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| Montana Administrative Register Notice 42-2-992 | No. 15 08/10/2018 | |
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BEFORE THE DEPARTMENT OF REVENUE OF THE STATE OF MONTANA
TO: All Concerned Persons
1. On March 16, 2018, the Department of Revenue published MAR Notice No. 42-2-992 pertaining to the public hearing on the proposed adoption, amendment, and repeal of the above-stated rules at page 555 of the 2018 Montana Administrative Register, Issue Number 5.
2. On April 9, 2018, a public hearing was held to consider the proposed adoption, amendment, and repeal. John Iverson, Montana Tavern Association; Paul Cartwright, interested citizen; and John Winders, Isaacs Restaurant, appeared and testified at the hearing. The department also received written comments from Michael Lawlor, Goodrich and Reely, PLLC; Floyd F. Hoff Jr., Red Fox Supper Club and Lounge; and Paul Cartwright.
3. The department adopts New Rule III (42.12.503) and New Rule V (42.12.505), amends ARM 42.12.104, 42.12.111, 42.12.124, 42.12.130, 42.12.131, and 42.12.144, and repeals ARM 42.12.125, 42.12.202, 42.12.401, 42.12.404, 42.12.405, 42.12.406, 42.12.408, 42.12.412, 42.12.414, and 42.12.416 as proposed.
4. The department adopts New Rule I (42.12.501) and New Rule II (42.12.502), and New Rule IV (42.12.504) as proposed, but with the following changes from the original proposal, new matter underlined, deleted matter interlined:
NEW RULE I (42.12.501) DEFINITIONS The following definitions apply to this subchapter: (1) through (3) remain as proposed. (4) "Irrevocable letter of credit" means a letter of credit in which the issuing (a) remains as proposed. (b) (c) (d) remains as proposed. (e) (5) and (6) remain as proposed.
NEW RULE II (42.12.502) PUBLISHING OF ALCOHOLIC BEVERAGE LICENSE AVAILABILITY (1) The department shall publish the availability of a retail alcoholic beverage license, that is subject to the quota limitations in 16-4-105, 16-4-201, or 16-4-420, MCA, when: (a) remains as proposed. (b) the opportunity to transfer a license into a quota area becomes available in which a license of the same type is not currently available in the quota area; (c) the lapse, revocation, or issuance of a license within the quota area in which the license is located has created the last remaining license for that license type in the quota area; and (d) the department's denial of an application for licensure or the applicant's withdrawal of an application for licensure has created the last remaining license for that license type in the quota area. (2) through (4) remain as proposed.
NEW RULE IV (42.12.504) SUCCESSFUL RETAIL ALCOHOLIC BEVERAGE LICENSE COMPETITIVE BIDDER (1) through (10) remain as proposed. (11) The licensee is subject to forfeiture of the license at the department's discretion if the licensee: (a) remains as proposed. (b) does not use the license within one year of receiving the license unless the department grants an extension; (c) and (d) remain as proposed. (12) If the application for licensure is withdrawn, the license is forfeited, or if the department denies the application for licensure, the next highest bidder will be notified. The next highest bidder will have two weeks to submit an irrevocable letter of credit for their bid amount if the original letter of credit was cancelled.
5. 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: Mr. Iverson commented that with a couple of exceptions, the Montana Tavern Association (MTA) generally supports the rules. Mr. Iverson's first comment relates to New Rule II, specifically the language in (1)(c) about the lapse, revocation, or issuance of a license into a quota area in which the license is located. Mr. Iverson stated that there are additional criteria that could cause the state to want to engage in the competitive bidding process, for example, if a license is denied by the state or if an application is withdrawn. The MTA recommends the department consider changing the language in this section to ensure it encompasses all the different situations in which the last available license might occur. Mr. Iverson added that the Montana Gaming Association supports this recommendation by the MTA.
RESPONSE 1: The department has amended New Rule II to require the department to publish the availability of a license when the denial or withdrawal of an application for licensure creates the last remaining license for that license type in the quota area.
