BEFORE THE DEPARTMENT OF REVENUE
OF THE STATE OF MONTANA
In the matter of the amendment of ARM 42.13.1202 pertaining to beer wholesaler and table wine distributor limited delivery exceptions
NOTICE OF AMENDMENT
TO: All Concerned Persons
1. On October 18, 2019, the Department of Revenue published MAR Notice No. 42-1008 pertaining to the public hearing on the proposed amendment of the above-stated rule at page 1855 of the 2019 Montana Administrative Register, Issue Number 20.
2. On November 8, 2019, a public hearing was held to consider the proposed amendment. No proponents were present, no proponent oral testimony was received, and the department received no written comments in support. The following persons appeared as opponents to the rulemaking and provided oral comments: Brad Griffin, Montana Restaurant Association; Dan Graves, Whitefish Mountain Resort; Brian Clark, Fun Beverage; Jim Walker and Bob Petitt, Bridger Bowl, Inc.; Wayne Driscoll, Cardinal Distributing; Kristi Blazer, Montana Beer and Wine Distributor's Association (MBWDA); and Bob Riso, Hellroaring Saloon. Written comments were also received at the hearing from Brad Griffin, Brian Clark, and Kristi Blazer.
3. The department has amended the following rule as proposed, but with the following changes from the original proposal, new matter underlined, deleted matter interlined:
42.13.1202 BEER WHOLESALER AND TABLE WINE DISTRIBUTOR - CONDITIONS FOR OPERATING (1) remains as proposed.
(2) When a beer wholesaler or table wine distributor's trucks and equipment are incapable of delivering alcoholic beverages to a retail licensee's premises due to the unique physical location of the retail licensee's premises - examples of which are premises located on an island or atop a mountain -
the beer wholesaler or table wine distributor may request the assistance of the retail licensee to deliver the alcoholic beverages if: the beer wholesaler or table wine distributor and retail licensee may seek prior department approval for an alternative delivery arrangement on a form provided by the department. If the department approves the alternative delivery arrangement request, the department shall provide the beer wholesaler or table wine distributor and the retail licensee a written summary of the conditions of the approved delivery arrangement. Failure to comply with the approved alternative delivery arrangement may subject the beer wholesaler, table wine distributor, or retail licensee to administrative action.
(a) the beer wholesaler or table wine distributor's employee remains with the alcoholic beverages to be delivered until delivery has occurred at the licensed premises; and
(b) the beer wholesaler or table wine distributor seeks prior department approval on a form provided by the department.
(3) and (4) remain as proposed.
AUTH: 16-1-303, MCA
IMP: 16-3-212, 16-3-231, 16-3-232, 16-3-242, 16-3-301, 16-3-404, 16-3-406, 16-4-103, 16-4-106, 16-4-108, 16-4-402, 16-4-415, MCA
4. 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: All opposition commenters provided general testimony as to their respective wholesaler and retailer experiences regarding what they referred to as "servicing difficult to reach locations," which are premises in dangerous or difficult to reach locations for distributors, such as a mountain top bar or restaurant. All commenters testified about alcoholic beverage product delivery and the logistics of resupplying mountaintop bars and restaurants, and that the delivery of beer and wine is being made to alternate secured storage areas through which the retail licensee resupplies the hard-to-reach premises.
Mr. Graves supplemented his testimony with a brief video taken from a remote-controlled drone, which was shown to the hearing's attendants to illustrate Whitefish Mountain Resort, the handful of retail licensees operating on the mountain, and the route a distributor must take - in season and off-season - to deliver alcoholic beverages to the area's licensees.
RESPONSE 1: The department thanks the commenters for the comments. Mr. Graves' video and testimony showing the difficulties of delivering alcoholic beverages to Whitefish Mountain Resort is a good representation as to why the department is pursuing a rule amendment. The department understands that certain licensed retailer premises are in areas where a beer wholesaler or table wine distributor's trucks and equipment are unable to deliver, such as premises located on an island or premises situated atop a mountain with no road access.
COMMENT 2: Several commenters testified that their own delivery compliance concerns arose following the results of some recent alcoholic beverage code violations involving a high-profile retail licensee, its wholesale distributors, and the department.
Mr. Graves commented that he is wary whether the department is attempting to consider the commenting distributors and licensees in the same vein of
non-compliance as the other recent violating licensees and offered that the commenters' circumstances are different.
