BEFORE THE DEPARTMENT OF REVENUE
OF THE STATE OF MONTANA
In the matter of the adoption of New Rules I and II, the amendment of ARM 42.11.301 and 42.11.305, and the repeal of ARM 42.11.306, 42.11.307, 42.11.309, and 42.11.310 pertaining to agency liquor stores
NOTICE OF PUBLIC HEARING ON PROPOSED ADOPTION, AMENDMENT, AND REPEAL
TO: All Concerned Persons
1. On November 9, 2015, at 3 p.m., the Department of Revenue will hold a public hearing in the Third Floor Reception Area Conference Room of the Sam W. Mitchell Building, located at 125 North Roberts, Helena, Montana, to consider the proposed adoption, amendment, and repeal of the above-stated rules. The conference room is most readily accessed by entering through the east doors of the building facing Sanders Street.
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, advise the department of the nature of the accommodation needed no later than 5 p.m. on October 26, 2015. Contact Laurie Logan, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-7905; fax (406) 444-3696; or e-mail firstname.lastname@example.org.
3. The department complied with 16-1-303(5), MCA, and convened a negotiated rulemaking committee to draft, amend, and repeal the above-stated rules. The committee was comprised of department staff, agency liquor store owners, an agency liquor store attorney, and a representative of the Montana Tavern Association. The proposed adoption, amendment, and repeal of the following rules contain the language agreed to by the committee and accepted by the department.
4. The rules proposed to be adopted provide as follows:
NEW RULE I DIRECT PRODUCT DELIVERIES FROM A DISTILLERY
(1) An agency liquor store may order product directly from a distillery pursuant to 16-4-311, MCA, without notification to the department.
(2) The date of the invoice issued by the department for product an agency liquor store receives directly from a distillery shall be the date of delivery.
(3) The agency liquor store shall maintain at its place of business a copy of the signed bill of lading provided by the distillery for each delivery.
(4) Within three business days of receiving inventory that is deficient or defective, the agency liquor store shall notify the distillery. If adjustment of the invoice issued by the department is necessary, the agency liquor store shall notify the department within 30 days of product receipt.
AUTH: 16-1-303, MCA
IMP: 16-4-311, MCA
REASON: The department proposes adopting New Rule I due to the passage of House Bill 506, L. 2015, which allows a qualifying distillery to deliver product directly to an agency liquor store instead of sending the product through the state liquor warehouse as an intermediary for the delivery.
Effective January 1, 2016, an agency liquor store may place a product order with the distillery, the distillery will deliver the product to the agency liquor store and notify the department of the product delivered and the department will subsequently invoice the agency liquor store for the product delivered and pay the distillery the quoted price for the product.
The proposed rule will provide agency liquor stores with guidance on its role in this new process. Specifically, (1) makes it clear that the agency liquor stores need not notify the department when placing a direct order for product with a distillery, (2) specifies that the date on the department's invoice will match the date of the product delivery, (3) addresses the agency liquor store's delivery record keeping requirements, and (4) sets forth the time frame to notify and request invoice adjustments.
NEW RULE II AGENCY LIQUOR STORE PROXIMITY TO GROCERY STORES (1) Agency liquor stores may not be located in or adjacent to grocery stores in communities with populations over 3,000.
(2) The department shall consider a retail establishment to be a grocery store if:
(a) the establishment maintains food inventory with a cost of $5,000 or greater; and
(b) the department determines that the establishment's primary purpose is to sell products other than alcoholic beverages.
(3) An agency liquor store and a grocery store shall not be considered to be adjacent to one another where the stores are located across a street from one another. The department shall consider the agency liquor store and grocery store to be adjacent to one another if:
(a) the agency liquor store and the grocery store share a common internal or external wall; or
(b) there is an absence of a building between the agency liquor store and the grocery store that is owned by a party unrelated to any party with an ownership interest in the grocery store; and
(c) the distance between the nearest exterior wall of the agency liquor store and the grocery store is equal to or less than 100 feet.
(4) The prohibition in (1) does not apply when an agency liquor store was located on the site prior to a grocery store undertaking occupancy adjacent to the agency liquor store.
(5) The definition of a grocery store in (2) and the criteria for stores being adjacent to one another in (3) shall not be applied to determine the location suitability for agency liquor stores that are in operation as of January 1, 2016, unless the agency liquor store elects to relocate or expand an existing store.
