BEFORE THE DEPARTMENT OF REVENUE

OF THE STATE OF MONTANA

 

In the matter of the amendment of ARM 42.12.132, 42.13.101, 42.13.210, and 42.13.1003 pertaining to alcoholic beverage establishment location managers, compliance with laws and rules, the penalty schedule, consumer promotions, and contract manufacturing

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NOTICE OF PUBLIC HEARING ON PROPOSED AMENDMENT

 

TO: All Concerned Persons

 

1. On December 15, 2016, at 3 p.m., the Department of Revenue will hold a public hearing in the Liquor Warehouse Conference Room, located at 2517 Airport Road, Helena, Montana, to consider the proposed amendment of the above-stated rules.

 

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 no later than 5 p.m. on December 5, 2016, to advise us of the nature of the accommodation you need. Please 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 amended provide as follows, new matter underlined, deleted matter interlined:

 

42.12.132 MANAGEMENT AGREEMENTS LOCATION MANAGER

(1) Subject to the terms and conditions stated in this rule, an alcoholic beverages licensee may employ a manager as the licensee's agent to oversee the alcoholic beverages business conducted in the licensee's licensed premises. The manager or the person designated to represent the manager must possess a past and present status as a business person and citizen who demonstrates the likelihood of operating the licensed establishment on behalf of the licensee in compliance with all applicable laws of the state and local governments.

(1) All on-premises retailers, off-premises retailers, manufacturers, and distributors shall designate at least one location manager. If more than one person performs location manager duties, the licensee shall seek the department's approval for each. The licensee shall initially seek the department's approval of location managers on the license application. Following initial licensure, the licensee shall seek the department's approval of location manager as follows:

(a)  if the location manager is not an owner vetted pursuant to 16-4-401, MCA, within 30 days of the employee commencing location manager duties, the licensee shall submit the location manager application, the employee's personal history statement, two complete sets of the employee's fingerprint cards, and the fingerprint processing fee; or

(b)  if the location manager is an owner vetted pursuant to 16-4-401, MCA, on or before the deadline to renew the license in the year the owner commences location manager duties, the licensee shall submit the location manager application but does not need to resubmit the owner's personal history statement, two complete sets of the owner's fingerprint cards, or the fingerprint processing fee.

(2) Within 30 days of employing the manager, the licensee must file with the department a signed original of the written management agreement, a personal history statement, and a complete set of fingerprints as required by ARM 42.12.101, that clearly disclose the following information:

(a) the manager's name, address, telephone number, mailing address, if different from street address, and one of the following:

(i) social security number for individuals; or

(ii) federal identification number for business;

(b) the amount of compensation; and

(c) the specific duties and responsibilities delegated to the manager by the licensee.

(2) The licensee shall confirm annually, on the license renewal form, who is performing location manager duties. At this time, the licensee shall also identify any location managers who ceased performing managerial duties during the past license year.

(3) A location manager is an employee who provides general oversight of the alcoholic beverage operations and ensures compliance with alcoholic beverage laws and regulations. The location manager designation is based upon the duties performed rather than the job title assigned. Location manager duties may include, but are not limited to, the following services related to the alcoholic beverage business operations:

(a) hiring, firing, training, or supervising employees;

(b) signing applications or agreements on behalf of the licensee;

(c) determining the hours of operation and employee work schedules;

(d) managing inventory;

(e) signing checks or overseeing bank deposits or financial reconciliations; and

(f)  ensuring payment of taxes or filing tax reports.

(4) A location manager's past record and present status as a purveyor of alcoholic beverages and as a business person and citizen must demonstrate that the employee is likely to operate the establishment in compliance with all applicable laws of the state and local governments.

(3)(5) The department will review the agreement for compliance with the following standards: shall issue its determination of the location manager application within 15 days of receiving the results of the background investigation.

