BEFORE THE DEPARTMENT OF REVENUE

OF THE STATE OF MONTANA

 

In the matter of the amendment of ARM 42.13.601 relating to small brewery closing time restrictions

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NOTICE OF AMENDMENT

 

TO:  All Concerned Persons

 

1.  On December 24, 2008, the department published MAR Notice No. 42-2-804 regarding the proposed amendment of the above-stated rule at page 2613 of the 2008 Montana Administrative Register, issue no. 24.

 

2.  A public hearing was held on January 14, 2009, to consider the proposed amendment.  Oral and written testimony received at the hearing is summarized as follows along with the response of the department:

 

COMMENT NO. 1:  Mr. John Krempel provided an electronic comment stating that the proposed new regulations for small brewery hours and sales finally seem plain and workable and thanked the department for its work.

 

RESPONSE NO. 1:  The department thanks Mr. Krempel for his supportive comments to this rulemaking process.

 

            COMMENT NO. 2:  Mr. Pat Kujawa, Butte, Montana provided an electronic comment stating that he was glad that it was decided to extend consumption hours until 10:00 p.m. rather than 8:00 p.m.

            Mr. Kujawa further stated that he believes breweries provide quality goods and services to the state of Montana.  Consuming alcohol from growlers or pints filled at a local brewery is much more energy efficient and sustainable practice than buying packaged alcohol from a store.

            Mr. Pat Kujawa commented that a brewery is not significantly different from a bar and should be able to, at the owner's discretion, stay open as late as a bar is allowed by law.  However, he questioned why breweries were restricted to earlier hours than all-beverage licensees.

 

            RESPONSE NO. 2:  The difference in hours for all-beverage licenses and brewery licenses is set by the Montana Legislature.  The rule is proposing to clarify when "consumption" must have been completed because the law states that the beer cannot be "provided" after 8:00 p.m.  In some cases patrons appear to be consuming the beer as late as 9:30 p.m. and local law enforcement officers are not able to determine if the alcohol was provided after the legal time stated in law.

 

COMMENT NO. 3:  Mr. Curtis Hartman, Livingston, Montana submitted an electronic comment stating that for a brewpub to offer its patrons the same "funtime" as the other bars, they will need to change their licenses and pay more taxes.  The main difference from other bars is more than the amount of taxes and licenses required.  Mr. Hartman questioned whether brewpubs pay more in taxes and licenses.  He stated that if the answer is yes, that more money is needed from the brewpubs, then they should be regulated the same as other drinking establishments with regard to their closing time.  Furthermore, being separated from the bad beer, cigarettes, and hard liquor of other bars, shouldn't cost brewpub patrons their "funtime".  Otherwise, they must comply with "brewpub rules," which are more restrictive.

Mr. Curtis Hartman further stated he disagrees with the intent of the Legislature and its negative impact on the brewpub industry.  He asked what the vision of the leadership was concerning brewpubs.

 

RESPONSE NO. 3:  The different regulations for an all-beverage license and a brewery license are set by the Montana Legislature.  As stated in Response No. 2, the rule is proposing to clarify when "consumption" must have been completed because the law states that the beer cannot be "provided" after 8:00 p.m.  The department has not conducted a study of who pays more taxes, the all-beverage licensees or brewers, so the department is not able to respond to Mr. Hartman's tax questions.  However, each pays relatively the same in license fees and in most cases the brewers pay less.  The vision of the state leadership (legislators) concerning brewpubs is reflected in the language of the brewery laws enacted by the Montana Legislature.

 

COMMENT NO. 4:  Mr. Justin Anthony, Missoula, Montana submitted his comments electronically.  He stated that he is opposed to any increase in taprooms for consumption because residents who reside in areas where there are taprooms located have to deal with problems such as: no parking requirements, additional traffic, noise, loud music, litter, fumes from diesel delivery trucks, and the brewing of the beer.  The problem seems to grow each and every year.  He stated that about 9:30 p.m. it seems to quiet down.

Furthermore, he would not propose making rules without cause but as it is proven time and again, this industry will push for self-regulation and self-interest over the benefits to society.  Please do not allow this to happen with the once quiet tasting rooms that are now bars, however restricted, by any definition.

If they want increased liberties to supply alcohol then they need increased regulation to govern its use.  This has not happened and the rest of us have to put up with the consequences of this behavior.