COMMENT 2: Mr. Iverson's second comment relates to the proposed repeal of ARM 42.12.416. While most of the repealed rule content is picked up in ARM 42.12.131, he does not see coverage for when a restaurant might start out with a smaller seating capacity and over time receive approval to increase their seating capacity and believes this should be included in that rule. Because restaurant beer and wine licenses are priced based on seating capacity, the repealed rule included a requirement that the restaurant owner pay the department the difference between the original application fee and the fee for the higher category of seating. Mr. Iverson added that the Montana Gaming Association supports this recommendation by the MTA.
RESPONSE 2: When an existing restaurant beer and wine license is approved by the department to increase their restaurant's seating capacity, the licensee is required in 16-4-420(13), MCA, to pay to the department the difference between the fees paid at the time of filing the original application and issuance of the license and the applicable fees for the additional seating. Since the statute is clear that the additional fees are due, the language does not need to be carried over to rule.
COMMENT 3: Mr. Cartwright commented that he has long been interested, both as a private citizen and as a Helena City Commissioner, in the effects of Montana's alcohol regulations on the shape and vitality of Montana's urban areas and offers his comments from that perspective. He recommends the department amend New Rule II(2) to use the same language as the statutes and to clarify that initial publication meets the requirement to "publish the availability of no more than one new . . . license a year." Sections 16-4-105(2)(b), 16-4-201(5), and16-4-420(9), MCA. This will cover cases where the first round of publishing the availability of a license does not result in a successful application for a new license in that year and it becomes necessary to continue a bidding process into the subsequent calendar year. In such cases, the department could potentially be publishing the availability of two new licenses within a year, one for the current year and one for the previous year. To interpret statute to forbid this would allow some party to force continual delay in issuing subsequent licenses, possibly even until an application is approved for the previous license. Mr. Cartwright suggests the following amendment for New Rule II: (2) No more than one new license per license type per quota area may be published per calendar year until the quota has been reached for licenses that became available due to the separation of combined quota areas. Initial publication fulfills this statutory limit on new licenses, irrespective of when the highest qualified bidder is identified and an application approved.
RESPONSE 3: Senate Bill 5, Sp. L. 2017, is clear that the department can only publish the availability of no more than one new license per license type if the availability of the license was the result of a combined quota area separating into individual quota areas. The department will not publish the availability of more than one license per year per license type for this reason. However, if an additional license becomes available for another reason, such as a change in population, a license being lapsed, revoked, or an application being denied or withdrawn, the department may publish the availability of an additional license within the same year as a license being published due to the separation of a combined quota area.
COMMENT 4: Regarding New Rule V(1), Mr. Cartwright commented that the department proposed to implement 16-4-105(1)(c) and 16-4-201(3), MCA, which replace combined quota areas, by using a pivotal straight line to separate two or more incorporated cities or incorporated towns. The messy nature of city and town boundaries presents a challenge to implementing these statutes. The use of a pivotal straight line seems a workable approach and is not objectionable, at least as shown currently in the sketches of "New Quota Area Boundary Maps" on the department's web site at mtrevenue.gov/liquor-tobacco/useful-information. To avoid confusion in the future, the department should publish the precise coordinates of the pivotal straight lines since, unlike city boundaries, those lines exist only by virtue of department action.
RESPONSE 4: Although two or more incorporated cities/towns are separated by a pivotal straight line, it is not possible to provide the precise coordinates of the boundaries. In most situations, the pivotal straight line does not extend to the furthest point of the five-mile boundary. Rather, once the pivotal straight line reaches the point to where the five-mile boundaries intercept, the boundary then follows that path, which is not a straight line. As Mr. Cartwright mentions, the department will maintain maps of these quota areas on its website (https://mtrevenue.gov/liquor-tobacco/useful-information/) and is available for any questions that may arise.