(a) the licensee must retain the possessory interest in the premises through ownership, lease, rent, or other agreement with the owner of the premises;

(b) while the agreement may delegate duties to the manager, the

(6) The licensee must shall:

(a) retain ultimate control, liability, responsibility, and accountability for the retail alcoholic beverage operation. over the license and premises;

(b) maintain an active participation in the alcoholic beverage operation sufficient to ensure the proper and lawful conduct of the business; and

(c) except for an owner acting as a location manager, provide the location manager compensation as a fixed amount that is commensurate with the duties performed. Compensation shall not be based on a percentage of gross sales or net profits. The agreement may not assign or limit any of the rights or responsibilities of ownership. In particular, the agreement may not grant or assign to the manager:

(i) control of business hours, types of alcoholic beverage products sold, selling price, level of inventory maintained, and overall business atmosphere;

(ii) exclusive authority over business accounts and operation funds;

(iii) authority to remodel or otherwise make changes in the business operation requiring non-routine actions;

(iv) ultimate decision-making authority regarding the hiring, firing, advancement or promotion, or any other change of status of other employees;

(v) liability for all business expenses and losses, either directly or through an indemnification agreement with the licensee. The licensee may require the manager to do the ministerial act of paying the expenses, but this must be accomplished by using the licensee's funds; and

(vi) ownership of the inventory or the right to use or dispose of it at will.

(c) the licensee must maintain an active participation in the business operation sufficient to ensure the proper and lawful conduct of the business, and execute all reports required by governmental agencies that attest to the licensee's ownership and certify compliance with applicable statutes and regulations. The licensee may work in the establishment at any time;

(d) the agreement may not be assignable by the manager to a successor manager without the written consent of the licensee;

(e) the agreement may not place any restrictions on the licensee's right to transfer, mortgage, hypothecate, or alienate the license, or change the location of the operation;

(f) the agreement must be terminable upon the licensee transferring the license, selling the business, or otherwise ceasing business operations at the licensee's option;

(g) the agreement must provide for compensation either as a fixed amount, a percentage of gross sales, or a combination of fixed amount and percentage of gross sales;

(h) the compensation of the manager must be commensurate with the duties performed, cannot consist of net profits from the business, and cannot be less than the federal wage and hourly standards for an individual; and

(i) the management agreement must establish a principal agent, employer-employee, or other type of agency relationship, making the manager responsible to the licensee for the performance of assigned duties, while the licensee is responsible for the proper performance of the manager.

(4) Management agreements failing to meet any of the standards set forth in (1), (2), and (3) will be marked as rejected and returned to the licensee, together with a written explanation of the reasons for the rejection. If the deficiencies are not corrected within 30 days of the time set by the department, the tendered management agreement will be deemed to be void.

(5)(7)  A licensee's failure Failure to remain in compliance with the terms of the approved management agreement or failure to terminate operations under a void management agreement shall constitute a violation abide by the provisions of this rule and, including the failure to disclose the person performing location manager duties, may subject the licensee to administrative action, including revocation of the license.

 

AUTH: 16-1-303, MCA

IMP: 16-1-302, 16-4-414, MCA

 

REASON: The department proposes amending ARM 42.12.132 to streamline the approval process for managers and to clarify which employees of a licensed alcoholic beverage establishment are required to seek approval. The language proposed to be stricken is either excess detail being revised and incorporated elsewhere in the rule in a more concise manner, or requirements the department has determined to be no longer necessary and therefore eliminated from the rule altogether.

New (1) proposes to require the designation of a location manager at the time of licensure to establish an initial record of the individuals providing general oversight of the alcoholic beverage operations, so the department can vet those individuals to evaluate their suitability to operate the business in compliance with Montana's alcoholic beverage laws and rules.

After initial licensure, the department is proposing different requirements in (1)(a) and (1)(b), depending on whether the individual is a vetted owner. Subsection (1)(a) proposes to require individuals not previously vetted to seek approval within 30 days of commencing location manager duties because it is imperative the necessary background checks occur early in the employment process to evaluate the manager's suitability. Subsection (1)(b) proposes to require owners who were previously vetted to seek approval before the end of the current license period because these individuals had previously passed background evaluations during the licensure process. The department proposes to clarify in both of these subsections the documents and fees required to seek approval, to prevent the licensee from submitting unnecessary information.

New (2) proposes to require the licensee to confirm the location manager annually to ensure the department has an updated list on file of the individuals performing location manager duties at the premises.