 

            RESPONSE NO. 4:  The department appreciates Mr. Anthony's comments and the department is trying to adopt rules to meet the intent of the statute enacted by the Montana Legislature.  That is why the proposed rule addresses when "consumption" must be completed because the law states that the beer cannot be "provided" after 8:00 p.m.  As stated in Response No. 2 above, there is some evidence that patrons, in some establishments, may be consuming the beer as late as 9:30 p.m.  This is a problem for local law enforcement since they are not able to determine if the alcohol was provided prior to 8:00 p.m., as required by law.  The department's intent is to have clear, understandable, and enforceable rules.

 

COMMENT NO. 5:  Mr. Tony Herbert, Executive Director, Montana Brewers Association (MBA), Helena, Montana presented both oral and written comments to the proposed rule action.  Mr. Herbert stated it is important to point out that the members of the MBA respect the intent of the statutes as currently written, and have consistently followed current statutes relating to operating, serving, and consuming hours.

He further stated that during the legislative process in 2005 (HB 315) the department sought change to the statute to reflect a time when consumption should end or adopt a statute similar to one that governs retail on-premise licensees and sets a closing time but it was determined by the Legislature that the legislative intent was clear and no cut-off time for consumption was needed.

Mr. Herbert further stated the MBA members did enter into a negotiated rulemaking process in good faith to consider the department's desire to implement clarification to the statute through rule.  The negotiated rulemaking process resulted in the proposed rule which provides for the serving of brewery product samples until 8:00 p.m., and the consumption of those sold or given away to conclude by 10:00 p.m.  The settlement on the hour of 10:00 p.m. as the final cut-off point for consumption came more as a result of the department and law enforcement's desire for a 10:00 p.m. cut-off versus a 9:00 p.m. cut-off, than it did from a desire on the part of the brewers for a 10:00 p.m. cut-off versus a 9:00 p.m. cut-off.

Mr. Herbert also stated that the MBA has felt somewhat singled out in this process, in that breweries are not the only entities or licensees that have hour restrictions for serving, yet only brewers' statutes have been subjected to the rule clarification process.  As an example, Restaurant, Beer, Wine licensee holders (Cabaret) are not allowed to provide their alcoholic products past 11:00 p.m.  The MBA encourages the department to clarify similar regulations over Cabaret license holders.

 

RESPONSE NO. 5:  The department appreciates the Montana Brewers Association (MBA) for participating in the negotiated rulemaking process and at the hearing.  During the negotiated rules process, the MBA proposed the 10:00 p.m. deadline and the other members of the rulemaking committee found no merit in rejecting that proposal as a consumption deadline.  The law enforcement members of the committee stated it would be easier to enforce if the cut-off were an even hour rather than a half hour.

The department did not single out MBA in this process, the brewers were the only entities that participated in the negotiated rulemaking process, although others were invited to participate.  The department admits that it did not consider the Restaurant, Beer, and Wine (Cabaret) licensees consumption period as being a concern during the brewery negotiated rulemaking process.  The department is in the process of considering the initiation of rules to set a time limitation of alcoholic beverages for Cabaret establishments.

 

COMMENT NO. 6:  Mr. Herbert stated opponents to the proposed rule have stated the legislative intent was to close brewery sample rooms at 8:00 p.m.  However, different parties have different interpretations and recollections of the legislative intent.  At the original hearing in 1999, Representative Stovall's bill that authorized the on-premise sale of brewery samples, it was made clear that breweries could remain open until 2:00 a.m. to sell beer for off-premises consumption, which is why a time for ending of service was used instead of a closing time.  The best measure of legislative intent is exactly what is included in the statute, which is that samples may be provided until 8:00 p.m.

 

RESPONSE NO. 6:  The department is trying to adopt a rule to meet the intent of the statute set by the Montana Legislature.  The rule is proposing to clarify when "consumption" must have been completed because the law states that the beer cannot be "provided" after 8:00 p.m.

 

COMMENT NO. 7:  Mr. Mark Staples, Legal and Legislative Counsel, representing Montana Tavern Association (MTA), Helena, Montana presented both oral and written comments to the proposed rule action.  Mr. Staples offered some background for the legislation which the rules support.  MTA was a principal party to the negotiations that led to the statutory exemption these rules are proposed to clarify.  He stated that the rationale behind the legislation was unequivocally that the small breweries wanted to be "able to sell" the "samples" they said they were then "giving away."  He stated that the breweries insisted they didn't want to compete with the bars and taverns because they were their customers.

