Montana Administrative Register Notice 42-2-921 No. 23   12/11/2014    
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In the matter of the adoption of New Rule I, the amendment of ARM 42.12.101, 42.12.106, 42.12.111, 42.12.118, 42.12.122, 42.12.132, 42.12.134, 42.12.135, 42.12.136, 42.12.139, 42.12.205, 42.12.208, 42.12.209, 42.12.301, 42.12.324, 42.13.101, 42.13.106, 42.13.107, 42.13.108, 42.13.111, and 42.13.401, and the repeal of ARM 42.12.103 and 42.13.105 pertaining to liquor licenses and permits, fees, and the regulation of licensees
















TO: All Concerned Persons


1. On October 9, 2014, the Department of Revenue published MAR Notice No. 42-2-921 pertaining to the public hearing on the proposed adoption, amendment, and repeal of the above-stated rules at page 2413 of the 2014 Montana Administrative Register, Issue Number 19.


2. On November 5, 2014, a public hearing was held to consider the proposed adoption, amendment, and repeal. John Iverson of the Montana Tavern Association; Brad Simshaw of Blackfoot River Brewing; Neil Peterson of the Gaming Industry Association; Joel Silverman of Silverman Law Office, PLLC; Tony Herbert of the Montana Brewers Association; Drew Geiger, licensee; and Paul Cartwright, all appeared and provided oral testimony at the hearing. Several of the attendees provided written comments as well. The department also received written comments from Senator Dee L. Brown and Michael Lawlor of the Reely Law Firm. The department appreciates all of the comments received.


3.  The department has adopted New Rule I (42.13.112), amended ARM 42.12.101, 42.12.106, 42.12.111, 42.12.118, 42.12.132, 42.12.139, 42.12.205, 42.12.324, 42.13.101, 42.13.108, 42.13.111, and 42.13.401, and repealed ARM 42.12.103 and 42.13.105 exactly as proposed.


4. Based upon the comments received and after further review, the department has amended the following rules as proposed, but with the following changes from the original proposal, new matter underlined, deleted matter interlined:


42.12.122 SUITABILITY OF LICENSED PREMISES (1) through (5) remain as proposed.

(6) The licensee must have possessory interest in the entire premises.

(7) through (9) remain as proposed.




AUTH16-1-303, MCA

IMP16-3-303, 16-3-304, 16-3-305, 16-3-311, 16-4-405, MCA


42.12.135 CONDITIONS AND QUALIFICATIONS SPECIFIC FOR A RESTAURANT BEER AND WINE LICENSE (1) In addition to the requirements in ARM 42.12.122, a restaurant beer and wine licensee:

(a) shall operate at premises clearly recognizable as a restaurant, as defined in ARM 42.12.401; and

(b) must not provide alcoholic beverages to any person for off-premises consumption; and

(c) shall prohibit on-premises consumption or possession of alcoholic beverages between the hours of 11 p.m. and 11 a.m., by removing all alcoholic beverages from individuals' possession by 11 p.m.

(2) remains as proposed.




AUTH16-1-303, MCA

IMP16-3-303, 16-3-304, 16-3-305, 16-3-311, 16-4-405, MCA


42.12.208 TEMPORARY OPERATING AUTHORITY (1) and (2) remain as proposed.

(3) Temporary operating authority will be issued for a 45-day period.  If the application is not approved within this 45-day period:

(a) temporary operating authority will continue if the department caused the delay (the department will notify the applicant if this occurs); and

(b) temporary operating authority will cease if the department did not cause the delay, unless the applicant demonstrates to the department's satisfaction that the cause of the delay was beyond the applicant's control.  The applicant must submit written documentation to the department seven days prior to the expiration of the temporary operating authority.  The department will notify the applicant whether or not an additional 45-day period is granted period, the department shall extend temporary operating authority for another 45-day period only upon determining that the cause of the delay was not attributable to the applicant.  The department shall notify the applicant if it requires additional information to make this determination and the applicant shall have seven days to submit written verification documenting to the department's satisfaction how the delay was beyond the applicant's control.  The department shall notify applicants whether temporary operating authority is extended beyond the initial 45-day window.