COMMENT 5: Mr. Cartwright stated that the department should strike New Rule V(3)(a), which reads, "under no circumstance may a license, restricted by the quota limitations in 16-4-105, 16-4-201, or 16-4-420, MCA, be located farther than the county boundary within which the incorporated city or incorporated town is located," because the department lacks statutory authority to impose this limitation. The plain reading of 16-4-105(1), 16-4-201(1), 16-4-201(2), and 16-4-201(8), MCA, is that a city quota area extends 5 miles from the corporate limits of a city or town. The statutes set no other condition on that distance. With two exceptions, Title 16, chapters 1 through 6, MCA, does not condition the location of any city license on county boundaries. Further, no reference in those statutes to "counties" or "unincorporated areas" requires any limitation on the extent of city quota areas to be comprehensible or to be feasible to administer. The Legislature is capable of specifically conditioning a license based on county boundaries when deemed necessary. For example, see 16-4-204(9) (Temporary) and 16-4-204(2) (Effective January 1, 2024), MCA, both of which deal with certain license transfers from an incorporated area to an unincorporated area within the same county. This contrasts to the statutes' silence on the concept embodied in New Rule V(3)(a). Mr. Cartwright further commented that for these same reasons, the department should adopt its proposed amendment of ARM 42.12.104, because the proposed amendment strikes language from that rule that is similar to the language he opposes including in New Rule V(3)(a).
RESPONSE 5: Although there is not a specific statute to identify, ending a quota area at a county line makes common sense and helps ensure that the number of licenses issued in the quota area is an accurate representation of the number of licenses that are statutorily allowed by population. Not ending the quota area at the county line could result in a quota area having more licenses issued than allowed and could result in confusion as to which quota area a license belongs to (e.g., Helena's five-mile boundary extends beyond Lewis and Clark County into Jefferson County. If the boundary did not stop at the county line, the overlapping quota areas would have varying license types issued with varying values for the same geographical area.) Additionally, and as mentioned in the reason statement, ending the quota area at the county line is existing language that was previously located in ARM 42.12.104.
COMMENT 6: Mr. Cartwright commented that New Rule V does not cover what happens when there are no bids on a license. While not likely to happen, it is possible. The absence of bids would indicate the license was not offered at market price. He suggests that in this situation the department should re-notice the license at a price closer to market value rather than abandoning it for the year.
RESPONSE 6: The department agrees with Mr. Cartwright that New Rule V does not describe a procedure for when there are no bids for a license. However, statute provides that if no bids are received during a competitive bidding process, the department shall process applications for the license in the order received. This language prohibits the department from re-noticing the availability of the license at a different market price.
COMMENT 7: Mr. Winders testified that there is a cost to decisions regarding licenses. It is difficult for startups and small operations to acquire liquor licenses in Montana and grow their businesses due to the high cost of licenses. If allowed for five more years, the regulations will be the end of small businesses forever. He requests that the department put a hold on the whole process. It all needs to change. He stated he is a small business owner who supports local producers, is fighting for the restaurant industry, and feels underrepresented and marginalized in the current process. The highest bidder situation is a short-term strategy to get capital for the state. It favors corporatocracy and allows the guy with the most money to win. He stated that the regulations feel like an attempt to put the restaurant industry out of business and added that it would be preferable to receive facilitation from the department instead of regulations and inspections.
RESPONSE 7: The department has the responsibility to administer the Montana Alcoholic Beverage Code. As such, for the next five years, the code requires the department to conduct competitive biddings to determine which person or business entities are granted the opportunity to apply for licensure. The department cannot put the process on hold.
COMMENT 8: Mr. Winders asked the department to analyze the results of the new rules and educate the consumer. He feels out of the loop because no one notifies him or those in his industry of the proposed rule changes or auctions. Had he known about the recent availability of a license in Bozeman, he may have put in for it. But because it was only advertised in the Bozeman paper, he was unaware of it in Craig. He asked why these things are not communicated through TV, radio, newsprint, and internet media.