New (3) proposes to give applicants and licensees a clear explanation of what are considered to be location manager duties. The inclusion of specific duties is proposed to assist applicants and licensees determine which employees are required to obtain approval from the department.

Proposed new (4) is a more concise version of the language that was previously in (1).

Newly numbered (5) proposes to inform licensees of the time frame for the department's response. This timeframe is proposed to be set at a level that will afford the department the time needed to obtain and review the background check.

Subsection (6)(a) is proposed to be reworded for better clarity and (6)(b) proposes to require the licensee to have an active participation in the alcoholic beverage operations to ensure the business is operating in accordance with Montana's alcoholic beverage laws and regulations as the licensee is responsible for any violations that occur.

Subsection (6)(c) proposes to require the licensee to compensate the location manager in a fixed amount. The proposal prevents the licensee from compensating the location manager based on a percentage of gross sales or net profits to ensure an undisclosed ownership interest is not created. An exception for owners is proposed since an undisclosed ownership situation cannot arise with these individuals.

The proposed amendments to this rule eliminate the requirement for a licensee to submit management agreements to the department, to simplify the manager approval process for the licensee.

The department further proposes amending the rule title to better identify the content of the rule as amended.

 

42.13.101 COMPLIANCE WITH LAWS AND RULES (1) All licensees, their agents, and employees must conduct the licensed premises in compliance with the rules of other state and local agencies and abide by all:

(a) and (b) remain the same.

(c) Indian liquor alcoholic beverage laws applicable within the areas of Indian country, as defined by 18 USC 1151, provided a tribe having jurisdiction over such area of Indian country adopted an ordinance, certified by the Secretary of the Interior, and published in the Federal Register; and

(d) and (2) remain the same.

(3) The department will impose may use a range of progressive and proportional penalties for multiple any combination of violations of any laws, ordinances, and rules within any three-year period unless mitigating circumstances indicate the penalty should be reduced, or aggravating circumstances indicate the penalty should be increased. Violations and progressive penalties include, but are not limited to, those listed on the following chart. Any combination of four of the violations listed below occurring within a three-year period could result in a license revocation action The progressive penalty schedule is not an exhaustive list of the grounds for administrative action. The schedule does not preclude the department's use of discretion to propose a penalty greater or less than those listed based upon aggravating or mitigating circumstances. For purposes of determining penalties under the progressive penalty schedule, the department uses a three-year lookback. Proposed penalties are assessed based upon the date the violation occurs. For violations that occur over time, such as an undisclosed ownership interest, the violation date shall be the date the department issues its notice of proposed department action. The department may seek license revocation based upon a combination of any four violations during a three-year period.

 

                                                  Progressive Penalty Schedule

 

Violation	1st Offense	2nd Offense	3rd Offense	4th Offense
Sale to an Underage Person	$250	$1,000	$1,500/20-day Suspension	Revocation
Sale to an Intoxicated Person	$250	$1,000	$1,500/20-day Suspension	Revocation
Open after Hours	$150	$600	$1,000/12-day Suspension	Revocation
Sale or Consumption after Hours	$150	$600	$1,000/12-day Suspension	Revocation
Re-pouring Refilling of Bottles	$250	$1,000	$1,500/20-day Suspension	Revocation
No Approval to Alter Unapproved Premises Alteration	$300	$600	$1,000/12-day Suspension	Revocation
No Management Agreement Undisclosed Location Manager	$150	$600	$1,000/12-day Suspension	Revocation
Improper use Use of Catering Endorsement	$150	$600	$1,000/12-day Suspension	Revocation
Accept more More than 7 Days credit Credit	$250	$1,000	$1,500/20-day Suspension	Revocation
Extend more More than 7 Days Credit	$250	$1,000	$1,500/20-day Suspension	Revocation
Exceed Sample Room Service Limits	$150	$600	$1,000/12-day Suspension	Revocation
Undisclosed Ownership Interest	$1,500/ Revocation
Denial of Inspection of Premises or Records	$1,500/ Revocation
Violation of Responsible Alcohol Sales and Service Act		Monetary penalties for these violations are stated in (7). Revocation for fourth violation.
Undisclosed Ownership Interest		Monetary Penalty, Suspension, or Revocation
Denial of Right to Inspect		Monetary Penalty, Suspension, or Revocation
Unapproved Nonuse		Lapse