(4) through (6) remain as proposed.


42.12.209 TRANSFER OF A LICENSE TO ANOTHER PERSON (1) through (1)(b) remain as proposed.

(c) has a security interest in a license being foreclosed pursuant to ARM 42.12.205;

(d) through (8) remain as proposed.

(9) Any party person or entity that is not a licensee is prohibited from controlling or participating in the licensed operation in any capacity reflecting an ownership interest. A licensee's allowance of an undisclosed ownership interest shall constitute a violation and may subject the licensee to administrative action, including revocation of the license.

(10) remains as proposed.


42.12.301 RESORT LICENSES (1) and (2) remain as proposed.

(3) County all-beverages or county beer Other non-resort licenses are allowed within a defined resort area and such licenses are not considered for purposes of determining the number of allowable resort all-beverages licenses.

(4) remains as proposed.


42.13.106 ALTERATION OF PREMISES (1) through (7) remain as proposed.

(8) Once the Department of Justice has approved the premises The department will review the Department of Justice's findings and, upon determining no issues are present, the department shall notify the licensee that the alteration is approved and any new addition is now part of the licensed premises. Prior to receiving this written approval, a licensee shall not operate in any area that has not been previously approved.

(9) remains as proposed.


42.13.107  NONUSE STATUS  (1) The department shall grant nonuse status to a licensee that is not operating a going establishment if:

(a) the licensee submits a written request verifying verification documenting to the department's satisfaction how the nonuse is beyond the licensee's control; and

(b) through (6) remain as proposed.


5. The department has thoroughly considered the comments and testimony received. A summary of the comments received and the department's responses are as follows:

COMMENT 1: Regarding the proposed adoption of New Rule I, pertaining to seasonal businesses, Senator Dee Brown commented that this makes sense and thanked the department for its work on the new rule. Senator Brown also stated that she would be interested in further information about the costs of the seasonal licenses and how it will affect the total for licensing in the state.


RESPONSE 1: The department's previous administrative rules afforded licensees meeting certain criteria the opportunity to operate their licenses seasonally. The department determined, however, that relocating the existing content to its own rule would enable the public to better locate this content. As such, the department is not creating new rights for licensees; it is simply relocating content for improved transparency.

New Rule I does not create any additional licenses. It merely continues to allow any retail licensee to place their license on seasonal status if the requirements listed in New Rule I are met. The cost of the license is specific to the type of alcohol beverages that will be retailed at the premises. These fees are addressed in 16-4-501, MCA.


COMMENT 2: Regarding the proposed amendments to ARM 42.12.106(9), pertaining to concession agreements, John Iverson of the Montana Tavern Association (MTA), stated that there is concern that the proposed amendment to the definition may impact the way concession agreements are currently utilized or operated within the state. Specifically, MTA members raised concern with the addition of the "sales and service" language. The way concession agreements are currently utilized, concessionaire's employees can provide the service with an agreement as to how the employees are compensated. Mr. Iverson stated that the current system serves the public well and that they want to ensure that the proposed amendment to this definition would not change the current system.

Neil Peterson of the Gaming Industry Association stated that he echoes the comments of Mr. Iverson.

Joel Silverman of Silverman Law Office, PLLC, stated that he is also concerned about the proposed amendment to the definition of concession agreement in ARM 42.12.106(9). Along those same lines, in the proposed amendment to ARM 42.12.122(2)(d), Mr. Silverman asked whose employee the new phrase "the employee to control the preparation, sale, service, and distribution" is talking about. Is this the licensee's employee or the concessionaire's employee? He stated that he knows the department's current interpretation is that it can be the concessionaire's employee and he wants to make sure that is not changing.