RESPONSE 8: The department agrees with the importance of public participation in the rulemaking process and complies with the requirements of the Montana Administrative Procedure Act regarding notifications. The department sends its notices to interested parties by e-mail and/or standard mail and has added Mr. Winders to its list of persons interested in receiving rulemaking notices regarding alcoholic beverages. The Secretary of State also publishes the Montana Administrative Register online, twice a month. The register includes all rulemaking proposal and adoption notices filed by state agencies and boards during the publication period together in a single location. Current and past issues of the register are available at sosmt.gov/arm/register. Regarding the availability of licenses, the department cannot reasonably publish the availability of licenses in every newspaper publication across Montana. The department encourages individuals to monitor the department's website which will list licenses open to the competitive bidding process at https://mtrevenue.gov/liquor-tobacco/liquor-licenses/liquor-license-competitive-bidding-process/.
COMMENT 9: Mr. Winders noted there is a food revolution going on in this country and suggested looking at Boise, Salt Lake City, Denver, and Portland. If you have 10 or 15 good restaurants in your town, you would make it a better place to live. The number one thing that sells Montana is Montana. People want to live and visit here and eat at a local restaurant, not at a franchise entity. And yet a young chef cannot afford to move from Portland, Oregon and open a restaurant in Montana. He proposes the department offer a $5,000 annual restaurant license that allows serving from 11-11, with no gaming, and no off-premises sales. Everyone he talks to in the industry agrees with this idea. But the recent special session crushed it.
RESPONSE 9: The creation of a new restaurant license would require the adoption of new legislation by the Montana Legislature. The department encourages Mr. Winders to contact a Montana Senator or Representative to pursue this further.
COMMENT 10: Mr. Lawlor stated he recognizes that Senate Bill (SB) 5 has problems that will require legislative action to resolve, and that the department is constrained by the existing statutory language in what it can address by rule. The purpose of SB 5 was to generate revenue for the state by selling licenses to the highest bidder. The department should do what it can to ensure that the potential highest bidder's bid is not rejected due to an overly-restrictive interpretation of the statute or a rule. A more open approach will benefit both the state general fund and the bidders.
RESPONSE 10: The department agrees with Mr. Lawlor that additional legislation is necessary to resolve issues with the adopted language of SB 5. Until any further legislative changes have been adopted, the department must administer the statutes as written. The department encourages Mr. Lawlor to seek legislation for areas needing change or that are overly-restrictive.
COMMENT 11: Mr. Lawlor provided the following comments and suggestions on the proposed definition of "irrevocable letter of credit" in New Rule I: All references to "bank" in (4) should be changed to "financial institution" to match the language in statute. Letters of credit can be issued by other types of financial institutions besides banks, such as credit unions. The department may want to define "financial institution" in this section, and could use language similar to the DOJ's definition of "institutional lender" in ARM 23.16.101(8). In (4)(a), the irrevocable letter of credit (ILOC) could be issued to the bidding entity or to an underlying individual owner of the entity, such as the member of an LLC bidder, or the shareholder of a corporate bidder. Senate Bill (SB) 5 does not specify that the ILOC must be in the specific name of the applicant individual or entity. The statute says, "an irrevocable letter of credit from a financial institution establishing the department as the beneficiary of the bid amount." This could be in the form of credit extended to an entity, or to the entity's underlying individual owner(s), who could use the funds to make the necessary capital contributions to the entity. In some circumstances, financial institutions will be more willing to issue credit to an individual, rather than to an entity, especially a newly-formed entity. Based on experiences with ILOCs issued to license lottery entrants, it is a somewhat common situation for the financial institution to issue the ILOC to the individual rather than the entity, either by mistake or because the individual has better credit than the entity. It would be both statutorily unnecessary and at cross-purposes with the revenue-generating purpose of SB 5 for the department to reject a bid because the ILOC is issued to the individual owner of an entity rather than to the entity itself. Section (4)(c) imposes a requirement not in statute, by saying the "[financial institution] will not modify or revoke the credit without the department's consent." This requirement should be removed. The department should be as accommodating as possible to financial institutions, given SB 5's goal of generating revenue for the state. Section (4)(e) imposes a requirement not in statute, by saying the ILOC must include "[financial institution]'s commitment to honor the line of credit for a minimum of one year from the date of the competitive bidding closing." Furthermore, this creates difficulties for financial institutions by requiring the ILOCs remain open in their books for an extended period even when the bidder has not been chosen as the winning bidder. Financial institutions may have difficulty justifying this to bank auditors and examiners.
