As part of the unseemly compromise to pass legislation authorizing the sale of wine in groceries in Tennessee, state law was changed to allow manufacturers to donate product for tastings at retail liquor stores. We blogged about the new law here.
We have been hearing from reliable sources that some manufacturers are using the tastings law as a conduit to illegally channel free booze to retailers for purchasing product.
Before the Tennessee ABC cracked down on free booze, the industry often gave free booze to a retailer that ordered a certain quantity. For example, a retailer might get 3 free bottles if it ordered 3 cases.
The TABC cracked down on free booze effective July 1, 2014.
Free booze for tastings gives unscrupulous industry members a way to funnel free product to retailers under the guise of using the product for tastings.
Conjures up Neil Young’s bizarre “Welfare Mothers”
Down at every laundromat in town now
(Welfare mothers make better lovers)
While they’re washin’ you can hear this sound now
(Welfare mothers make better lovers)
We applaud the new law and its goal to allow manufacturers to provide complimentary booze to retailers to help market wine and spirits. As a business-friendly state, it makes sense.
We strongly support efforts to prevent using the tasting law as a way to avoid the prohibition on free booze.
One idea is to mark free bottles with a label saying that the product is not for sale. This gives the TABC something to look for in stores. Another idea is to require wholesalers to break the seal of free product upon delivery to a retailer. Customers will generally not purchase open stock.
We invite industry members to share tips for ways to short-circuit the use of free tasting product as an illegal incentive for purchases.
The annual liquor license renewal for Tennessee on-premise liquor license holders has been the same for as long as we can remember. A TABC Agent inspects, tells the license holder it needs to renew and leaves a copy of the renewal paperwork.
A common complaint from corporate license holder was that the renewal application was not forwarded to corporate offices for renewal. This sometimes caused a last-minute or late rush to renew.
We recently learned that the TABC has changed the procedure for renewals. TABC agents still inspect before the renewal deadline. But renewal forms are no longer provided.
TABC agents direct license holders to forms available on line.
We are advising clients to calendar renewals. Given the recent ABC rule about voiding late renewals, which we covered here, timing for renewals is a potential trap.
Green Day’s bizarre lyrics to Homecoming comes to mind:
Jesus filling out paperwork now
At the facility on East 12th St.
He’s not listening to a word now
He’s in his own world and he’s daydreaming
With a prolonged interruption in service as the penalty for a late renewal, we strongly encourage that renewals be closely monitored and completed on time.
Early voting results suggest that Wine in Grocery Stores, which we affectionately call WIGS, is quite popular with the electorate. Based on our unscientific and very amateur view of early election results, approval of WIGS has a commanding lead.
Although WIGS was approved by the state legislature earlier this year, the law requires the citizens of each city or county to vote in favor of allowing WIGS before local grocers can sell wine. Called local option, it is the process that authorizes each city to allow package stores and restaurants.
We blogged about the list of cities and counties holding WIGs elections here.
Brings to remind the Eagles 1977 superhit Hotel California:
Mirrors on the ceiling, the pink champagne on ice
And she said ‘We are all just prisoners here, of our own device’
We see approval of WIGS as being crucial to the competitiveness of grocery stores in large and mid-sized towns. A city that fails to adopt WIGS puts its grocers at a disadvantage to grocery stores that can sell wine. Although wine may not be a huge part of revenue for a grocer, losing high end consumers that want to purchase wine while grocery shopping could be a big loss.
Check back in a day or so when we post full election results.
The Tennessee Alcoholic Beverage Commission has issued new rules for nonprofit liquor licenses, known as Special Occasion Licenses. We see the new TABC rules as game changers, particularly for bigger events.
Previously, nonprofits could pull a Special Occasion License from the ABC for an event and just receive a check. The nonprofit was merely the beneficiary of the event.
The Tennessee ABC now requires that the nonprofit actively provide liquor service: from picking up or receiving liquor inventory to paying for servers or providing volunteers to serve alcohol.
George Thorogood’s classic tune seems relevant:
One bourbon, one scotch, one beer
Well I ain’t seen my baby since I don’t know when,
I’ve been drinking bourbon, whiskey, scotch and gin
Gonna get high man, I’m gonna get loose,
Need me a triple shot of that juice
Gonna get drunk, don’t you have no fear
I want one bourbon, one scotch and one beer
One bourbon, one scotch, one beer
Special occasion licenses are critical for many popular events. A nonprofit with a special occasion license can receive donated alcohol. Under another recent Tennessee ABC rule, regular permit holders cannot receive free alcohol. Caterers, for example, cannot serve donated liquor at a nonprofit event.