Michael Lawlor of the Reely Law Firm, asked if the department intends any substantive change by removing the phrase "a business directly related to the liquor operation" from the definition of concession agreement in ARM 42.12.106(9). The reasonable necessity explanation states that this change is for purposes of striking information already provided in ARM 42.12.133, but the "directly related" language is not contained in that provision. Removing this language may affect how ARM 42.12.122(3)(b) is applied in terms of when walls are required between portions of a business. Mr. Lawlor asks that no substantive change be made in that regard.


RESPONSE 2: The proposed amendment to the definition of concession agreement in ARM 42.12.106(9) does not prevent a licensee and concessionaire from having a shared employee who serves alcohol. This arrangement is specifically provided for in ARM 42.12.133 and the department is not proposing any amendments to this provision.

Striking the phrase "a business directly related to the liquor operation" from the definition of concession agreement in ARM 42.12.106(9) does not impact premises suitability requirements set forth in ARM 42.12.122(3)(b). That rule specifically lists examples of businesses that would and would not be directly related to the on-premises consumption of alcoholic beverage.

COMMENT 3: Mr. Silverman asked for clarification regarding the proposed new language in ARM 42.12.122(6), where the department is adding the new phrase "possessory interest." He commented that in the past the licensee had to have the area in which the alcohol was going to be served and stored identified on its floor plan. He stated he is unsure why the word "entire" needs to be in that new statement because premises is clearly defined and asked if there is some purpose behind that. He commented that he wants to ensure it is not taking away any rights that licensees currently have.

RESPONSE 3: The department agrees that the word "entire" is superfluous and has further amended the rule by removing it. Furthermore, current practices require that the floor plan cover the premises, including the concessionaire's area. There is no change to this practice.

COMMENT 4: Regarding the proposed amendments to ARM 42.12.135, the department received comments from Brad Simshaw, Blackfoot River Brewing, Drew Geiger, licensee, Tony Herbert, Montana Brewers Association, and Paul Cartwright, a private individual, opposing the proposed new language requiring restaurant beer and wine licensees to remove alcoholic beverages from individuals' possession at 11 p.m. to prevent further consumption.

Many commenters drew a comparison between legislation and administrative rules pertaining to service and consumption hours for small breweries. Section 16-3-213, MCA, provides that a small brewery may provide samples between 10 a.m. and 8 p.m.  ARM 42.13.601(5), adopted following negotiated rulemaking, states that on-premises consumption may occur between 10 a.m. and 9 p.m. This scheme provides for a one-hour consumption window following the closure of service hours. Several commenters encouraged the department to proceed similarly with regard to restaurant beer and wine licensees by consulting with industry members and adopting an administrative rule that provides for a consumption window following the closure of service hours.


RESPONSE 4: The department considered all comments submitted regarding the requirement for restaurant beer and wine licensees to remove alcohol at 11 p.m. that was served to patrons during the statutorily provided service window. The department has determined that it would be best to strike the proposed language in ARM 42.12.135(1)(c), and to not add 16-4-422, MCA, as an implementing citation to the rule as was proposed at the hearing. The department believes it is best to take these comments under advisement and consider whether such content is necessary during future rule amendments.


COMMENT 5: Regarding the proposed amendments to ARM 42.12.136, Mr. Cartwright stated that the department's citation for ARM 42.12.136 says it is implementing 16-3-303, MCA, which addresses on-premises retailers selling beer for off-premises consumption. Mr. Cartwright commented that he thinks the department meant instead to cite 16-3-304, MCA.

RESPONSE 5: The department has further amended ARM 42.12.136 by incorporating both 16-3-304 and 16-3-305, MCA, as implementing citations. Furthermore, the department is also amending ARM 42.12.134 to incorporate these citations as well.

COMMENT 6: Regarding the proposed amendments to ARM 42.12.139, Mr. Simshaw commented that he applauds the department's recognition and common sense approach to allowing for more than one building on a manufacturer's premises with its proposed new language. In proposing this change, the department recognizes the rapidly changing landscape of the manufacturers of beer, wine, and distilled spirits in Montana. This is a good, proactive move by the department. It should result in less confusion and paperwork for manufacturers and the department.

