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| Montana Administrative Register Notice 42-2-943 | No. 19 10/15/2015 | |
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BEFORE THE DEPARTMENT OF REVENUE OF THE STATE OF MONTANA
TO: All Concerned Persons
1. On November 9, 2015, at 1:30 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 and amendment 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 [email protected].
3. The rules proposed to be adopted provide as follows:
NEW RULE I DISTILLERY DELIVERIES TO AGENCY LIQUOR STORES (1) A distillery delivering product to an agency liquor store pursuant to 16-4-311, MCA, shall report each delivery through the department's online reporting system within two business days of the delivery. (2) The distillery shall maintain at its place of business a bill of lading signed by the individual at the agency liquor store who accepted the delivery. A duplicate copy of the bill of lading shall be given to the agency liquor store. The bill of lading shall contain the: (a) date of delivery; (b) agency liquor store number; (c) number of cases of each product; (d) product number; (e) name of the distillery employee who made the delivery; and (f) name of the agency liquor store employee who accepted the delivery. (3) A distillery may only make deliveries of products for which a standard price quotation and specification form is on file with the department. (4) A distillery may deliver product only upon an agency liquor store's request. (5) The department shall pay the distillery within 15 days from the close of the month in which the distillery reports the delivery. The payment shall be: (a) the cost per case, based on the product's standard price quotation and specification form on file with the department at the time the product is delivered; and (b) beginning July 1, 2018, the department's freight rate per case at the time the product is delivered.
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 (HB) 506, L. 2015, which amends 16-4-311, MCA, to allow a distillery with an annual production of less than 25,000 gallons to deliver its product directly to a state agency liquor store using its own equipment, trucks, and employees. HB 506 further requires the department to create an electronic reporting system for distilleries to report these deliveries to the department. The effective date of the bill is January 1, 2016, and the date that the department must start paying distilleries for freight is July 1, 2018. The proposed new rule establishes the reporting requirements for the deliveries, sets forth invoicing requirements, and specifies the price the department will pay distilleries. The department proposes to require distilleries to file reports electronically within 48 hours of delivery. The proposed reporting requirement ensures the proper invoicing of product by the department to agency liquor stores.
NEW RULE II ALTERNATING PROPRIETOR ON A MANUFACTURER'S PREMISES (1) An alternating proprietor arrangement occurs when a tenant manufacturer utilizes the licensed premises and equipment of a host manufacturer to produce and/or package alcoholic beverages. (2) The tenant must be licensed by the department to manufacture the alcoholic beverages to be produced and/or packaged. (3) The tenant and host must seek the department's approval for each alternating proprietor arrangement necessitating approval by the Alcohol and Tobacco Tax and Trade Bureau. (4) To apply, the tenant and host shall submit a complete application to the department that includes: (a) documentation of Alcohol and Tobacco Tax and Trade Bureau approval; (b) a description of the areas and equipment to be used by the tenant; (c) a copy of the host's floorplan identifying the areas to be used by the tenant; and (d) a copy of the executed agreement between the tenant and host. (5) The department shall notify the tenant and host in writing of its approval or denial of the alternating proprietor arrangement within 15 business days of receiving all requested information. (6) The tenant and host shall notify the department in writing within ten business days of receiving notice from the Alcohol and Tobacco Tax and Trade Bureau that approval for an existing alternating proprietor arrangement has been revoked. (7) All regulations set forth in Title 27 of the Code of Federal Regulations, in effect on October 5, 2015, addressing alternating proprietor arrangements are adopted by reference, except where the provisions of those regulations may be contrary to or inconsistent with the provisions of Montana law or department rule. Copies may be obtained from the United States Treasury at www.ttb.gov. Failure to comply with those regulations shall constitute a violation of this rule and may subject the tenant and host to administrative action, including revocation of their manufacturing licenses. (8) The tenant shall maintain possession, title, and control over all raw materials and its product on the host's premises. (9) The tenant's product must be separate and identifiable from the products of all other tenants and the host at all stages of production and through removal of the product from the host's premises. (10) The tenant and host shall keep separate records of their respective production and removals. The department may make an examination of any records kept by the tenant and host. (11) The host is prohibited from selling or providing the tenant's product, with or without charge, in the host's sample room, on its licensed premises, or otherwise. (12) The tenant must adhere to all applicable distribution requirements set forth in the Montana Alcoholic Beverage Code. (13) In addition to all other requirements imposed by this rule, where the tenant is a brewery: (a) for purposes of the tax imposed by 16-1-406, MCA: (i) wholesalers shall pay the tax due on beer purchased from the tenant; and (ii) the tenant shall pay the tax due on beer sold directly to consumers and retailers; (b) for purposes of the tax imposed by 16-1-406, MCA, the small brewery 10,000 barrel production cap in 16-3-213, MCA, and the 60,000 barrel production cap in 16-3-214, MCA, all beer produced by a tenant at a host's premises shall be considered as part of the tenant's