AUTH: 16-1-303, MCA
IMP: 16-2-101, MCA
REASON: The department proposes adopting New Rule II to inform potential agency liquor store agents how the department will administer the prohibition in 16-2-101(3), MCA, against an agency liquor store being located in or adjacent to grocery stores in communities with populations over 3,000. Specifically, the proposed rule seeks to identify which retailers will be considered to be grocery stores, how the department will determine whether an agency liquor store and a grocery store are adjacent to one another, and clarification on when these requirements will be imposed.
Proposed (2) sets forth the criteria for determining whether a retailer will be considered to be a grocery store. Retailers who carry the proposed cost of food inventory will be considered grocery stores unless the establishment's primary purpose is to sell alcoholic beverages. The $5,000 food value criterion will exclude retailers who carry small amounts of food inventory in their establishments while still allowing agency liquor stores the ability to carry mixers, ice, and other items that complement alcoholic beverages.
Proposed (3) establishes criteria to determine whether an agency liquor store and a grocery store are adjacent to one another. The phrase "adjacent to" is used in 16-2-101(3), MCA, but that statute does not provide guidance to the department on how to make these determinations. The department has interpreted the phrase "adjacent to" as referring to two contiguous stores that are touching as well as stores that are close to one another. The department has incorporated both meanings of the phrase into its proposed rule. First, as proposed, the stores will be considered to be adjacent to one another when they are contiguous based upon a shared wall. Second, as proposed, the stores will be considered to be adjacent to one another when they are close to one another and there is no intervening building between the stores. The department is also proposing that stores across the street from one another would not be considered to be adjacent, because the street would essentially serve the same function as an intervening building.
Proposed (4) addresses the situation where an agency liquor store is located somewhere prior to a grocery store moving into the area. As the department has no regulatory authority over a grocery store, it cannot prevent the grocer from locating next to an existing liquor store. Additionally, the department will not require an agency liquor store to relocate in such situations.
The proposed language in (5) provides an exception for an agency liquor store in operation as of January 1, 2016, so long as the agency liquor store does not relocate or expand. This exception is based upon the location of the agency liquor store rather than identity of the agent. Accordingly, an agency liquor store that remains in the same location but has a change in ownership would still be exempt from the definition of a grocery store in (2) and the criteria for stores being adjacent to one another in (3). The department proposes that when the agency liquor store relocates or expands, then the agent would be subject to (2) and (3).
5. The rules proposed to be amended provide as follows, new matter underlined, deleted matter interlined:
42.11.301 DEFINITIONS As used in this subchapter, the following definitions apply:
(1) "Adult" means a person
21 18 years of age or older.
(2) remains the same.
(3) "Agent" means a person or entity
that markets liquor on a commission basis under an agency agreement with the department and provides all the resources, including personnel and store premises, needed to market liquor under the agreement authorized under an agency franchise agreement with the department to operate an agency liquor store.
(4) "Average commission percentage" means the simple average of the commission percentage of agents with similar sales volumes.
(5) "Base year" means the first year of the three-year commission rate review period as it applies in 16-2-101, MCA. For example, the base year is 2010 for the commission rate review that will be conducted in 2013.
(6) "Commission percentage discount rate" means a specific percentage discount rate granted to an agent operating an agency liquor store. The percentage rate may be adjusted for the term of the franchise agreement.
(7) remains the same but is renumbered (4).
(8) "Invoice date" means the date an agent receives their liquor order in the agency liquor store.
(9) through (11) remain the same, but are renumbered (5) through (7).
(12) "Required documents" means, but is not limited to:
(a) tax returns and schedules for the agency liquor store;
(b) if combined with other operations, a separate income or profit and loss statement with allocated percentages of the labor operation;
(c) a copy of one month's utility statement;
(d) copies of rental or lease contracts or agreements;
(e) copies of health insurance premium statements;
(f) copies of liability insurance premiums; and
(g) copies of quarterly federal forms 941.
(13) "Sales band" means a group of agents with similar sales volumes.
(14) "Sales volume" means an agent's purchases from the department at posted price for the applicable calendar or fiscal year.
(15) "Top 25 items" means the top 25 liquor items (SKUs) sold by agency liquor stores in the state of Montana, based on the highest quantity of cases sold in the previous calendar year.
(16) "Volume of sales discount" means a percentage discount received by an agent, based on the total fiscal year purchases at posted price from the previous fiscal year, based on invoice date.
