Monthly Archives: February 2012
Back before mp3s, even before CDs, Cyndi Lauper sang “Girls Just Wanna Have Fun.” Boys too.
Alcohol is a time honored part of that fun. Toby Keith gets it: “Red Solo cup. I fill you up. Lets have a party.”
A couple of recent high-profile fatal drunk-driving accidents in Nashville are reminders to restaurant and bar owners to re-examine the delicate tension between consumers wanting to drink to intoxication, with the fact that drunk driving can be lethal.
This weekend, The Tennessean featured a story about restaurant and bar liability. In the article, I summarize the basic legal duties for alcohol service by restaurants and bars.
Owners are forced to balance a fine line between being a place for folks to have fun, against the reality that having fun with alcohol can lead to drunk driving accidents and fatalities.
We encourage owners to review their internal rules about handling intoxicated patrons. Be innovative about ways to prevent intoxicated patrons from driving. Educate your staff and be extra vigilant.
No one wants to wake up one morning to find out your business served a patron that killed someone on their way home.
Well placed sources say that the Tennessee Legislature is seriously considering moving the responsibility for payment of liquor-by-the-drink taxes from restaurants and bars to wholesalers. Industry insiders see this as a more reliable means of ensuring that sales are honestly reported and taxes paid.
Governor Haslam’s much touted TN Forward Top to Bottom Review recommends that wholesalers file monthly reports about sales to retailers, saying that that “some retail businesses under-report their sales.”
“Under-reporting sales” is an understatement. With one of the highest combined tax rates on spirits sales in the U.S. – 24.5% on average – the temptation to cheat is huge.
The report does not recommend that wholesalers pay the tax for restaurants and bars, but recognizes an ongoing and relatively widespread problem with reporting and paying LBD taxes.
Liquor wholesalers have a significant vested interest in compliance with tax and ABC laws. Wholesalers have a lot to loose.
When Warren Buffett’s company bought Horizon Wine & Spirits in 2010, the purchase price was rumored to exceed $100 million dollars. This is wild speculation, but anyone familiar with the industry knows that a liquor wholesaler is a hugely profitable business worth tens of millions.
Problem is, setting the tax rate that wholesalers would pay is nearly impossible. LBD taxes are assessed on the retail price charged by restaurants and bars. The mark up on retail prices is far from consistent – most restaurants have different mark ups on different alcoholic beverages. Mark ups vary widely from restaurant to restaurant.
For example, a bar may mark up well alcohol at twice cost, as a leader to lure customers. Better spirits may be marked up at 3 times cost.
In particular, wine margins vary at individual restaurants, and also between restaurants. What Red Lobster charges for wine may be completely different from what Sunset Grill charges for wine. Sunset may have a low mark up on an entry level glass of wine, but higher mark ups on other glasses.
To be cautious and not reduce tax revenue, the rate wholesalers pay should be on the high side of estimates. Legislators might call this a tax increase, making the legislation essentially dead on arrival. If the rate wholesalers pay falls short of existing tax revenue, the bill will be declared a cost to the state, also ensuring its death with tight budgets.
The change leads to another problem. The tax will create a significant difference between the price wholesalers charge for package stores and the price for restaurants and bars. This increases the chances of restaurants and bars buying liquor from package stores, since the retail price at package stores will be closer to the wholesale price for restaurants and bars.
For generations, Cocke County Tennessee was famous for illegal Tennessee whiskey, marijuana, car chop shops, cockfighting, prostitution and corrupt officials. Cocke County was also the home of perhaps the most famous moonshiner of modern history, Popcorn Sutton.
Popcorn Sutton lived a colorful life. Instead of going to prison in 2009 after being busted for trying to sell 1,000 gallons of moonshine to an undercover federal agent, he took his life. His tombstone sums up Popcorn’s infamous attitude: “Popcorn Said F### You.”
Before Popcorn passed, he struck up an unlikely friendship with 29-year-old former motocross racer Jamey Grosser, who came to Tennessee with plans to set up a legal distillery.
Grosser’s story is featured in a New York Times article, at this link.
Popcorn taught Grosser how to make moonshine using methods and recipes passed down in Popcorn’s family for generations. Importantly, Popcorn gave legal permission to Grosser to use his recipes and name to make Popcorn’s famous moonshine.
Popcorn’s moonshine is legendary among whiskey aficionados. Tennessee moonshine is unaged whiskey; generally having a harsh burn that makes the beverage more suitable for intoxication than pleasuring the palate. Jack Daniels and George Dickel age their whiskey in barrels, which among other qualities, smoothes the burn. But not all moonshine burns.