 

(4) When a license has been revoked or lapsed, the department will shall not accept an application from any of the previous licensees those owners vetted pursuant to 16-4-401, MCA, for one year from the date of revocation or lapse. After the one-year moratorium, an application will only be accepted if the applicant demonstrates to the department's satisfaction that sufficient steps were taken to prevent future violations or to operate a going establishment.

(5) A revoked or lapsed license will affect affects a license quota area and the following may result as follows:

(a) remains the same.

(b) if the area is over quota, the revoked or lapsed license will cease to be available for issuance.

(6) A revoked or lapsed beer or beer and wine license issued within a city quota area before October 1997, if reinstated, will not allow any gaming or gambling activity on the licensed premises.

(7) An employee's The failure of an employee to possess a valid alcohol server training certificate constitutes a violation, the penalty for which is assessed against the licensee. Multiple untrained employees on a particular date may shall constitute a single violation; continued noncompliance may shall constitute an additional violation. Regardless of other violations within the three-year period, the civil penalties assessed for a violation of the Responsible Alcohol Sales and Service Act shall be $50 for the first offense, $200 for the second offense, and $350 for the third offense. A licensee shall receive a reprimand for the licensee's violation of the Responsible Alcohol Sales and Service Act only upon demonstration that:

(a) it is the licensee's first offense of the Responsible Alcohol Sales and Service Act under that license;

(b) all immediate supervisors of employees who sell or serve alcoholic beverages are trained; and

(c) the licensee's business practices substantially comply with the server training requirements such that the violation resulted from an oversight or mistake.

(8) A licensee shall receive a reprimand for the violation of selling to an underage person only if:

(a) remains the same.

(b) the person who made the sale possesses a valid alcohol server training certificate proof of training document; and

(c) remains the same.

(9) In the event a reprimand is issued:

(a) the incident shall not be considered to be a first offense for purposes of the progressive penalty schedule in (3) unless the licensee commits the same offense within one year; and

(b) the department may shall still assess the monetary penalty associated with the offense.

(10) Aggravating circumstances may result in the imposition of maximum monetary penalties, maximum suspension time or revocation, and will not bind the department to the progressive penalty framework indicated in (3) schedule.

(11) Aggravating circumstances include, but are not limited to:

(a) and (b) remain the same.

(c) a licensee's ignoring warnings issued by a regulating authority about compliance problems involvement in the violation;

(d) remains the same.

(e) providing alcoholic beverages to a person under 18 years of age;

(e)(f) a licensee's failure to timely respond to requests during the lack of cooperation by the licensee, licensee's employees, or licensee's agent in an investigation of a violation; and

(f)(g) a violation's significant negative effect on conducting business operations that have the potential to negatively impact or has negatively impacted the health and welfare of the community in which the licensee operates.

(12) remains the same.

 

AUTH: 16-1-303, 16-4-1009, MCA

IMP: 16-1-302, 16-3-301, 16-4-406, 16-4-1004, 16-4-1008, 16-6-314, MCA

 

REASON: The department proposes amending ARM 42.13.101 to provide better clarity to the alcoholic beverage industry and public on the process in which the department prescribes penalties when violations of the Montana Alcoholic Beverage Code occur.

The department proposes amending (3) to improve the readability of the content and to clarify how the department determines the violation date when using the three-year lookback to reduce confusion on how the department applies the progressive penalty schedule when violations of the Alcoholic Beverage Code occur.

The department also proposes amending the progressive penalty schedule to add a title, insert commas in the four-digit dollar amounts, and to rename some of the penalties. "Re-pouring" is proposed to be renamed "refilling of bottles," to create continuity with 16-3-308, MCA, and "no approval to alter" is proposed to be renamed "unapproved premises alteration" to better reflect the violation. Additionally, "no management agreement" is proposed to be renamed "undisclosed location manager" to coincide with the changes in ARM 42.12.132, as proposed in this same rulemaking notice, and "sale after hours" is proposed to be renamed "sale or consumption after hours" to incorporate in rule the current penalties used when a licensee allows alcohol to be consumed on the premises after the times allowed by statute.