AUTH: 16-1-303, MCA
IMP: 16-2-101, MCA
REASON: The department proposes amending ARM 42.11.301 due to the passage of Senate Bill 193, L. 2015, which revised laws relating to discounts provided to agency liquor stores for liquor products purchased from the state liquor warehouse.
The department proposes striking the definitions "average commission percentage," "base year," "commission percentage discount rate," "invoice date," "required documents," "sales band," "sales volume," "top 25 items," and "volume of sales discount" because these terms will no longer be used in ARM Title 42, chapter 11, subchapter 3.
The department also proposes amending the definition of "adult." The definition of the term "minimum qualified petitioners" utilizes the term "adult" in determining who is qualified to submit a petition to the department to open a new agency liquor store in a community. Amending the age requirement from 21 to 18 will allow additional persons to petition the department on these matters.
The definition of "agent" is also proposed to be amended for better clarity.
42.11.305 OPENING A NEW AGENCY LIQUOR STORE (1) remains the same.
(2) The department shall use the most recent data available from the United States Census Bureau to determine a community's population.
(2) remains the same, but is renumbered (3).
(3)(4) The department may shall conduct a public hearing to open a new agency liquor store when all of the following conditions are met:
(a) The department receives a petition signed by at least the minimum qualified petitioners to open a new agency liquor store in the community. The petition must clearly state that its purpose is to have the department open a new agency liquor store in the community
which will be operated by an agent under contract with the department. The petition must show the printed name, mailing address, and signature of each person signing the petition.
(b) The department receives a letter from a person willing to submit a proposal or bid to operate a new agency liquor store in the community.
This person must control or expect to control a building in the community that could be used as the new agency liquor store location Agency liquor stores may only be located at premises in which the agent has possessory interest.
(c) through (f) remain the same.
(4)(5) When all of the conditions in (3)(4) are met, the department may hold a public hearing to receive comments from interested parties concerning the department's intention to advertise for proposals or bids for a new agency liquor store. The procedures to determine if a public hearing will be held, and if so, the location of the public hearing are:
(a) through (b) remain the same.
(5) through (7) remain the same, but are renumbered (6) through (8).
(8)(9) If the provisions in (7)(8) are not met, the hearing will be held in Helena.
(9) remains the same, but is renumbered (10).
(10)(11) The hearing officer will preside over the hearing, which is not a contested case proceeding as defined in 2-4-102, MCA, and collect the information presented. The hearing will address the following:
(a) whether the department should proceed with its intention to advertise for
proposals or bids for a new agency liquor store for the community;
(b) remains the same.
(c) whether any other issues directly related to the operation of the proposed new agency liquor store in the community or its possible effects on the community should be considered in the department's determination of whether to proceed with its intention to advertise for
proposals or bids for a new agency liquor store in the community.
(11)(12) Within six weeks following the public hearing, the hearing officer will submit a report to the department. This report will:
(a) identify all
of the issues raised at the hearing;
(b) recommend whether proceeding with the advertisement for
proposals or bids for a new agency liquor store is in the best interest of the state and the community; and
(c) remains the same.
(12) One week following receipt of the hearing officer's report, the
(13) The department
will shall decide what action will be taken in response to the hearing officer's recommendations within 30 business days of receipt of the hearing officer's report.
(13) remains the same, but is renumbered (14).
(14)(15) If the decision is to proceed with advertising for requests for proposals or invitations for bids for a new agency liquor store, the process to select an agent will be conducted in accordance with ARM 42.11.310 . selected by competitive sealed bids according to the procedures under the Montana Procurement Act, Title 18, chapter 4, MCA. To be eligible for consideration, a bid must meet all requirements set forth in the department's notice, including but not limited to an initial commission rate not to exceed 16 percent.
(15)(16) If no proposals or bids are received in response to a request for proposals or invitation for bids, or none of the proposals or bids received meet the minimum requirements specified in the request for proposals or the invitation for bids, the department will make no further solicitation for a new agency liquor store in the community for three years. If the conditions in (3)(4) and (4)(5) are met after the three-year period, the department will begin the solicitation process to open a new agency liquor store in the community.
AUTH: 16-1-303, MCA
IMP: 2-4-102, 16-2-101, 16-2-109, 16-4-201, MCA
REASON: The department proposes amending ARM 42.11.305 to provide information for the public regarding how new agency liquor stores may be opened.