Several master distillers that make famous brands of Tennessee and Kentucky spirits say that Popcorn’s unaged whiskey is the absolute best. His recipe and methods are the envy of the moonshine industry.
Grosser wanted to distill Popcorn’s whiskey in Popcorn’s stomping ground – Cocke County. Problem was, Tennessee state law was recently modified to allow distilling in more areas, but Cocke County was not among the areas.
Grosser faced enormous political opposition to legalizing distilling in Cocke County, which is one of Tennessee’s more rural and conservative bastions. Last October, the county commission in Cocke County voted in favor of allowing distilleries in the county, with advocates touting the financial benefit to the county from taxes.
Local approval lead to state legislation that specifically legalizes whiskey production in Cocke county. The bill was signed by the governor on February 16, 2012.
Satirist Weird Al Yankovic parodied Michael Jackson by singing “Eat It.” Top brass at the Tennessee ABC are now telling limited service license holders to “Cook It” – in a kitchen – on premises – at the bar. This is new to us.
Bone McAllester liquor attorney Tucker Herndon was helping with licensing for a routine transfer of ownership for a bar on Second Avenue in Nashville. The bar serves food from a neighboring business and does not have its own kitchen. The ABC gave the bar two weeks to install its own working kitchen.
The practice of catering in food from a neighboring kitchen sufficed in the past for some limited service license holders.
Unlike the restaurant law, the limited service law only requires that prepared foods be served. There is no specific requirement for a kitchen in the limited service law.
We were advised by the ABC that limited service license holders must have their own kitchen in order to qualify for the license. The ABC is interpreting the limited service law to require every bar to have its own kitchen to prepare food.
The new kitchen rule will most likely impact existing limited service license holders at renewal inspections. We advise bar owners to be proactive, and if questions about kitchens, ask an ABC agent or contact us about whether cooking equipment meets minimum requirements.
One of the national hot button issues among liquor licensing experts is the pressure to merge state ABC’s with other agencies, generally as a cost saving measure. Based on what we have heard from the few states that have merged, it is a disaster for licensees.
In Tennessee, a seemingly innocuous bill is pending that takes away criminal enforcement powers from ABC agents. We see this as a step toward merging the ABC with another agency. Removing ABC police powers makes it easier to merge the ABC with other agencies.
Without authority to prosecute crimes, we suspect that pay for agents will be slashed. ABC agents are already paid less than many other state law enforcement officials. This has been a problem for retaining experienced agents.
Liquor laws are complicated. Having qualified ABC agents is good for the industry.
Licensees may see the demise of ABC agent enforcement as a good thing. Based on what we hear from other states, elimination of ABC agents is bad for business.
For example, Missouri merged the ABC and virtually eliminated ABC officers. Lawmakers presumed that local police would enforce sales to minors, among other important laws. Not surprisingly, local police were not trained to enforce liquor laws and aggressive owners are openly flaunting basic industry rules.
ABC agents may not be your favorite visitor, but by laying a level foundation for enforcement of basic liquor laws, we believe that having competent law enforcement agents is much better than a lawless business environment.
The Tennessee ABC closed the loop on a policy that previously allowed bar owners and marketers to “buy” drinks for patrons, a marketing strategy that avoided the prohibition against giving away drinks. Beginning today, February 8, 2012, ABC agents have been asked to first warn and then cite bars and restaurants that allow individuals to buy drinks for marketing.
Tennessee state law has a long-standing prohibition against giving away liquor at bars and restaurants. No free samples, no “this one is on me” from bartenders, and no free drink happy hours. The rule does not apply to beer.
Some clever owners and marketers exploited a loophole in the prohibition against free drinks and bought rounds of drinks at regular cost from the bar, and then handed them out to strangers. The bar was not giving away drinks – it was an individual. Of course, the ABC suspected that the bar or marketing company ended up paying the individual back for the round.
The practice has grown in popularity and promoters have started sending “shooter girls” into popular watering holes to buy free samples of shots marketed to young binge drinkers.
The ABC declared that the practice constitutes dispensing alcohol without a license, which is a crime in Tennessee punishable by real jail time. We recommend that folks stop the practice immediately.
This is the way that state law enables Tennessee cities and counties to decide whether liquor can be sold at package stores and restaurants. The practice is called local option, and most agree that it has been a good way to allow local residents to decide the often contentious decision of allowing local alcohol sales.