Mr. Herbert also stated that the MBA appreciates the department's proposal to allow for multiple buildings on a manufacturer's premises. He further stated that the Montana brewing industry is continuing to grow and the brewers will continue to expand their physical plants to accommodate demand for products. This proposed rule change clarifies the ability to add additional buildings and is sensible for business.


RESPONSE 6: The department appreciates the support of this rule amendment.

COMMENT 7: Mr. Lawlor stated that he believes the purpose and the effect of the proposed change to ARM 42.12.208(1) is to allow temporary operating authority to be utilized in situations where a license that is technically an original (i.e., new) license is issued for a previously licensed premises. For example, a non-transferrable off-premises license or golf course beer and wine license. This is a positive and helpful change, which confirms the department's practice of allowing for temporary operating authority in the case of the purchase of a business operating an off-premises beer and wine license and makes the logical extension of also allowing the same in cases such as the purchase of a golf course business when the license issued to the purchaser is technically a new, "original" license.

However, Mr. Lawlor further stated that he has serious concerns about the proposed new language in ARM 42.12.208(3)(b). This would be a significant departure from current department practice, which would have a serious adverse effect on  many buyers and sellers of licensed businesses. Even with diligent work by the seller, the purchaser, the applicant, and the attorneys, the application process often takes more than 45 days from the issuance of temporary authority until final approval.

Mr. Lawlor stated that to have an unexpected delay result in loss of temporary operating authority would be very disruptive to the business, potentially made more difficult in situations where the purchase price was exchanged upon approval of temporary authority under ARM 42.12.209, and then must be returned. There will also be a lack of certainty by the applicant as to whether temporary authority will be extended because no criteria are set forth to explain how the department will determine whether the delay was beyond the applicant's control in the very short (seven day) time period between when the extension request is made and the temporary authority period is set to end. Mr. Lawlor stated he is concerned that the parties to a purchase and sale would not know until the last minute whether the time would be extended and thus whether they needed to change who was operating the business the next day.

Mr. Lawlor respectfully requests that ARM 42.12.208(3) not be changed as proposed, or that if a change is made that the initial time period for temporary authority be longer, perhaps 90 days. He noted that 16-4-404(6), MCA, does not impose a time limit on temporary authority, so a longer time period could certainly be established by rule.


RESPONSE 7: The department has reviewed the concerns articulated by Mr. Lawlor and has further amended the rule for clarity. If processing may not be accomplished due to factors beyond the licensee's control, a 45-day extension shall be granted to the licensee pursuant to the process set forth in ARM 42.12.208(3). 


COMMENT 8: Regarding the proposed amendments to ARM 42.12.209, Mr. Lawlor stated that he thinks it may be appropriate to cite 16-4-801, MCA, instead of or in addition to ARM 42.12.205 in (1).

Mr. Lawlor asked if the requirement in ARM 42.12.209(6) will apply to the seller of a business when the license itself is non-transferrable and the purchaser/applicant is applying for a new license to operate at the business it is purchasing. For example, when an applicant is purchasing a convenience store or similar business and applying for an off-premises beer/wine license, which is technically a new license, to operate there. He commented that it is his understanding that current practice is that the department requires the business seller to meet this requirement in such circumstances, but because the license itself is not being transferred, he does not understand why.

For clarification, with respect to ARM 42.12.209(7)(a), Mr. Lawlor asked if it remains true that a licensee is allowed to enter into a sale/purchase agreement for a license, and that such sale/purchase agreement itself is not impermissible "evidence of the proposed ownership interest."

Further, Mr. Lawlor wants to know if the word "party" in ARM 42.12.209(9) means "person," or is the definition of "parties" in ARM 42.12.106 intended to apply. He stated that it would be more clear to say "person or entity," or something similar.