RESPONSE 11: The department agrees with Mr. Lawlor that any reference to the term "bank" should be changed to "financial institution" and has further amended New Rule I. The department is unable to implement Mr. Lawlor's comment that the department should accept irrevocable letters of credit from an underlying individual owner rather than the entity itself. Disclosing all underlying individual owners of the entity is not required at the time of submitting a bid. Instead, this is made at the time when the highest bidder submits their application for licensure to the department. Therefore, the department would not have the ability to confirm whether the irrevocable letter of credit is issued in the name of one of the underlying individual owners. Mr. Lawlor's request to remove the requirement that prohibits a financial institution from modifying or revoking the letter of credit and requiring the financial institution to honor the letter of credit for a minimum of one year has been reconsidered by the department. The department has further amended New Rule I to state these requirements only apply to the highest bidder. Additionally, in the event the highest bidder is unable to be licensed, the department has further amended New Rule IV to require the next highest bidder to obtain a new irrevocable letter of credit within two weeks of being notified by the department as that bidder may have asked the financial institution to cancel their original irrevocable letter of credit.
COMMENT 12: Regarding New Rule II(4), which provides that the "department has the right to cancel or amend a competitive bidding process at any time," Mr. Lawlor stated he believes the department should have to publicly explain its reason for any such cancellation or amendment to an announced bidding process. This would promote transparency. The public has a right to know. Bidders and their financial institutions expend considerable time and money preparing their bids and it is a wasted effort and expense when the process is cancelled, and is especially frustrating when cancelled at the last minute. Because statute provides a specific procedure for when no bids are received (no bidding or payment to the state required in that case, and applications are to be processed in the order received), it is important for the public to know that the reason the bidding was cancelled was not due to the department failing to receive bids.
RESPONSE 12: The department will provide the reason a competitive bid is cancelled or amended upon a written request to the department.
COMMENT 13: Mr. Lawlor provided the following comments and suggestions regarding the disqualification language in New Rule III: In (3)(c), please clarify in the rule whether a signature may be electronic or if a hand-written signature is required. Section (3)(d) is unnecessarily restrictive because the bid should be accepted if such individual will be 19 by the time the license application is approved. In (3)(g), or somewhere else in the new rules, the department should include example language for an ILOC that would be acceptable to the department. Section (3)(j) includes a requirement that the ILOC must specify the license type and quota area, which goes beyond the requirements of the statute. The statute does not require the ILOC to be so specific. If the financial institution is willing to extend credit to the bidder in the bid amount, with the department as beneficiary, that is all that is required by statute. This additional requirement would run the risk of unnecessarily disqualifying an otherwise eligible high bidder, which would cost the state money. Section (3)(k) purports to give the department discretion to determine if "for any other reason, the information provided is inaccurate or incomplete," and disqualify a bidder for such reason. If a bidder is disqualified for any stated or other reason, the department should be required to provide an explanation to the bidder of its reason for disqualification. And, given that the purpose of Senate Bill 5 is to generate revenue for the state, it would be in the department's interests to provide such explanation as soon as possible before the deadline so that the bidder will have the opportunity to remedy the problem and submit a valid bid. This would be fairer to all bidders, as it would ensure that everyone who puts forth the time and effort to submit a bid will have their bid considered and their fee and money spent on the ILOC will not be wasted.