RESPONSE 2: The department appreciates the retailers, wholesalers, and distributors bringing examples of their delivery concerns to the department's attention. For these hard to reach retail premises, the department has exercised its discretion to defer administrative action until a solution could be provided in rule. The department has further amended ARM 42.13.1202 to allow for retailers, wholesalers, and distributors to request an alternative delivery arrangement.
COMMENT 3: Some commenters stated that the current licensing requirement for the delivery and storage of alcoholic beverages to occur only at the licensed premises is impractical because it cannot be applied to all retail licensees, some of which conduct business through hard-to-reach premises.
Messrs. Graves, Clark, Walker, and Petitt commented their opinions that the distributor delivery rules and policy enforcement issues were created by the department when it approved and issued on-premises consumption licenses in these hard-to-reach locations, and the department should have known that distribution of product to the licensed premises might not be possible given the hard-to-reach location of the premises.
Mr. Clark commended the department's willingness to propose a solution to address a ". . . '[c]atch 22' of mutually conflicting administrative rules that by their current enforcement, after three decades of non-enforcement, cannot be fully complied without some reasonable and appropriate changes."
RESPONSE 3: The Montana Alcoholic Beverage Code requires beer and wine to be delivered to a licensed retailer's premises. Section 16-3-219, MCA. The department recognizes that throughout the years certain licensed retail premises with unique physical characteristics making deliveries not possible have been approved. As such, the department has made a commitment to address deliveries to these locations by rule.
The department's original proposal to require the wholesaler or distributor's employees to remain with the product until delivered at the retailer's licensed premises was not an unreasonable solution and is an option that was presented to the department by members of the alcoholic beverage industry. However, the department realizes this is not an ideal solution for all hard-to-reach retailers and has further amended ARM 42.13.1202. Those amendments are described in Responses 4, 6, and 7.
COMMENT 4: Mr. Griffin commented that the law regarding these difficult to reach locations needs to be changed and proposed working on legislation to fix this situation. However, since legislation won't take effect until May of 2021 at the earliest, Mr. Griffin believes the administrative rules need to allow businesses to function "…[i]n the same way that they have for decades - without fear of administrative actions."
Mr. Graves stated that until now the non-enforcement of the delivery laws amounted to prosecutorial discretion, and the department should continue this policy of discretion until the 2021 Legislature can address the situation, as Mr. Griffin recommends. Mr. Clark and Ms. Blazer concurred with these comments.
RESPONSE 4: The department believes the amendment of ARM 42.13.1202 will provide licensees with the flexibility to continue operation with minimal burden. The department proposes to further amend ARM 42.13.1202 to allow wholesalers/distributors and retailers the ability to request department approval for an alternative delivery arrangement. The department encourages the interested parties to seek legislation to address deliveries to premises with unique physical locations.
COMMENT 5: Several commenters expressed concern over the timing of the effective date of proposed rule changes because the 2019-2020 ski season starts in November and runs through April. If the rules become effective during this time, affected distributors and retail licensees may suffer substantial financial losses.
Messrs. Graves and Clark concurred with these comments, but stressed the economic impacts they feel the proposed rules would have on Whitefish Mountain Resort and the surrounding community.
Messrs. Walker and Petitt similarly commented with respect to Bridger Bowl ski area.
RESPONSE 5: The department understands the urgency for the retailers, wholesalers, and distributors impacted by these situations to have a solution in place for the upcoming 2019-2020 ski season. While rulemaking has progressed, the department has exercised its discretion to defer administrative action until a solution could be provided in rule. As the rule has now been amended, the department urges each affected retailer, wholesaler, and distributor to request an alternative delivery arrangement. Each instance will be evaluated on a case-by-case basis.
COMMENT 6: Messrs. Graves, Clark, Driscoll, Petitt, and Walker testified that the department's proposed rulemaking requirement that a distributor's employee remain with the alcoholic beverages to be delivered to a licensee is logistically unworkable because some licensees, like those at Whitefish Mountain Resort and Bridger Bowl, conduct product restocking by snowcat, snowmobile, or other specialized means - often after normal operating hours - and safety, worker's compensation insurance, and liability issues arise.
Mr. Riso commented that staffing issues for licensees are often impacted because restocking of these bars and restaurants has to be accomplished outside of normal operating hours. The result of keeping these establishments adequately stocked with available staff sometimes means that business hours are shortened, and several restaurants opt for a less than full meal service.