Mr. Staples stated that during the original legislative process that enacted the law these rules support some debate occurred but ultimately it was agreed upon by the MTA and the small breweries that an 8:00 p.m. cut-off time for providing samples in the small breweries was acceptable.  At that time, it was never contemplated that some brewers would sell their last "samples" just before 8:00 p.m., and then allow imbibing until an undefined time, so it was not necessary to specify in the law that 8:00 p.m. was also the imbibing cut-off.  The word "provided" seemed perfectly clear on that point.  He further stated that the brewers said at that time that by that hour (8:00 p.m.) they would either want to get back to their evening brewing or home to their families, so they would encourage their "samplers" to go to the nearest bar to enjoy the sampled product there.  It was to be a symbolic relationship with the existing on-premise retail licensees, not a competitive one.

Mr. Staples stated that most small breweries still operate within the agreed upon - and legislated - parameters.  There are however, outliers, who are obviously opposed to (and abusive of) the characteristics that were meant to distinguish these "sample" rooms from other licensees, and they openly flaunt the intent of the statutory scheme.

Mr. Staples stated, "if 8:00 p.m. is the clear cut-off time for 'providing' beer samples at these 'sample rooms,' yet we're going to suspend the clear meaning of the law and accept the argument that 'providing' doesn't include allowing consumption, then what is a reasonable time to cut-off imbibing those previously 'provided' samples?"  He stated that given the legislative intent of this statute, which was clearly an 8:00 o'clock wrap up of "sampling," it would constitute a serious abuse of the public policy intent (and the agreement at its heart to stretch that time beyond the reasonable amount of time it would take to responsibly imbibe the last sample before the 8:00 p.m. cut-off).  Anything beyond a half hour (or at the extreme outside, an hour) is just clearly an attempt to skirt the legislative intent of an 8:00 p.m. cut-off for "providing" the "samples."

 

            RESPONSE NO. 7:  The department agrees the word "provide" is ambiguous and does not clarify if provide includes consumption, and for that reason, the department is adopting this rule to establish clear, understandable, and enforceable direction for local law enforcement, the establishments, and the department of when "providing" the product must be concluded.

 

COMMENT NO. 8:  Mr. Staples stated that these breweries are supposed to be primarily manufactures of a controlled product in a well-established control lattice know as the 3-tier system.  Montana small breweries are already advantaged by the only exception to the prohibition against vertical integration of the manufacturing, distribution, and retail tiers of the Montana alcohol control system.  Small breweries can however - within prescribed limits - manufacture, distribute, and retail.  That is a very privileged and advantageous position.  Any further expansion of those exceptions would not only fly in the face of legislation that created these unique exemptions for these brewers, but would also undermine the 3-tier/nonvertical integration foundation of the Montana entire alcohol control system.

 

            RESPONSE NO. 8:  The exceptions for the brewery licenses and their sample rooms are set by the Montana Legislature.  The rule is proposing to clarify when "consumption" must have been completed because the law states that the beer cannot be "provided" after 8:00 p.m.  The department believes defining when beer consumption must be concluded does not undermine the 3-tier system.

 

COMMENT NO. 9:  Mr. Staples opined that one doesn't have to imagine the abusive consequences of not adhering to the original intent of the limited sample room exemption; they are already manifest.  He provided two examples of "small" breweries in Billings that are not compliant with the original intent of the statute.  One throws weekly open-air "keggers" for thousands during warmer weather and another is a converted gas station that sells no beer at wholesale whatsoever.  It is really nothing more than a bar that makes its own alcohol and only sells it at retail.  Mr. Staples asked, "what is next, every neighborhood has a bar in someone's garage where that person distills/brews his/her own and sells it to the neighbors?"  He asked the department to consider these scenarios when weighing public safety.

 

            RESPONSE NO. 9:  The regulations regarding brewery licenses are set by the Montana Legislature.  If violations of the current laws are occurring at some of the breweries in Montana, they will be handled accordingly.  The intent of this rule is to clarify when "consumption" must be completed and does not go beyond that purpose.  Therefore, it would not address any of the suggested examples provided by Mr. Staples in this comment.  The department has considered the public's health, safety, and welfare while proposing this rule.