The ABC has compiled a helpful pdf of relevant laws special occasion license laws and regs (01144156).
Special occasion license holders also do not have to pay sales or LBD taxes, which typically add up to 24.25%.
Special occasion licenses are regularly used to permit alcohol sales at outdoor events that do not normally qualify for liquor sales.
Keep in mind that these rules only apply to wine and spirits. Beer is poured under completely different laws.
As we see things, perhaps the biggest impact of the new Tennessee ABC rule is that the nonprofit must pay for servers or provide volunteers to serve alcohol. For large events, staffing bars is a huge responsibility.
So far, the Tennessee ABC seems to allow the event promoter to pay the nonprofit in advance for staffing costs.
We advise nonprofits to require promoters to name the nonprofit as an additional insured and provide proof of insurance before the event. This is a small expense for the promoter that is priceless for the nonprofit. If a guest served by the nonprofit at the event causes a drunk driving accident or other liquor liability, the insurance will cover the cost of legal fees for the nonprofit, which can easily cost tens of thousands of dollars, as well as any court judgment.
If the Tennessee ABC cracks down further, the rules could become unworkable for many special events. For example, so far, the Tennessee ABC seems to allow a promoter to sell tickets and pay for event expenses like entertainment, staging, security, trash and portapotties.
Under the current rules, a promoter bears the risk that an event makes or loses money. The nonprofit gets a check regardless of whether the event makes money.
The Tennessee ABC could require a nonprofit to be responsible for all aspects of an event, including being responsible for losses. This would be a huge game changer.
Today, October 23, 2014, we learned that liquor-by-the-drink tax ace Rondal John is moving onto greener pastures. Anyone that licenses in Tennessee knows how critical Rondal has been for liquor licensing.
As of November 17, 2014, Rondal will no longer be an employee of Taxpayer Services LBD Unit. Rondal is going to become a computer programmer for Tennessee.
We wish Rondal well and thank him for bringing sanity to the often chaotic process for tax clearance and bond approvals for restaurants, bars and other liquor license holders. Rondal eagerly fixed seemingly impossible tax issues on a regular basis.
Rondal brings to mind Randy Newman’s 1995 hit:
You’ve got troubles, well I’ve got ‘em too
There isn’t anything I wouldn’t do for you
We stick together and we see it through
You’ve got a friend in me
You’ve got a friend in me
Look for Rondal at Smoking’ Thighs, one of his favorite food purveyors. Best wishes Rondal.
For Christians, wine is central to the Eucharist, a sacred rite from the Last Supper, where Jesus famously shared bread and wine with his disciples.
Wine in Grocery Stores, which we affectionately call WIGS, is shaping up to be the big issue on the ballot for fall elections. Although the Tennessee legislature legalized WIGS, each city or county must hold an election to vote for WIGS before groceries can sell wine. About 80 cities and counties have WIGS on the ballot this fall, as we blogged here.
Many political pundits predicted that WIGS could face opposition from conservative religious groups, particularly in small towns in more rural areas.
An anti-WIGS ad campaign in Maryville and Alcoa, reportedly funded by retail liquor stores, comes as a surprise even for the most jaded of liquor-industry insiders. The Daily News has the scoop.
The anti-WIGS billboard ads feature fear-mongering over the sale of fortified wines in convenience stores. The ads ignore the fact that almost every convenience store is not eligible for a WIGS license. Mapco, Pilot and other Tennessee convenience stores do not sell enough grocery food items to qualify for wine sales under WIGS.
Conjures up Lilac Wine by Nina Simone:
Lilac wine is sweet and heady, like my love
Lilac wine, I feel unsteady, like my love
Local option liquor elections like WIGS in Tennessee have involved colorful election tactics. Nashville’s 1967 election to legalize liquor-by-the-drink led to a seemingly unlikely alliance between bootleggers and Baptists. Liquor opponents bombed the mailbox of a prominent proponent of liquor.
Although we hope WIGS does not inspire violence, we expect the political battles over WIGS to heat up as the November 4 election approaches.
Jennifer Maxey has a national reputation among liquor licensing professionals. Jennifer’s skill set made her a perfect hire for Tennessee’s leading liquor licensing firm, Bone McAllester Norton.
We are so glad to have Jennifer on our team.
Jennifer’s licensing expertise is widely recognized in the alcoholic beverage industry. Less known are her culinary skills, skydiving experience and NFL Colt’s obsession.
