BEFORE THE DEPARTMENT OF REVENUE

OF THE STATE OF MONTANA

 

In the matter of the amendment of ARM 42.11.104, 42.11.105, 42.11.243, 42.11.402, 42.11.405, 42.11.406, 42.11.423 relating to liquor vendors

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NOTICE OF PUBLIC HEARING ON PROPOSED AMENDMENT

 

TO:  All Concerned Persons

 

1.  On November 23, 2010, at 1:30 p.m., a public hearing will be held in the Third Floor Reception Area Conference Room of the Sam W. Mitchell Building, at Helena, Montana, to consider the amendment of the above-stated rules.

Individuals planning to attend the hearing shall enter the building through the east doors of the Sam W. Mitchell Building, 125 North Roberts, Helena, Montana.

 

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, contact the Department of Revenue no later than 5:00 p.m., November 15, 2010, to advise us of the nature of the accommodation that you need.  Please contact Cleo Anderson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-5828; fax (406) 444-4375; or e-mail [email protected].

 

3.  The rules proposed to be amended provide as follows, stricken matter interlined, new matter underlined:

 

42.11.104  Wholesale Price  (1) and (2) remain the same.

            (3)  The department may reduce the wholesale price of products which the department has designated as discontinued for closeout or are determined to be overstocked in order to eliminate them from inventory.

 

            AUTH:  16-1-103, 16-1-303, MCA

            IMP:  16-1-103, 16-1-106, 16-1-302, 16-1-401, 16-1-404, 16-1-411, 16-2-301, MCA

 

      REASONABLE NECESSITY:  The department is proposing to amend ARM 42.11.104 to add this language in order to clearly identify when the wholesale price can be reduced on discontinued items. 

The proposed term, discontinued, clearly identifies the classification of products that it is acceptable to reduce the wholesale price on.  The wholesale price is the department's base case cost plus markup.  This allows the department to reduce the markup (from 40% on distilled spirits and 51% on fortified wines) to a level that may create demand in order to eliminate it from the liquor warehouse inventory, helps the liquor vendors move idle product, allows liquor store agents to purchase the product at a better price and helps the department's division maintain an efficient warehouse.  For example, the warehouse currently has 30 cases of product XYZ.  The vendor has discontinued the item because it is no longer being produced.  Demand for this item has also ceased.  The warehouse is left with these 30 cases that are taking up space for other new or existing products.  Reducing the wholesale price on the product could stimulate the agency stores to purchase the remaining products.

 

            42.11.105  DEFINITIONS  As used in this subchapter, the following definitions apply:

            (1) through (13) remains the same.

(14)  "Promotional product" means a new product that is promoted.

(15)  remains the same but is renumbered (14). 

(16)(15)  "Regular product" means a products with the highest sales volumes in which inventories are continually maintained at the state liquor warehouse.

            (17) remains the same but is renumbered (16).

            (18)(17)  "Sample" means a liquor product furnished by a liquor vendor to registered brokers and representatives for the purpose of promoting the product to licensed all-beverage retailers or agency liquor store agents.

            (18)  "Seasonal product" means a product that is only available by the manufacturer during certain times of the year.

            (19)  "Special order product" means a products that have sold less than 24 cases annually in which inventories are not constantly maintained at the state liquor warehouse.

            (20) and (21) remain the same.

            (22)  "Warehouse supply product" means products that are not regular products but sell 24 or more cases annually. 

           

            AUTH:  16-1-103, 16-1-104, 16-1-303, MCA

            IMP:  16-1-103, 16-1-104, 16-1-302, 16-1-401, 16-1-404, 16-1-411, 16-2-101, 16-2-201, 16-2-301, 16-3-107, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.11.105 to increase industry's knowledge.

            The term "promotional product" is being removed because it is obsolete.  The department treats these types of products as a special order item.

            Striking the term "promotional product" reduces confusion in the classification of products and will have no impact.

            The definition of the term "sample" is being amended as sample products are intended to be distributed to all-beverage retailers or agency liquor store agents.

            The definition of "seasonal product" is being added to designate items that are typically offered only at certain times of the year by the manufacturer.  These include gift packs and other items not available year round. 

            The definition of the term "special order product" is revised to mirror the department's efficiencies achieved through the renovation of the warehouse facility and upgrades to the inventory management system.

