(1) Applicants shall be notified that the issuance of a new license or transfer will not be allowed by the department when:

(a) the issuance of an on-premises consumption alcoholic beverages license for premises located within any incorporated city or town or within a distance of five miles from the corporate limits or boundaries of an incorporated city or town and where the number of licenses of each class already issued for the area is equal to or exceeds the limitations specified in 16-4-105 and 16-4-201, MCA; or

(b) the transfer of an on-premises consumption alcoholic beverages license under these circumstances could not be approved under the requirements of the law.