RESPONSE 13: The department has implemented an electronic form for submitting a bid on a license. As this is the only option to submit a bid, only electronic signatures are required. Mr. Lawlor's request to require an individual to be at least 19 years of age at the time the application for licensure is approved rather than at the time of bidding closing creates a concern for the department. For example, an application for licensure could be intentionally delayed by an applicant until the individual turns 19 years of age. For this reason, the department adopts this section as originally proposed and will require each owner, partner, member, officer or director to be 19 years of age at the time of the competitive bidding closing. As previously mentioned, the department has implemented an electronic process for submitting a bid on a license. Within this electronic process, example language of an acceptable irrevocable letter of credit is provided. Mr. Lawlor's request that an irrevocable letter of credit not mention the specific license type and quota area is not acceptable to the department. If an individual or business entity applies and is the highest bidder for more than one competitive bidding, the department needs confirmation that the bidder can monetarily cover the bid amount without seeking additional information from the bidder or financial institution issuing the irrevocable letter of credit. The department's electronic form for submitting a bid is simple and easy to use. Many of the fields must be completed before the bidder can submit the bid. This should eliminate many of the instances that could have otherwise occurred for failing to submit a completed form. Furthermore, the department will not be reviewing any submissions for completeness prior to the bid closing deadline. Once the deadline has been reached, the department will only look at the entry with the highest bid. If all requirements are met on the highest bid, there is no reason to look at any further bids. Additionally, if the highest bidder is disqualified for any reason, the department will notify that bidder with the disqualification reason(s).
COMMENT 14: Mr. Lawlor provided the following comments and suggestions on New Rule IV: Section (6) provides that the department may impose a monetary penalty, which could be substantial in the case of high bid amounts, on a high bidder who fails to submit a license application. There is no statutory authority in Senate Bill (SB) 5 for the department to impose such a penalty, and the catch-all penalty statute, 16-4-406, MCA, applies only to licensees not to bidders or applicants. This penalty provision should be removed. Section (7) provides that the "information provided by the applicant on the application for licensure must match the information provided on the competitive bid form." The department should more fully explain what it means by this. Mr. Lawlor assumes the department intends to require that if a competitive bid form is submitted in an individual's name, that same individual cannot apply for the license using an entity he or she owns. This is a common misunderstanding by the public. The department needs to be explicit both in the text of the rule and on the competitive bid form in explaining this. Most people assume (wrongly) that they can change the applicant from their individual name to an entity they own. Alternatively, this restriction is unnecessary. There is no compelling statutory or logical reason why the individual high bidder should not be able to form an LLC or a corporation to use for his or her application. The entity ownership will be fully disclosed with the license application and the state will still get the bid amount. Section (11) provides that, in certain circumstances, a license is subject to forfeiture "at the department's discretion." Please add a reference here that a licensee would have hearing rights under the Montana Administrative Procedure Act prior to such forfeiture. If the department does not believe this is the case, please explain why. Section (11)(b) provides that a license is subject to forfeiture if the licensee "does not use the license within one year." But SB 5 provides an exception for when such nonuse is beyond the applicant's control. If the statutory reasons for forfeiture are going to be restated in the rules, that exception should also be mentioned in the rules. Section (12) provides certain circumstances where the next highest bidder will be afforded the opportunity to apply for the license. One such situation is if a license is forfeited. Does the department intend for there to be any time limit on this? For example, suppose a license is forfeited five years in the future, for one of the reasons in (11), would the department go back to the second-highest bidder from five years earlier, or would the department open a new competitive bidding process? The values of licenses are likely to change significantly after several years. In the section of the rule regarding potential forfeiture, Mr. Lawlor asks the department to explain its intended procedures for refunding a payment made under an ILOC. The department's "Competitive Bidding Process Terms and Conditions," published during the first (cancelled) bidding process stated, "if the department determines that a refund of a payment made pursuant to an irrevocable letter of credit is due, such refund shall be made to the financial institution which issued the irrevocable letter of credit." Why isn't that language included in the proposed rule language? What criteria will the department use in determining if a refund will be made? Many lenders will be very reluctant to issue an ILOC knowing that the bidder will be acquiring a non-transferrable asset, subject to forfeiture, and in which a security interest does them no good, because the license is non-transferable. Will a refund be made to an applicant who had used his or her own funds to pay the state for the forfeited license, rather than using the ILOC funds?