            The definition of "warehouse supply product" is removed to create consistency with ARM 42.11.405 - Product Availability and ARM 42.11.406 - Product Listing.

 

42.11.243  SAMPLES  (1) through (3) remain the same.

(4)  Sealed Sample sample products may only be given to licensed all-beverage retailers or agency liquor store agents who have not purchased the brand within the last 12 months.

(5)  Samples may not be given to a licensed all-beverage retailer or an agency liquor store agent who has purchased the brand within the last 12 months.

(6)  A registered representative may not give more than three liters of a distilled spirit or a fortified wine as samples to an all-beverage retailer or agency liquor store agent within the last 12 months.

(5)(7)  On-premise Consumption consumption of samples must take place at an a licensed all-beverage establishment with an on-premise license or at an a special event conducted under a catering endorsement.

(8)  In addition to the consumption allowed under (7), all-beverage retailers and agency liquor store agents are allowed to consume samples, given to them at their establishment by a registered representative, on private property not otherwise licensed by this code.

(9)  Sample products must meet the following criteria:

(a)  samples are limited to bottles containing no more than 750 milliliters; and

(b)  limit of 72 bottles per brand label, per vendor, per calendar year plus 720 bottles of 50 milliliters or 200 milliliters; or

(c)  if a vendor does not produce a product in a size of 750 milliliters or less, then the next largest size may be substituted for the 750 milliliter.

(10)  For samples cases to be removed from bailed inventory, the vendor must submit a request on a form provided by the department.  A vendor must submit the form at least seven days prior to the requested ship date.

 

AUTH:  16-1-103, 16-1-303, MCA

IMP:  16-3-103, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.11.243 in order to increase the liquor industry's understanding of the limitations on samples.  The majority of this language was previously part of ARM 42.11.406 (Product Listing).  All criteria for samples will be located within this rule.  By relocating this language to this rule, it reduces the potential for confusion by registered representatives and liquor vendors.  This allows one easy point of reference to what is acceptable for samples and what is not.

            Section (5) was previously part of section (4) and was separated in order to create easier reading and better understanding of the subject matter.

            Section (6) is being proposed to mirror the Code of Federal Regulations (27 CFR 6.91 Samples).

            Section (7) is being amended to reduce confusion as to where samples may be consumed at.

            Section (8) is being proposed to allow all-beverage retailers and liquor store agents the ability to consume samples in an area other than at an on-premise establishment. 

            Section (9) was previously part of ARM 42.11.406.  Subsection (9)(c) was added to allow a vendor to substitute a larger bottle size if they do not manufacture the bottle size limits in (9)(b).  This allows the registered representative the opportunity to still sample the product to all-beverage retailers and liquor store agents.

            Section (10) is being proposed to allow sufficient time for the department to process sample requests.  The time requirement allows the division to work the request into our work schedule so that we meet all of our obligations and deadlines for shipping products out.  This section also mentions that the sample request must come from the vendor of the product.  As the owner of the product, the vendor should initiate any requests to remove product from bailed inventory for sample purposes.

 

            42.11.402  INVENTORY POLICY  (1)  remains the same.

            (2)  Notwithstanding any other criteria in this subchapter, products which are packaged, labeled, or advertised in a manner that by their nature appears to appeal to underage consumers or tends to blur the distinction between alcoholic and nonalcoholic products by emphasizing the features that are normally associated with nonalcoholic products and minimizing the product's alcoholic content will not be made available for sale.  Including but not limited to:

            (a)  candies filled with liquor in liquid form;

            (b)  labels depicting Santa Claus, cartoon type characters, or other child like figures; or

            (c)  containers not approved by the department  All products must be approved by the department prior to being accepted into the state liquor warehouse.  A vendor shall submit a picture copy of the product requested for approval.

(3)  All containers and packaging must by approved by the department prior to being accepted into the liquor warehouse. Products will not be made available in the state of Montana through the state liquor warehouse if the container, flavor, label, or advertising emphasizes the features that are normally associated with nonalcoholic products and minimizes the products' alcohol content.  These include, but are not limited to, products that:

(a)  appear to appeal to underage consumers;

(b)  blur the distinction between an alcoholic and nonalcoholic product;

(c)  reference Santa Claus, cartoon type characters, or other child like figures;

(d)  use flavors that are most commonly targeted toward children such as, for example, bubble gum or cotton candy;

(e)  are candies filled with liquor in liquid form; or

(f)  require specialized handling requirements such as frozen or refrigerated products.