The proposed new language in (2) and (15) was previously located in ARM 42.11.310, which the department is repealing due to recently enacted legislation. The department proposes relocating this portion of the information from the repealed rule here because it remains relevant to how new agency liquor stores may be opened. The department further proposes adding language in newly numbered (15) to specify that a bid will not be eligible for consideration unless it meets the department's notice requirements and does not exceed an initial commission rate of 16 percent.
The department also proposes amending newly numbered (4)(b) to remove the term "control" and restate the language in this section to include the phrase "possessory interest" because possessory interest is a current requirement. The proposed amendment will also make the language in this rule consistent with other administrative rules regarding alcoholic beverage control.
In newly numbered (13), the department proposes extending the deadline for the department to act on a hearing examiner's recommendations from one week to 30 business days. The proposed time extension will help ensure the department has sufficient time to review the hearing examiner's report in full prior to implementing an action plan.
6. The department proposes to repeal the following rules:
42.11.306 COMMISSION PERCENTAGE DISCOUNT RATE REVIEW
AUTH: 16-1-303, MCA
IMP: 16-2-101, MCA
REASON: The department proposes repealing ARM 42.11.306 due to the passage of Senate Bill 193, L. 2015, which generally revised laws regarding the discount rates applied to liquor products purchased from the state liquor warehouse by agency liquor stores. The revisions in the law make this rule no longer necessary.
42.11.307 VOLUME OF SALES DISCOUNT RATE REVIEW
AUTH: 16-1-303, MCA
IMP: 16-2-101, MCA
REASON: The department proposes repealing ARM 42.11.307 due to the passage of Senate Bill 193, L. 2015, which generally revised laws regarding the discount rates applied to liquor products purchased from the state liquor warehouse by agency liquor stores. The revisions in the law make this rule no longer necessary.
42.11.309 AGENT REQUESTED COMMISSION PERCENTAGE DISCOUNT RATE REVIEW
AUTH: 16-1-303, MCA
IMP: 16-2-101, MCA
REASON: The department proposes repealing ARM 42.11.309 due to the passage of Senate Bill 193, L. 2015, which generally revised laws regarding the discount rates applied to liquor products purchased from the state liquor warehouse by agency liquor stores. The revisions in the law make this rule no longer necessary.
42.11.310 SELECTION OF AGENT
AUTH: 16-1-303, MCA
IMP: 16-2-101, 16-2-109, 18-4-303, 18-4-304, MCA
REASON: The department proposes repealing ARM 42.11.310 due to the passage of Senate Bill 193, L. 2015, which generally revised laws regarding the discount rates applied to liquor products purchased from the state liquor warehouse by agency liquor stores. The revisions in the law make portions of the language in this rule no longer necessary. The remaining language pertaining to the selection of an agent does still apply and is proposed to be incorporated into ARM 42.11.305, which covers opening a new agency liquor store. Selection of an agent is part of that process.
7. 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: Laurie Logan, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-7905; fax (406) 444-3696; or e-mail email@example.com and must be received no later than November 18, 2015.
8. Laurie Logan, Department of Revenue, Director's Office, has been designated to preside over and conduct this hearing.
9. 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 that includes the name and e-mail or mailing address of the person to receive notices and specifies that the person wishes to receive notice regarding a particular subject matter or matters. Notices will be sent by e-mail unless a mailing preference is noted in the request. A written request may be mailed or delivered to the person in 7 above or faxed to the office at (406) 444-3696, or may be made by completing a request form at any rules hearing held by the Department of Revenue.
10. An electronic copy of this notice is available on the department's web site at revenue.mt.gov/rules. 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. While the department also strives to keep its web site accessible at all times, in some instances it may be temporarily unavailable due to system maintenance or technical problems.
11. The bill sponsor contact requirements of 2-4-302, MCA, apply and have been fulfilled. The primary sponsors of House Bill 506 and Senate Bill 193, Representative David Moore and Senator Bruce Tutvedt, respectively, were contacted by letters on both May 19, 2015, and September 18, 2015.
12. With regard to the requirements of 2-4-111, MCA, the department has determined that the adoption, amendment, and repeal of the above-referenced rules will affect the process to become an agency liquor store but will not require any of the current agency liquor stores to operate differently. Therefore there is not a direct and significant impact on those businesses. The department's full impact analysis is available at revenue.mt.gov/rules or upon request from the person in 7.
/s/ Laurie Logan /s/ Mike Kadas
Laurie Logan Mike Kadas
Rule Reviewer Director of Revenue
Certified to the Secretary of State October 5, 2015