RESPONSE 8: The department has reviewed the citation of ARM 42.12.205 in ARM 42.12.209(1)(c) and decided to remove that citation.

The department notes Mr. Lawlor's comment regarding the status of a seller's tax filings when a license is not being transferred. The requirement of having a current tax status is addressed in two administrative rules. ARM 42.12.101(3)(h) applies the requirement to applicants and ARM 42.12.209(6) applies the requirement to the current owner of a license being transferred. The department finds that these administrative rules speak for themselves and provide clear guidance for administration.

The department confirms that parties may still execute a buy-sell agreement for the purchase of a license and that this document does not constitute impermissible "evidence of the proposed ownership interest."

Furthermore, in response to Mr. Lawlor's comment pertaining to "party" in ARM 42.12.209(9), the department has further amended the rule to use "person or entity" in place of "party."


COMMENT 9: Mr. Lawlor stated he believes ARM 42.12.301(3) should be expanded to include a reference to city-quota all-beverages licenses being used in previously determined resort areas under the pre-1999 language of 16-4-202, MCA. Such resort areas may be within 5 miles of an incorporated city or town, which was and remains permissible for resort areas determined under the old statutory language.

RESPONSE 9: As the boundaries of incorporated cities continue to grow, it is possible that a city all-beverage license or city beer license may overlap onto an existing resort area. The department has further amended ARM 42.12.301 to allow non-resort licenses to be located in resort areas without impacting the quota for resort licenses.

COMMENT 10: Mr. Lawlor stated that the proposed language in ARM 42.13.101(4) appears to have been broadened to be applicable to any license owned by the same person or entity that owns the revoked license and asked if this is an intended change.

If so, Mr. Lawlor suggests clarifying that this only applies to applications from such persons for a new ownership interest in a license and would not prohibit things such as renewal applications, or any of the "abbreviated" applications in ARM 42.12.118 with respect to the non-revoked licenses owned by such persons. Mr. Lawlor asked if this is intended to affect any owner of a revoked license, or only an owner with 10 percent or more ownership of the revoked license.

Mr. Lawlor further commented that the current language of ARM 42.13.101(12) is proposed to be deleted in its entirety for the stated reason that the department is required by 16-4-406(3) and (4), MCA, to consider aggravating and mitigating circumstances for violations. He requested that rather than deleting this subsection that it be rephrased to provide greater transparency as to when and how the department will consider aggravating and mitigating circumstances, as well as how, when, and to whom evidence of such circumstances is to be offered. The statute is silent on those points.


RESPONSE 10: The one-year moratorium applies to any license application submitted by any owner (including those with less than 10 percent ownership interest) of a license that has been revoked. The department finds that the language as proposed is clear with regard to these issues and is proposing no further edits. 

Furthermore, the department believes it is best to take Mr. Lawlor's comments regarding mitigating and aggravating circumstances under advisement and consider whether such content is necessary during future rule amendments.


COMMENT 11: Mr. Lawlor suggests the language in ARM 42.13.106(8) be rephrased to clarify that the department makes the determination whether to approve a proposed alteration of a licensed premises, based on the Department of Justice (DOJ) investigator's report. As proposed, the language seems to indicate the determination is made by the DOJ.

RESPONSE 11: The department is further editing ARM 42.13.106(8) to incorporate this suggestion.

COMMENT 12: Regarding the proposed amendments to ARM 42.13.107, Mr. Silverman stated that he understands that the department has had issues in the past with "flip-flopping," where a licensee would take one license and put it on a nonuse status while putting another license into action and then switch it back after a certain period of time to hold onto and never lose a license. Mr. Silverman wants to verify that the proposed amendment in ARM 42.13.107(6) is not dealing with a situation where it is a single switch because a licensee can now hold more than one license. Mr. Silverman stated that in the past, a licensee could put an all-beverages license into a nonuse status and then sell or move it to a new location. Mr. Silverman wants to ensure that the "one time" is not what this rule amendment is aiming for.