The department further proposes adding the violation "exceed sample room service limits" to the progressive penalty schedule, specifically for manufacturers. The proposed penalties for this violation are in line with the penalties for other violation types and this provides guidance to manufacturers on the penalties that will be used when the licensee provides more alcohol to an individual at a sample room per day than is allowed by statute. The department also proposes amending the penalties for "undisclosed ownership interest" and "denial of inspection of premises or records" (previously "denial of right to inspect") violations to provide the current penalty amounts imposed by the department because both of these violations could result in a monetary penalty and revocation of the license.

The additional fees proposed to be included in the schedule require, pursuant to 2-4-302(1)(c), MCA, an estimate of the cumulative amount of the proposed increase and the number of persons affected. The number of licensees that could be affected by the added "exceed sample room service limits" fee is estimated to be 110; and the number of licensees that could be affected for the addition of the "undisclosed ownership interest" and the "denial of inspection of premises or records" fees are estimated to be 3,350 each. Because these proposed fees are only assessed if and when a violation occurs, the department cannot reasonably determine the cumulative amount of any proposed increase.

Additionally, the department proposes striking "violation of responsible alcohol sales and service act" from the progressive penalty schedule in (3) because this violation is already provided for in (7).

The department proposes amending (4), (5), and (6) to include licenses that have been lapsed, to provide licensees and the public an explanation on how the department determines if the license will remain available, and when gaming privileges under the license are removed. The same processes are followed when a license has been revoked and when a license has lapsed.

The department also proposes amending (7) to strike language that only allows the department to issue a reprimand when certain criteria are met. The proposed amendment will allow the department to use discretion on whether a reprimand is warranted, to be consistent with other violations.

The department further proposes changing the reference to "alcohol server training certificate" in (8)(b) to "proof of training document" to reflect the current name of the document issued to individuals who successfully pass a Responsible Alcohol Sales and Service Act training program.

The department proposes amending (11) to provide additional examples of aggravating circumstances to demonstrate to licensees actions that could warrant increasing the penalty that would have otherwise been imposed under the progressive penalty schedule.

 

42.13.210 CONSUMER PROMOTIONS (1) through (3) remain the same.

(4) Conditions that must be met for all types of promotions include but are not limited to:

(a) and (b) remain the same.

(c) participants must be 21 years of age or older; and

(d) no purchase is necessary to participate in a sweepstakes or contest; and

(e) all promotions must be approved by department personnel prior to the onset of the promotion.

 

AUTH: 16-1-303, MCA

IMP: 16-1-303, MCA

 

REASON: The department proposes amending ARM 42.13.210 to streamline the consumer promotion process by eliminating the requirement for an alcoholic beverage company to first seek department approval in (4)(e). The proposed amendment will allow alcoholic beverage companies to implement promotional activities sooner by eliminating the current wait time associated with the department's approval process.

 

42.13.1003 CONTRACT MANUFACTURING (1) through (9) remain the same.

(10) Except as provided in (9)(11), 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) remains the same.

 

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 amending ARM 42.13.1003 to correct an internal section reference numbering error that occurred when the rule was adopted in 2015. No other changes are proposed for the rule at this time.

 

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: 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 January 9, 2017.

 

5. Laurie Logan, Department of Revenue, Director's Office, has been designated to preside over and conduct this hearing.

 

6. 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 4 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.

 

7. 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.

 

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

 

9. With regard to the requirements of 2-4-111, MCA, the department has determined that the amendment of the above-referenced rules could directly impact some small businesses. The department's small business impact (SBI) analysis and determination memo, titled "SBI determination 968," is available online at revenue.mt.gov/rules or upon request from the person in 4.

 

 

/s/ Laurie Logan                          /s/ Mike Kadas

Laurie Logan                               Mike Kadas

Rule Reviewer                             Director of Revenue

         

Certified to the Secretary of State November 14, 2016.