(4)  Products will not be made available in the state of Montana through the state liquor warehouse if the container, flavor, label, or advertising contains inappropriate or illegal content.

 

AUTH: 16-1-103, 16-1-303, MCA

IMP: 16-1-103, 16-1-104, 16-1-302, MCA

 

REASONABLE NECESSITY:  The department is proposing to amend ARM 42.11.402 to provide language that will further protect the public health and safety in the administration of liquor control laws.  The amended language will ensure products, packaging, and marketing methods targeted toward underage individuals are not accepted into Montana.  The rule is being rewritten for better understanding and to add "flavor" to the list of items to be reviewed, as new flavors and innovative products are continually being developed by vendors.

Subsection (3)(f) is being added because the warehouse is not equipped to handle refrigerated items.

 

42.11.405  PRODUCT AVAILABILITY  (1)  Liquor products will be made available for sale in the following classifications:

(a)  A "regular" Regular products will be designated in the department's quarterly price list, and have sufficient supply maintained in the bailment warehouse in accordance with ARM 42.11.421.  An agent shall give an all-beverage licensee an 8% discount on a full case lot of a regular product.

(b)  A "warehouse supply" product will be so designated in the department's quarterly price list, and will have supply maintained in the bailment warehouse to satisfy historical demand.  An agent shall not give an all-beverage licensee an 8% discount on a full case lot of a warehouse supply product.

(c)  A "special order" Special order products that has have sold at least one case in the prior 12 months will be published in the department's quarterly price list.  Supply will not be maintained in the warehouse and will only be available on an order-by-order basis, and depending on supplier requirements and availability of a product, orders may take six weeks or more to be filled.  An agent shall not give an 8% discount on a full case lot of a special order product.

(i)  A vendor with a current Montana permit who has at least one registered representative may ship special order products in on a promotional contract if approved by the department on a predetermined form.  The promotional contract should:

(A)  state that the product will be maintained in the bailment warehouse;

(B)  list the test market locations proposed for the product and the expected initial order amount;

(C)  describe the promotional strategy that the vendor and the vendor's registered representative will undertake during the six-month promotion period; and

(D)  specify a return address for excess product at the end of the promotional period.

(ii)  No additional supplier promotions will be allowed until excess product is removed from the warehouse.  If arrangements have not been made to ship excess product back within 30 days of notification, product will be destroyed at the vendor's expense.

(c)  Seasonal products are not published in the department's quarterly price list.  Seasonal products are only available from the manufacturer during certain times of the year.  The department will notify store agents when seasonal products become available.  An agent shall not give an 8% discount on a full case lot of a seasonal product.

(d)  A "promotional" product may be available in the bailment warehouse if shipped by a vendor in advance of the sales promotion.  An agent shall not give an all-beverage licensee an 8% discount on a full case lot of a promotional product  Discontinued products are not published in the department's quarterly price list.  Discontinued products are available until all inventories have been depleted.  An agent is not required to give an 8% discount on a full case lot of discontinued product; however, the agent may sell the product below its last known posted price.

 

AUTH:  16-1-103, 16-1-303, MCA

IMP:  16-1-103, 16-1-104, 16-1-302, MCA

 

REASONABLE NECESSITY:  The department is proposing to amend ARM 42.11.405 to eliminate the warehouse supply category in order to create a consistent and uniform process for determining which products will or will not be maintained in the warehouse and to conform to the new warehouse layout as a result of the department's warehouse renovation project.  Currently, products are available as one of three classifications: Regular list, warehouse supply, and special order.  Both regular list and warehouse supply items are maintained in the warehouse.  Special order items are brought in on a case-by-case basis.

The department is proposing to eliminate the warehouse supply portion of the rule and combine it with the regular list section.  These proposed changes will improve the efficiencies of warehouse operations enabling the division to distribute products out to agency stores more effectively.

The added language pertaining to promotional contracts in (b)(i) was transferred from ARM 42.11.406 because it applies to this rule better and placed in this rule it will enhance industry's knowledge of the availability of all products.