Mr. Silverman stated another concern he has with ARM 42.13.107 deals with the department's removal of the 90-day extension process. His concern is that there may be clients who will forget about their nonuse period and then get a notice of revocation because they have used up their entire nonuse process without any notice. Mr. Silverman did not have a recommendation to offer the department, but commented that if there is something the department can do, such as offer a 6 month review, it would be greatly appreciated.

Mr. Silverman stated that he is concerned about lapsing licenses based on nonuse due to economic changes. If a licensee goes on a nonuse status, moves the license to a new location, and then has to go on nonuse again due to economic changes, is it the department's stance that the licensee will automatically be given notice of revocation because that would potentially be a second nonuse in a 6 month period when they have been trying to do the right thing and keep the license active? Mr. Silverman added that he understood the purpose was to prevent someone from putting a license on active use for a day or two and then back to nonuse and claiming economic reasons, for example.

Mr. Silverman further stated that he wants to ensure that no matter the nonuse request, that those licensees will still have their rights to a hearing whether it's under ARM 42.13.107(6) or otherwise.

Mr. Lawlor asked for clarification about whether the proposed new language in ARM 42.13.107 provides for automatic approval of nonuse status upon the licensee's written request. Does the requesting licensee need to provide any explanation for how or why the nonuse is beyond its control, or is it adequate for the licensee to simply say the nonuse is for reasons beyond its control?

Mr. Lawlor stated that he is concerned about the proposed language in ARM 42.13.107(6) having a serious adverse effect on a business that is struggling economically. A licensee who has gone on nonuse status because of a poor business situation and then attempts to operate again would not be able to put the license back on nonuse and sell it if the business continues to fail after the second effort. He suggests the language could be revised to provide that in such circumstances the licensee would have an opportunity to put the license back on nonuse and sell it.

Mr. Lawlor also commented that language proposed to be stricken from ARM 42.13.107(4) removes the reference to a secured party attempting to put the license into use. Mr. Lawlor requests that the department include language either in this rule or elsewhere, such as in ARM 42.12.110, to provide that a secured party be given notice by the department of a proposed lapse of the license, or a revocation of the license, so that the secured party can take action to protect its collateral under 16-4-801, MCA, before the license is lapsed.


RESPONSE 12: A single switch of a license, which includes putting one license on nonuse to allow another license to be used at the premises, is still permissible. However, rotating multiple licenses on and off nonuse would not be permitted. Again, this will help ensure licenses remain active to fulfill public necessity.

Mr. Silverman's concern that his clients may forget the expiration date of their nonuse period is noted. Eliminating the requirement to request a nonuse extension every 90 days removes a burden placed on both the licensee and department. The licensee is responsible for ensuring their license is put back into an active status within the time period.

The department also confirms that a licensee has the right to an administrative hearing with regard to the lapsing of a license for nonuse.

The process of requesting nonuse status does not provide for automatic approval. ARM 42.13.107(1)(a), as proposed, was not intended to require a signed verification by the licensee stating only that the nonuse was beyond the licensee's control. The department has further amended this section to make clear that the licensee needs to provide sufficient information to the department regarding the cause of the nonuse request in order for the department to verify that the nonuse was beyond the licensee's control.

The department wants to see each and every licensee's business succeed. However, as Mr. Lawlor alludes to, some businesses do fail even with the best intentions. However, placing a license on nonuse status within six months of a previous nonuse period is not permissible based on adverse economic conditions.

Furthermore, Mr. Lawlor's request that secured party holders be given notice of a proposed lapse of a license or revocation of a license is noted. The department believes it is best to take Mr. Lawlor's comments under advisement and consider whether such content is necessary during future rule amendments.


/s/ Laurie Logan                                           /s/ Mike Kadas

Laurie Logan                                               Mike Kadas

Rule Reviewer                                             Director of Revenue


Certified to the Secretary of State December 1, 2014.


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