annual nationwide production; (c) a tenant with an annual nationwide production between 100 and 10,000 barrels may provide, with or without charge, beer in its sample room only if the beer was brewed and fermented at its premises. This restriction includes a prohibition against a tenant providing beer in its sample room that was brewed or fermented at a host's premises. A tenant that brewed and fermented beer at its premises and packaged the beer at a host's premises may provide that beer, with or without charge, in the tenant's sample room; and (d) a tenant with an annual nationwide production between 10,000 and 60,000 barrels may provide, without charge, beer on its licensed premises that was produced and/or packaged at its premises or a host's premises. (14) In addition to all other requirements imposed by this rule, where the tenant is a winery: (a) for purposes of the tax imposed by 16-1-411, MCA: (i) wholesalers shall pay the tax due on wine purchased from the tenant; and (ii) the tenant shall pay the tax due on wine sold directly to consumers and retailers; and (b) a tenant may provide, with or without charge, wine for consumption on its licensed premises that was produced and/or packaged at its premises or a host's premises. (15) In addition to all other requirements imposed by this rule, where the tenant is a distillery: (a) for purposes of the taxes imposed by 16-1-401 and 16-1-404, MCA, agency liquor stores shall pay the tax due on liquor purchased from the department; (b) for purposes of the taxes imposed by 16-1-401 and 16-1-404, MCA, and the microdistillery 25,000 gallon production cap set forth in 16-4-310, MCA, all liquor produced by a tenant at a host's premises shall be considered liquor produced by the tenant; and (c) a tenant distillery with an annual production of 25,000 gallons or less may provide, with or without charge, liquor in its sample room only if the liquor was produced at its premises. This restriction includes a prohibition against a tenant distillery providing liquor in its sample room that was produced at a host's premises, subject to the production exception in ARM 42.13.805(3). A tenant distillery that produces liquor at its premises and packages the liquor at a host's premises may sell that liquor in the tenant's sample room. (16) An alternating proprietor arrangement may only be conducted in accordance with the provisions of this rule. Failure to abide by the provisions of this rule may subject the tenant and host to administrative action, including revocation of their manufacturing licenses.
IMP: 16-1-201, 16-1-401, 16-1-404, 16-1-406, 16-1-411, 16-3-213, 16-3-214, 16-4-310, 16-4-311, 16-4-312, 16-4-406, MCA
REASON: The department proposes adopting New Rule II to allow alternating proprietor arrangements between a tenant and host manufacturer. These arrangements enable a host manufacturer to utilize excess capacity and for tenant manufacturers to produce and/or package alcoholic beverages at another premises. The proposed new rule sets out the process a tenant and host manufacturer must undertake to seek the department's initial approval for an alternating proprietor arrangement, guidelines for operating under the arrangement, and the potential for administrative action based upon a failure to abide by the provisions of the proposed rule. Additionally, the proposed new rule specifies how the department will count product produced under an alternating proprietor arrangement for purposes of taxes and annual production amounts governing the ability of manufacturers to provide alcohol for consumption on the licensed premises.
NEW RULE III CONTRACT MANUFACTURING (1) Contract manufacturing occurs when a manufacturer utilizes its licensed premises and equipment to produce and/or package alcoholic beverages for another manufacturer to sell, called the client. (2) The contract manufacturer and the client must be licensed by the department to manufacture the alcoholic beverages to be produced and/or packaged. (3) The contract manufacturer and client must seek the department's approval prior to engaging in a contract manufacturing arrangement. To apply, the contract manufacturer and client shall submit a complete application to the department. (4) The department shall notify the contract manufacturer and client in writing of its approval or denial of the contract manufacturing arrangement within 15 business days of receiving all requested information. (5) The sale and distribution of alcoholic beverages manufactured by the contract manufacturer may only be conducted as follows: (a) a contract manufacturer is prohibited from selling or providing the product, with or without charge, in the contract manufacturer's sample room or on its licensed premises; (b) the contract manufacturer may only sell the product to the client; and (c) once the client holds title to the product, the client must adhere to all applicable distribution requirements in the Montana Alcoholic Beverage Code, the same as though the client produced the product. (6) The contract manufacturer and client shall maintain control over their separate business records at all times. The department may make an examination of the records of the contract manufacturer or client. (7) In addition to all other requirements imposed by this rule, where the client is a brewery: (a) for purposes of the tax imposed by 16-1-406, MCA: (i) wholesalers shall pay the tax due on beer purchased from the client; and (iii) the client shall pay the tax due on beer sold directly to consumers and retailers; (b) for purposes of the tax imposed by 16-1-406, MCA, the small brewery 10,000 barrel production cap set forth in 16-3-213, MCA, and the 60,000 barrel production cap set forth in 16-3-214, MCA, all beer produced by the contract manufacturer for the client shall be considered as part of the client's annual nationwide production; (c) a client with an annual nationwide production between 100 and 10,000 barrels may provide, with or without charge, beer in its sample room only if the beer was brewed and fermented at its premises. This restriction includes a prohibition against a client providing beer in its sample room that was brewed or fermented at a contract manufacturer's premises. A