 

COMMENT NO. 10:  Mr. Staples asked the department to remember there is now also a "micro-distilling" statute that was fashioned after the small brewery laws and if the hours for imbibing are extended for the small breweries, the department will be hard pressed not to do so for the micro-distilleries.  Mr. Staples stated that we already have places that legally allow consumption of beer and/or spirits past 8:00 p.m. and these places are called Montana on-premise, all-beverage, or beer and wine retail licensees.  Thousands of Montana businesses that have paid hundreds of millions of dollars for the licenses and their retail selling privileges, and neither small breweries nor micro-distilleries are such licensees.

 

            RESPONSE NO. 10:  Liquor licenses are established by the Montana Legislature and that body has directed the department to establish rules to support the various liquor statutes.  As far as "micro-distilleries" are concerned, 16-4-312, MCA, clearly outlines that consumption can only occur between the hours of 10 a.m. to 8 p.m. for these types of licenses.

 

COMMENT NO. 11:  Mr. Staples stated that the MTA respectfully asks the department to recognize and uphold the intended clear legal distinctions and separations between alcohol retailers and alcohol manufacturers, as well as the intent of the statute at issue, and adopt rules that reflect both.  Any rule that allows alcohol consumption in these places more than a half-hour (or an hour at the extreme outside) after "providing" the alcohol legally ends would only further mutate the statutory exemption.

 

RESPONSE NO. 11:  The department understands the distinction between alcohol retailers and alcohol manufacturers, as well as the intent of the statute at issue.  For that reason, the department invited those parties that would be impacted by the outcome of this rulemaking action to participate in the negotiated rulemaking process.  The brewery industry and local law enforcement agencies provided participants to this process but there was no representation provided from the Montana Tavern Association.

 

3.  The primary responsibility of the department is to ensure public health, safety, and welfare is protected and to enforce the alcoholic beverages laws enacted by the Legislature.  The Legislature has enacted a law limiting the time periods that a brewery may "provide" beer to the public in its taprooms.  However, the law is ambiguous as to when consumption must cease.  As reflected in the comments from citizens and law enforcement, public health, safety, and welfare concerns - including the expectation of residents to enjoy their residential neighborhoods in peace - requires a reasonable time period for brewery taproom consumption to cease.

The ambiguity in the micro-brewery law (16-3-213, MCA) does not exist in the micro-distilleries law, in as much as the micro-brewery law states the micro-brewery may "provide" samples within a specific time period but does not clarify if "providing" includes having consumed the sample within that same time period.  The micro-distillery law (16-4-312, MCA), specifically states "consumption" must have occurred during the time specified in the law.

The term "provides", as stated in the law, does not give clear direction to enforcement officers regarding whether the alcohol must be served or consumed by 8:00 p.m., which is why the department proposed this rule.  For clarity and ease of administration to both the department and the local law enforcement officers, it would be very helpful if the Legislature would consider revisiting this statute and clarify, in the law, when consumption must end.

The local law enforcement representatives who served on the negotiated rulemaking panel and are responsible for determining that the public health, safety, and welfare issues are upheld according to the law, stated they preferred consumption to end on the hour rather than the half hour for ease and effectiveness of local law enforcement agencies administration.

The department appreciates that competition exists between various parts of the alcoholic beverage industries, but the concern of the department is the enforcement of the public, health, safety, and welfare laws as they pertain to the alcoholic beverage laws of the state.  The department has considered the issues and attempted to reach a reasonable and fair compromise of the views of the parties involved.

 

4.  Therefore, based on the comments received at the hearing and input from the members of the negotiated rulemaking team, the department amends ARM 42.13.601 as shown below.

 

42.13.601  SMALL BREWERY RESTRICTIONS  (1) through (4) remain as proposed.

(5)  On-premises consumption and possession shall not be permitted before 10 a.m. or after 10 9 p.m.  The brewery shall be responsible for removing all product samples from patrons' possession in order to comply with this provision.

(6) remains as proposed.

 

            AUTH:  16-1-303, MCA

            IMP:  16-3-213, 16-3-214, MCA

 

5.  An electronic copy of this Adoption Notice is available through the department's site on the World Wide Web at www.mt.gov/revenue, under "for your reference"; "DOR administrative rules"; and "upcoming events and proposed rule changes."  The department strives to make the electronic copy of this Adoption 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.  In addition, although the department strives to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.

 

 

/s/ Cleo Anderson                                         /s/ Dan R. Bucks

CLEO ANDERSON                                      DAN R. BUCKS

Rule Reviewer                                               Director of Revenue

 

Certified to Secretary of State June 15, 2009