
(b) for each liquor product introduced thereafter, the distillery's current applicable mark-up rate will apply with an immediate effective date;
(c) each subsequent year, the distillery's applicable mark-up rate will be effective May 1 with the department's May, June, and July quarterly price book or the next available price book if the form is submitted after the February 15 annual deadline; and
(d) failure to submit the form annually to the department by February 15 will result in a 40 percent mark-up rate for liquor products, 20 percent for sacramental wine products, and 51 percent for fortified wine products.
(6) The department may request and examine any distillery's books and records for the purpose of determining the accuracy of the total number of proof gallons reported by the distillery.
(7) For the purpose of this rule, a distillery is considered a vendor.
AUTH: 16-1-103, 16-1-303, 16-2-211, MCA
IMP: 16-2-211, MCA
REASONABLE NECESSITY: The department is proposing to adopt New Rule l based on the passage of 16-2-211, MCA (Ch 345, L. 2011). The new rule is necessary to educate the distilleries on the process of requesting the reduced mark-up and to apply the law in a uniform and consistent manner. The rule also works to remove ambiguity from the mark-up request process, and thus benefits vendors and other interested public parties by improving efficiency.
Section (1) is being proposed to establish a clearly defined reduced mark-up rate for distilleries that produce 25,000 proof gallons or less of liquor nationwide annually. In recognition of the fact that the department cannot determine the origin of agricultural products used in liquor production, the reduced mark-up rate will be applied to all distilleries falling under the 25,000 proof gallon threshold. This rule allows the department to take the preventative measure of protecting the state from a potential violation of the interstate commerce clause. A 20 percent mark-up was determined based on the cost needed to cover agency liquor store commissions and discounts, and the costs of operating the state liquor warehouse.
Section (2) is being proposed to give all distilleries who qualify for the reduced mark-up rate a 100 percent reduction in mark-up after covering agency liquor store commissions, discount costs, and the state liquor warehouse operations cost. Currently, agency liquor store commissions and discounts comprise 84 percent of the costs that must be covered by the markup. The cost to operate the state liquor warehouse comprises the remaining 16 percent.
Section (3) is being proposed to verify that the information submitted to the department is true to the best of the distiller's knowledge. The department is proposing to supply a form to the distillers to establish a uniform and consistent method for them to report their proof gallons.
Section (4) is being proposed to establish the correct mark-up rate for the distiller at the time of registering with the department and every year thereafter. The February 15 deadline is proposed to allow for enough time for changes to be made at the product level and still be able to make the deadline for when the department has to send the quarterly price book to the publisher.
Section (5) is being proposed to identify the effective dates for distillery markup rate changes. November 1, 2011 is being proposed as the effective date for the reduced mark-up to coincide with the next available quarterly price book. May 1 is being proposed as the effective date for annual distillery mark-up rate changes as it is the beginning of the first available price book after the close of the previous calendar year. The department is proposing to use the standard mark-up rate if a distillery fails to send the form annually in order to ensure the distillery meets the criteria. The proposed language would still allow a distillery to send the form if they missed the February 15 deadline; however, the effective date would correspond with the next available quarterly price book.
Section (6) is being proposed to ensure that the department is working with correct information in order to fairly and accurately calculate the posted prices they charge the agency liquor stores for the product. This bolsters accountability from both the distillery and the department, and ultimately safeguards fair business profits for the Montana liquor industry and the public who work in it.
Section (7) is being proposed to reduce confusion on who is entitled to request a reduction in the state mark-up rate. Entities that sell liquor to the state of Montana and to whom the state makes payment for product depleted from the warehouse are referred to as vendors.
4. The rule proposed to be amended provides as follows, stricken matter interlined, new matter underlined:
42.11.105 DEFINITIONS As used in this subchapter, the following definitions apply:
(1) through (20) remain the same.
(21) "Vendor" means a person, partnership, association,
or corporation, or other business entity selling liquor to the department and to whom the department makes payment for liquor received depleted from the state liquor warehouse.
(22) remains the same.
AUTH: 16-1-103, 16-1-104, 16-1-303, MCA
IMP: 16-1-103, 16-1-104, 16-1-302, 16-1-401, 16-1-404, 16-1-411, 16-2-101, 16-2-201, 16-2-301, 16-3-107, MCA
REASONABLE NECESSITY: The department is proposing to revise the definition of the term "vendor" to more accurately reflect and encompass the meaning of the term as used by the department. As noted in ARM 42.11.105(2), all product shipped into the state liquor warehouse will be received as bailment (product owned by the vendor) and will remain until depleted or redelivered to the vendor. The proposed change to the term "vendor" creates continuity and coherence between the different sections of the rules and reduces confusion for vendors and others in the industry.
5. Concerned persons may submit their data, views, or arguments, either orally or in writing, at the hearing. Written data, views, or arguments may also be submitted to: Cleo Anderson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-5828; fax (406) 444-4375; or e-mail email@example.com and must be received no later than September 30, 2011.
6. Cleo Anderson, Department of Revenue, Director's Office, has been designated to preside over and conduct the hearing.
7. An electronic copy of this notice is available on the department's web site at www.revenue.mt.gov. Locate "Legal Resources" in the left hand column, select the "Rules" link and view the options under the "Notice of Proposed Rulemaking" heading. The department strives to make the electronic copy of this notice conform to the official version of the notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the notice and the electronic version of the notice, only the official printed text will be considered. In addition, although the department strives to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.
8. The Department of Revenue maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list shall make a written request, which includes the name and e-mail or mailing address of the person to receive notices and specifies that the person wishes to receive notices regarding particular subject matter or matters. Notices will be sent by e-mail unless a mailing preference is noted in the request. Such written request may be mailed or delivered to the person in 5 above or faxed to the office at (406) 444-4375, or may be made by completing a request form at any rules hearing held by the Department of Revenue.
9. The bill sponsor contact requirements of 2-4-302, MCA, apply and have been fulfilled. The primary bill sponsor, Senator Gallus, was first contacted on June 13, 2011, by regular mail and subsequently on July 14, 2011, by electronic mail.
/s/ Cleo Anderson /s/ Dan R. Bucks
CLEO ANDERSON DAN R. BUCKS
Rule Reviewer Director of Revenue
Certified to Secretary of State August 15, 2011