client that brewed and fermented beer at its premises and then had the beer packaged at a contract manufacturer's premises may provide that beer, with or without charge, in the client's sample room; and (d) a client with an annual nationwide production between 10,000 and 60,000 barrels may provide, without charge, beer on its licensed premises that was produced and/or packaged at its premises or a contract manufacturer's premises. (8) In addition to all other requirements imposed by this rule, where the client is a winery: (a) for purposes of the tax imposed by 16-1-411, MCA: (i) wholesalers shall pay the tax due on wine purchased from the client; and (ii) the client shall pay the tax due on wine sold directly to consumers and retailers; and (b) the client may provide, with or without charge, wine for consumption on its licensed premises only if the wine was produced by the client. This restriction includes a prohibition against the client providing wine that was produced by a contract manufacturer. A client that produced the wine at its premises and then had the wine packaged at a contract manufacturer's premises may provide that wine, with or without charge, for consumption on its licensed premises. (9) In addition to all other requirements imposed by this rule, where the client is a distillery: (a) for purposes of the taxes imposed by 16-1-401 and 16-1-404, MCA, agency liquor stores shall pay the tax due on liquor purchased from the department; (b) for purposes of the taxes imposed by 16-1-401 and 16-1-404, MCA, and the microdistillery 25,000 gallon production cap set forth in 16-4-310, MCA, all liquor produced by a contract manufacturer for the client shall be considered as part of the client's annual nationwide production; and (c) a client with an annual production of 25,000 gallons or less may provide, with or without charge, liquor in its sample room only if the liquor was produced at its premises. This restriction includes a prohibition against a client providing liquor in its sample room that was produced at a contract manufacturer's premises, subject to the production exception in ARM 42.13.805(3). A client that produces liquor at its premises and packages the liquor at a contract manufacturer's premises may sell that liquor in the client's sample room. (10) Except as provided in (9), a contract manufacturing arrangement may only be conducted in accordance with the provisions of this rule. Failure to abide by the provisions of this rule may subject the contract manufacturer and client to administrative action, including revocation of their manufacturing licenses. (11) The department may approve a contract manufacturing arrangement that does not fit within the bounds of this rule only if the proposed arrangement meets all federal and state alcoholic beverage regulations.
AUTH: 16-1-303, MCA IMP: 16-1-401, 16-1-404, 16-1-406, 16-1-411, 16-3-213, 16-3-214, 16-4-310, 16-4-311, 16-4-312, 16-4-406, MCA
REASON: The department proposes adopting New Rule III to allow contract manufacturing arrangements between two manufacturers. The proposed rule sets out the process for the manufacturers to request approval from the department and the potential administrative actions for failing to abide by the provisions of the proposed rule. Additionally, the proposed rule specifies how the department will count product produced under a contract manufacturing arrangement for purposes of taxes and annual production amounts governing the ability of manufacturers to provide alcohol for consumption on the licensed premises.
4. The rule proposed to be amended provides as follows, new matter underlined, deleted matter interlined:
42.13.301 STORAGE OF ALCOHOLIC BEVERAGES (1) A licensee may store alcoholic beverages only on (2) (3) All alcoholic beverages must be purchased through an agency liquor store, a licensed beer wholesaler, table wine distributor, winery, or brewery.
AUTH: 16-1-303, MCA IMP: 16-1-302, 16-3-201, 16-3-301, 16-6-301, 16-6-303, MCA
REASON: The department proposes amending ARM 42.13.301 to allow for the storage of alcoholic beverages authorized for production or packaging on the premises under an approved alternating proprietor arrangement. The amendment allows a manufacturer of one type of alcoholic beverages to store alcoholic beverages on the premises of a manufacturer producing a different type of alcoholic beverage. For example, it would be permissible to store beer on a winery's premises if that beer was bottled on that premises under an approved alternating proprietor agreement.
5. Following adoption, the department plans to apply the provisions of New Rule I effective January 1, 2016, when the legislative changes to 16-4-311, MCA, become effective.
6. 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 protected] and must be received no later than November 18, 2015.
7. Laurie Logan, Department of Revenue, Director's Office, has been designated to preside over and conduct this hearing.
8. 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 6 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.
9. 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.
10. The bill sponsor contact requirements of 2-4-302, MCA, apply and have been fulfilled. The primary sponsor of House Bill 506, Representative David Moore, was contacted by letter on May 19, 2015 and September 18, 2015.
11. With regard to the requirements of 2-4-111, MCA, the department has determined that the adoption of New Rule I will not significantly and directly impact small businesses. Any impact to small businesses will be the result of legislative changes, not the new rule. The adoption and amendment of the remaining above-referenced rules will significantly impact the alcoholic beverage industry because they will allow for additional opportunities for manufacturers. However, because participation is optional the rules do not directly impact the current operation of these businesses. The department's full analysis is available at revenue.mt.gov/rules or upon request from the person in 6.
/s/ Laurie Logan /s/ Mike Kadas Laurie Logan Mike Kadas Rule Reviewer Director of Revenue
Certified to the Secretary of State October 5, 2015
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