 

            42.11.406  PRODUCT LISTING  (1)  A product listing will be determined by the number of case sales in the past 12 months prior to the review.  The listings will be reviewed in January and July of each year.  The results of the January review are effective May 1st.  The results of the July review are effective November 1st.  The listings will be categorized as follows:

            (a)  "Regular" Regular products are determined by the equivalent number of available locators in the state liquor warehouse if the top 1,250 products in the state of Montana if:

            (i)  product sales are not a result of closeout, overstock, or erratic sales and must show a six month sales pattern; and

            (ii)  product is available year-round.; and

            (iii) product has been in the state for at least six months prior to the review.

            (b)  "Warehouse supply" products are:

            (i)  those products that do not meet the criteria of a regular list product; and

            (ii)   the product sales equal to or greater than the 24 case sales.

(c)  "Special order" products are products that do not meet the criteria for regular list or warehouse supply items products.

(2)  A liquor product will be listed as a "promotional" product if the department receives and approves a written proposal that:

(a)  is submitted by a vendor who has a Montana vendor permit in accordance with ARM 42.11.213 and has at least one representative registered in accordance with ARM 42.11.205 and 42.11.211;

(b)  states that the product is new to the state of Montana and will be maintained in the bailment warehouse;

(c)  provides the following information for each product by bottle size:

(i)  a completed standard quotation and specification form which references the National Alcoholic Beverage Control Association control state code for the product;

(ii)  a list of the test market locations proposed for the new product and the expected initial order amount;

(iii)  a description of the promotional strategy that the vendor and the vendor's registered representative will undertake during the six-month promotion period; and

(iv)  if promotional products fail to sell at the proposed level after a six month promotion period, the department will notify the vendor and make arrangements to remove the excess stock from the warehouse at the vendor's expense.  No additional supplier promotions will be allowed until the stock is removed from the warehouse.

(3)  Sample products, like all regular inventory products, must be shipped to the state liquor warehouse for distribution purposes.  Sample products must meet the following criteria:

(a)  samples are limited to bottles containing no more than 750 milliliters; and

(b)  limit of 72 bottles per brand label, per vendor, per calendar year in addition to 720 bottles of 50 milliliters or 200 milliliters.

 

AUTH:  16-1-103, 16-1-303, MCA

IMP:  16-1-103, 16-1-104, 16-1-302, MCA

 

REASONABLE NECESSITY:  The department is proposing to amend ARM 42.11.406 in order to improve the efficiency of the department's liquor operations and to better manage the space at the liquor warehouse.  These proposed changes will allow the department to effectively distribute product to agency liquor stores as the division continues to experience growth in liquor sales.

In addition, the department is proposing to transfer the language pertaining to samples to ARM 42.11.243 and the language pertaining to promotional programs to ARM 42.11.405 as they are a better fit for the subject matter.

These proposed amendments are intended to enhance the vendors' and registered representatives' knowledge of the content by better readability.

 

42.11.423  BAILMENT DEPLETIONS  (1) and (2) remain the same.

(3)  Payment amount for a purchase will be a vendor's price per case FOB Helena, Montana, that was quoted to the department not less than 60 days prior to the department's price list publication date except special order, and warehouse supply seasonal, and discontinued products.

(4) and (5) remain the same.

 

AUTH:  16-1-103, 16-1-303, MCA

IMP:  16-1-103, 16-1-104, 16-1-302, MCA

 

REASONABLE NECESSITY:  The department is proposing to amend ARM 42.11.423 to enhance the liquor vendors' understanding of the payment that will be made for depletions from the liquor warehouse based on the classification of the product.  These changes coincide with the changes in ARM 42.11.405.

 

4.  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: Cleo Anderson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-5828; fax (406) 444-4375; or e-mail [email protected] and must be received no later than December 3, 2010.

 

5.  Cleo Anderson, Department of Revenue, Director's Office, has been designated to preside over and conduct the hearing.

 

6.  An electronic copy of this Notice of Public Hearing 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 Notice of Public Hearing 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.

 

7.  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, which includes the name and e-mail or mailing address of the person to receive notices and specifies that the person wishes to receive notices regarding particular subject matter or matters.  Notices will be sent by e-mail unless a mailing preference is noted in the request.  Such written request may be mailed or delivered to the person in 4 above or faxed to the office at (406) 444-4375, or may be made by completing a request form at any rules hearing held by the Department of Revenue.

 

8.  The bill sponsor contact requirements of 2-4-302, MCA, do not apply. 

 

 

 

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

CLEO ANDERSON                          DAN R. BUCKS

Rule Reviewer                                   Director of Revenue

 

Certified to Secretary of State October 18, 2010