RESPONSE 14: The department has proposed a monetary penalty for failing to apply for licensure to ensure only those individuals or business entities that are truly interested in obtaining a license submit a bid and minimize the administrative task of processing unwarranted bids. If only serious parties apply, the department should never need to impose the monetary penalty. The requirement that the information on the bid form match the information on the application for licensure is necessary to ensure a different individual or business entity does not apply for the license. Additionally, the bid form asks for very minimal information from the bidder and it is clear that the individual or business entity submitting the bid must match the application for licensure in the event they are the highest bidder. Mr. Lawlor's comment that a licensee has the right to a hearing under the Montana Administrative Procedure Act is accurate. The right to a hearing is provided for in 16-4-411, MCA, and, therefore, unnecessary to also include in rule. The department has amended New Rule IV to provide the SB 5 exception for not using the license within one year when there are circumstances beyond the licensee's control and approved by the department. In the case of forfeiture, the statute is clear that the department shall offer the license to the next eligible highest bidder. This shall occur regardless of when the forfeiture occurred. The statute does not provide the department with the ability to open a new competitive bidding process. When a license is forfeited and a refund is due, the department will make the payment to the appropriate entity. This may be the applicant if they used their own funds or it may be a financial institution in which funds from the irrevocable letter of credit were drawn on.
COMMENT 15: Mr. Lawlor commented that under 16-4-420, MCA, an applicant is entitled to interest payments from the department if the processing of the application takes more than four months. As such, the applicant is entitled to know the time periods during which the department considers the four-month period to be tolled. Therefore, he suggests ARM 42.12.131 be amended as follows: (3) "As set forth in 16-4-420, MCA, the department must make a decision either granting or denying a completed restaurant beer and wine license application within four months of receipt of the application, or must pay interest on the applicant's fee as provided in 16-4-420, MCA. However, if the investigation into the application uncovers the necessity to analyze additional information not previously provided by the applicant, the four-month time period
RESPONSE 15: The language Mr. Lawlor recommends adding regarding the payment of interest is unnecessary to repeat in rule as it is already provided for in 16-4-420, MCA. Additionally, since an application is generally tolled because of requests for additional information from the applicant, the department finds it unnecessary to notify the applicant of the number of days for which the time period is tolled.
COMMENT 16: Mr. Lawlor pointed out that paragraph 10 of the notice for this rulemaking, MAR Notice No. 42-2-992, erroneously referenced "House Bill 5" instead of "Senate Bill 5."
RESPONSE 16: The department appreciates Mr. Lawlor's observation of this error and the opportunity to correct the reference in this subsequent notice. As per the requirements of 2-4-111, MCA, the department notified the primary sponsor of Senate Bill 5, Senator Steve Fitzpatrick, in advance of the pending rulemaking on November 16, 2017 and February 7, 2018.
COMMENT 17: Mr. Hoff commented that he was not notified of the possibility of his full beverage and gambling Helena license being moved to a different quota area until after the passage of Senate Bill (SB) 5. Had he known the legislature and the department were considering revisions that could impact his business and liquor license, he would have provided testimony during the 2017 special session of the legislature. He stated he did not receive notification of the proposed revisions to the administrative rules being drafted to implement SB 5 nor the April 9, 2018, public hearing on the rules. Had he been notified, he would have provided testimony as he immediately reads notices from the department. Therefore, he provided his comments on this rulemaking in writing. He further commented that he would like to be notified via certified mail of any future revisions to rules pertaining to Montana liquor laws.
