BEFORE THE Department of REVENUE

OF THE STATE OF MONTANA

 

In the matter of the amendment of ARM 42.11.104, 42.11.105, 42.11.211, 42.11.213, 42.11.243, 42.11.245, 42.11.251, 42.11.402, 42.11.405, 42.11.406, 42.11.421, 42.11.422, 42.11.423, 42.11.424, and 42.11.425 pertaining to liquor prices, vendor product representatives and permits, samples, advertising, unlawful acts, inventory policy (powdered/crystalline liquor products), product availability, product listing, bailment, and state liquor warehouse management

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NOTICE OF AMENDMENT

 

TO: All Concerned Persons

 

1. On August 27, 2015, the Department of Revenue published MAR Notice No. 42-2-934 pertaining to the public hearing on the proposed amendment of the above-stated rules at page 1254 of the 2015 Montana Administrative Register, Issue Number 16. The department subsequently published a notice of extension of comment period on the proposed amendment of the above-stated rules at page 1671 of the 2015 Montana Administrative Register, Issue Number 19.

 

2. On September 21, 2015, a public hearing was held to consider the proposed amendments. Leta McGann, of the Red Lodge Agency Liquor Store, Joel Silverman, Liquor Store Owners Association attorney, Christina Riffle, Liquor Store Owners Association representative, and Robin Blazer, of Willie's Distillery in Ennis, all appeared and testified at the hearing. No written comments were received.

 

3. The department has amended the above-stated rules as proposed.

 

4. As stated in the proposal notice, the department intends to apply the amendments to ARM 42.11.243, upon adoption, except for (1)(c) which will become effective on January 1, 2016, when the legislative changes to 16-4-311, MCA, become effective.

 

5. The department has thoroughly considered the comments and testimony received. A summary of the comments and the department's responses are as follows:

 

COMMENT 1: Ms. Blazer commented that the language in ARM 42.11.243(2) addressing the size of allowable primary packaging for samples seems redundant and can be removed.

 

RESPONSE 1: The department finds the language in this section necessary because it enables a vendor that does not produce a product in a size of 750 milliliters or less to provide samples in the smallest size in which it produces the product.

As written, if a vendor produces a product in a size of 750 milliliters or less, it is required to provide samples in these sizes. If the vendor does not produce a product in these sizes, it may provide samples in the smallest size it produces.

Therefore, the department is amending the rule as originally proposed.

 

COMMENT 2: Ms. McGann and Mr. Silverman commented that they are concerned with the number of regular list and maintained special order products based on the proposed definition of a "regular product" in ARM 42.11.105(9). They recommended that 75 percent of all products be classified as regular product with the remaining 25 percent being classified as special order.

As an alternative, Mr. Silverman proposed increasing the current 50 case requirement for determining regular listed items to 75 cases.

 

RESPONSE 2: The department proposed amending the definition of "regular product" in (9) to limit the number of products that can have this classification. Under the current definition, the number of regular products has increased with each biannual review.

The department determined that capping the total number of regular products at 1,300 is necessary due to facility constraints at the state liquor warehouse. Because the methodologies proposed by Ms. McGann and Mr. Silverman do not establish a maximum number of regular products, they cannot be utilized to address the facility issue presented.

Accordingly, the department is amending the rule as originally proposed.

 

COMMENT 3: Ms. McGann, Mr. Silverman, Ms. Riffle, and Ms. Blazer commented that they would like ARM 42.11.243(5) to be amended to allow agency liquor store agents and employees to sample liquor being promoted by registered vendor representatives at their agency liquor stores. The consumption of liquor on the premises of the agency liquor store would not extend to customers.

 

RESPONSE 3: Because the consumption of alcoholic beverages on the premises of an agency liquor store is prohibited by 16-2-107, MCA, the department cannot allow this activity by rule.  Therefore, the department is amending the rule as originally proposed.

 

COMMENT 4: Ms. McGann commented that she would like ARM 42.11.243(4)(b) to be amended to allow agency liquor store agents to receive samples, even if the agent has purchased the product in the most recent 12 months.

 

RESPONSE 4:  The prohibition against samples being provided to a licensed all-beverage retailer or an agency liquor store agent that purchased the brand within the past 12 months is not a new provision in ARM 42.11.243. The prohibition, previously located in (5), was relocated to (4)(b) as part of the proposed overall restructuring of the rule in the current proposal notice.

The prohibition stems from federal tied house restrictions, specifically Code of Federal Regulations Title 27, Section 6.91, which, in relevant part, states: "The act by an industry member of furnishing or giving a sample of distilled spirits, wine or malt beverages to a retailer who has not purchased the brand from that industry member within the last 12 months does not constitute a means to induce within the meaning of section 105(b)(3) of the Act."

This prohibition is reiterated in the department's administrative rule to help industry members understand that this tied house restriction applies to the distribution of samples.

The department is amending the rule as originally proposed.

 

COMMENT 5: Ms. Blazer asked why only three liters of a liquor product could be provided as samples to a retailer and requested the source of the proposed language in ARM 42.11.243(4)(c).

 

RESPONSE 5: The annual three liter sample cap on liquor and fortified wine was formally established in (6) of the rule prior to it being restructured as set forth in the proposal notice.

The prohibition stems from federal tied house restrictions in the Code of Federal Regulations Title 27, Section 6.91, which, in relevant part, states: "For each retail establishment the industry member may give not more than 3 gallons of any brand of malt beverage, not more than 3 liters of any brand of wine, and not more than 3 liters of distilled spirits."

Again, this prohibition is reiterated in the department's administrative rule to help industry members understand that this tied house restriction applies to the distribution of samples. 

The department is amending the rule as originally proposed.

 

 

/s/ Laurie Logan                                    /s/ Mike Kadas

Laurie Logan                                         Mike Kadas

Rule Reviewer                                       Director of Revenue

 

         

Certified to the Secretary of State November 16, 2015