Jennifer is admittedly afraid of heights. Nevertheless (a word only used by lawyers), a couple of months ago, Jennifer embraced her fear and jumped out of an airplane at 10,000 feet.
Reminds us of Steve Miller Band’s classic:I want to fly like an eagle
To the sea
Fly like an eagle
Let my spirit carry me
Jennifer cooks up a mean Buffalo Chicken Slider. Watch out BW3. Jennifer’s culinary obsession is chicken lo mein. Her version of the classic Chinese dish is legendary.
As part of the response to 9.11, the U.S requires all food manufacturers to register with the federal Food and Drug Administration. The intent was to make it easier for the U.S. to respond to a terrorist attack through food – for example, poisoning beer at a Bud brewery.
This week’s TTB newsletter has an alert about new FDA registrations due by the end of the year. The details about the renewal are cryptic, to say the least. But we know that breweries and distilleries are subject to the FDA registration requirements.
For some reason, punk band Green Day’s song “Warning” comes to mind:
Is it the cop, or am I the one that’s really dangerous?
Sanitation, expiration date, question everything.
Or shut up and be a victim of authority
The unfortunate reality is that the Borg were correct when declaring that “resistance is futile.” Our advice is to suck it up and comply. At least there is no charge.
We were baffled by the Tennessee Alcoholic Beverage Commission’s recent instructions to grocers that bitters could only be sold at retail liquor stores. This week, the ABC provided an explanation that makes sense.
We still disagree with the ABC reasoning, but at least we know how far the ABC will go.
Buck Owens penned a classic hit that catches our sentiment:
The flame of love was burning high we vowed to never let it die
But now you’re growing tired of me so let’s agree to disagree
Let’s agree to disagree there’s nothing left for you and me
You won’t be happy till you’re free so let’s agree to disagrees
Those of us knowledgeable of obscure federal liquor laws understand that bitters are “non-beverage.” Scope, peppermint extract and cooking wine are non-beverage products that contain alcohol. Unlike alcoholic beverages, non-beverage products are not regulated and taxed like whiskey and vodka.
The simplest explanation of whether a product is non-beverage is “can you drink it?”
Most flavorings like peppermint and vanilla are around 190 proof. Your local grocer stocks hundreds of non-beverage products with alcohol.
Non-beverage is the federal standard for determining whether a product is taxed like wine or whiskey, or is exempt from federal taxes. Generally, states follow the TTB standards. If a product like cooking wine is non-beverage under federal law, it is not an alcoholic beverage under state law.
Recently, the Tennessee ABC instructed grocers to pull bitters from shelves. According to the Tennessee ABC, bitters can only be sold by retail liquor stores.
We disagreed with the ABC finding, in large part because of concern that hundreds of non-beverage products containing alcohol could be deemed contraband. Would the ABC declare that Scope could only be purchased at a liquor store?
We are pleased with the ABC explanation that bitters are unusual under state law. ABC Staff Attorney Josh Stepp contacted us today to explain that the treatment of bitters as alcoholic beverages by the ABC was based on Tenn. Code Ann. § 57-3-101(17), which specifically names bitters as a product of “rectifying.”
We agreed to disagree. But at least, the ABC will not be banning other non-beverage products from grocery stores.
The Tax and Trade Bureau, the federal agency charged with overseeing alcohol, recently reminded industry members that the failure to pay liquor taxes is a serious crime.
According to the TTB, Monterey Wine Services had taxable removals of wine from its bonded wine cellar, which resulted in a wine excise tax due and owing to TTB. The owner, Brenda Jo Kibbee, failed to pay the excise tax. In the wine warehousing industry, bonded wine cellars pay wine excise tax on the removal of wine, but then typically pass this cost on to their winery customers. Even though Kibbee did not pay the excise tax due to TTB, she invoiced her customers and received payments from them for the excise taxes. Kibbee agreed that the tax loss resulting from her misconduct was at least $877,126.94.
Brings to mind “Carnival World” by Jimmy Buffett
But talk is cheap
It takes money to buy your freedom
And the tax man’s knockin’ on your door
Spend it while you can, money’s contraband
You can’t take it with you when you go.
Spend it while you can, before it’s taken from your hand,
There’s no free ride in this carnival world.
TTB Assistant Administrator for Field Operations Tom Crone said, “Tax evasion is not a victimless crime. Law abiding businesses rely on us to ensure a level playing field. We take that responsibility seriously.”
Honorable D. Lowell Jensen, United States District Court Judge, in San Jose sentenced Kibbee to a three-year term of supervised release.