RESPONSE 17: The department agrees with the importance of public participation in the rulemaking process and complies with the requirements of the Montana Administrative Procedure Act regarding notifications. The department currently sends its notices to interested parties by e-mail and/or standard mail, but not by certified mail. The department has added Mr. Hoff to its list of persons interested in receiving rulemaking notices regarding alcoholic beverages. The Secretary of State also publishes the Montana Administrative Register online, twice a month. The register includes all rulemaking proposal and adoption notices filed by state agencies and boards during the publication period together in a single location. Current and past issues of the register are available at sosmt.gov/arm/register.
COMMENT 18: Mr. Hoff commented that he has been unable to determine who decided that Helena would be split into Helena and East Helena quota areas and what laws and rules governed that determination. It is his understanding that if he makes no changes to his current Helena all beverage liquor and gambling license, that it will become an East Helena all beverage liquor and gambling license. It is also his understanding that the proposed rules provide guidance to the division as to how to draw the line that makes the determination as to whether a business is in the Helena or East Helena quota area. The notice states that each of the five new rules should not have any direct impact to Montana's small businesses, but in his opinion the proposed rules have a very detrimental impact on his small business. The proposed rules that provide guidance as to how the division is to determine the line that splits Helena and East Helena into two quota areas results in a devaluing of his Helena all beverage liquor and gaming license, which constitutes a taking of his assets.
RESPONSE 18: The combined quota area of Helena and East Helena has been separated because of the passage of Senate Bill 5 from the 2017 Legislative Special Session. As the statute is currently written, Mr. Hoff's license will be part of the new East Helena quota area. The legislature specifically adopted language to allow all-beverage licensees the ability to transfer their license anywhere within the formerly combined quota area for a period of twelve years from the passage of the bill to minimize the impact on existing licensees. The department encourages Mr. Hoff to continue to work with his local Senators and Representatives and the alcoholic beverage industry to propose language in the next legislative session that can be agreeable by all parties involved.
COMMENT 19: Mr. Hoff expressed concern that proposed New Rule I and New Rule V provide guidance as to how the division will separate two or more incorporated cities or towns, which is not provided for by statute. New Rule V(1) states "the department shall separate two or more incorporated cities or incorporated towns, pursuant to 16-4-105, 16-4-201, and 16-4-420, MCA, by using a pivotal straight line." As defined in New Rule I(6), it is unclear how the definition of pivotal straight line comports with 16-4-201(3), MCA, and generally accepted surveying methods. Additionally, the definition of pivotal straight line was not contained in Senate Bill 5, so the Montana Legislature has not vetted it. MAR Notice No. 42-2-992 states "the department is proposing to determine the center point between the two incorporated cities or towns and create a straight-line point from that line that minimizes the impact on existing licensees while trying to stay as true as possible to being equidistant." The rules do not appear to define what is a minimal impact on existing licensees and what is considered to be true.
RESPONSE 19: The department has attempted to separate each formerly combined quota area as directed by Senate Bill 5. The contours of the corporate boundaries of each incorporated city/town make it difficult for a straight line to be drawn. The department's approach with pivotal straight lines has the least impact on existing licensees and places licensees in the quota area for which their license is generally located. Mr. Hoff's comment regarding surveying methods is unrelated to how the incorporated cities/towns are separated. Minimal impact is not used in the rule content and therefore does not need to be defined.
COMMENT 20: Mr. Hoff stated he would appreciate his concerns being taken into consideration prior to the rules, as proposed in MAR Notice No. 42-2-992, being finalized. Additionally, he would appreciate the opportunity to discuss the rules with the department and its written response to his letter.
RESPONSE 20: The department has met with Mr. Hoff and will respond to Mr. Hoff's letter of concerns directly as they were received outside the rule comment period.
/s/ David R. Stewart /s/ Eugene Walborn David R. Stewart Eugene Walborn Rule Reviewer Director of Revenue
Certified to the Secretary of State July 31, 2018.
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