RESPONSE 6: As mentioned in Response 4, the department has further amended ARM 42.13.1202. The amended language no longer requires the distributor or wholesaler's employee to accompany the product to the retailer's licensed premises. Rather, the wholesaler/distributor and retailer will need to submit a request for approval, on a form provided by the department that explains how the alcoholic beverages will be delivered to the retailer's licensed premises.
COMMENT 7: Messrs. Graves, Clark, Driscoll, Petitt, and Walker commented that the proposed rule would create unintended consequences where distributors would be forced to discontinue service to their customers or the hard-to-reach bars would go out of business because of the administrative burden and increased cost of purchasing, delivering, and resupplying the alcoholic beverage inventories to the premises.
Mr. Driscoll commented his belief that should the rulemaking be adopted as proposed, the interruption of delivery services to these licensees may put distributors in violation of their brewery contracts.
RESPONSE 7: The department's additional amendments to ARM 42.13.1202, as described in Responses 4 and 6, should address the concerns of the commenters. The department has further amended ARM 42.13.1202 to allow for alternative delivery arrangements if the entities involved request approval from the department and can demonstrate that adequate safeguards are in place to control the accessibility of the alcoholic beverages until they are ultimately delivered to the retailer's licensed premises.
COMMENT 8: Mr. Clark also provided an alternate proposal to the rulemaking, via his comments, which would involve the creation and department approval of a temporary storage location, which would constitute part of a single retail licensee's licensed premises, exclusively for the alternative and secure delivery of alcoholic beverages. The proposed temporary storage location would also have other restrictions and would not replace storage areas on a licensee's primary licensed premises.
RESPONSE 8: The department appreciates Mr. Clark offering a proposal for the department to consider. The department has further amended ARM 42.13.1202 to allow for alternative delivery arrangements if the entities involved request approval from the department and can demonstrate that adequate safeguards are in place to control the accessibility of the alcoholic beverages until they are ultimately delivered to the retailer's licensed premises.
COMMENT 9: Ms. Blazer provided background commentary regarding four proposals discussed by the MBWDA board of directors and forwarded to the department that constituted preliminary industry input. Ms. Blazer also commented that the MBWDA did not sufficiently discuss the amendments in proposed (2) with retail licensees.
Ms. Blazer also proposed alternatives to the rulemaking that reflect other options contemplated and supported by the MBWDA:
1. Similar to Comment 3, the department should exercise prosecutorial discretion and not prosecute distributors for failure to deliver to the actual licensed premises (where difficult, dangerous, or impractical) until the legislature has had the opportunity to be informed and act in the 2021 legislative session. Ms. Blazer opines that there is authority for prosecutorial discretion and provided information of an occurrence where the federal government exercised discretion in the deferral of penalties against wholesale distributors for past unreported ownership changes.
2. Use the administrative rule process, not to contravene 16-3-219, MCA, but to consider transitional rulemaking that would define "licensed premises" to permit alternate delivery methods until the 2021 Montana Legislature is able to pass legislation to provide for delivery restrictions exceptions. Ms. Blazer provided draft text amendments to ARM 42.13.111 and 42.13.1202 in support of this concept.
3. The department notifies and requires all hard-to-reach retailers to submit new floor plans to include the storage areas where deliveries are currently being made. This would expand the licensed premises, making current deliveries legal.
RESPONSE 9: The department appreciates Ms. Blazer offering proposals for the department to consider. While rulemaking has progressed, the department has exercised its discretion to defer administrative action until a solution could be provided in rule. The department has further amended ARM 42.13.1202 to provide beer wholesalers, table wine distributors, and retailers more flexibility in delivering to premises with unique physical locations.
COMMENT 10: Messrs. Riso and Petitt also commented their disagreement with the department's small business impact disclosure in #9 of the proposal notice. Mr. Riso believes if the proposed amendments were adopted, there will be significant impact to his small business.
RESPONSE 10: The department appreciates Messrs. Riso and Petitt's comments regarding the impact of the proposed rules on their business. The department's original proposal allowed hard-to-reach retailers the ability to continue to get deliveries from wholesalers and distributors which justified the small business impact statement. However, as the commenters presented at the hearing, that original proposal still created some unexpected or unavoidable burdens on the hard-to-reach retailers. The department has further amended ARM 42.13.1202 to better account for these unavoidable burdens.
/s/ Todd Olson /s/ Gene Walborn
Todd Olson Gene Walborn
Rule Reviewer Director of Revenue
Certified to the Secretary of State January 7, 2020.