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New Hurdle for Tennessee ABC Liquor Licenses

The Tennessee Alcoholic Beverage Commission recently introduced a new requirement for restaurants applying for liquor licenses. Applicants must submit a business plan that details projected sales of food, alcohol and other income.

Limited service restaurants, the legal euphemism for bars in Tennessee, are accustomed to filing an affidavit specifying the percentage of alcoholic beverage sales compared to food, beer and other sales. Limited service license fees are based on the percentage of food sales and the affidavit essentially sets the amount of the license fee.

Because of a new law, ABC Assistant Director Keith Bell is requiring all restaurant applicants, including restaurants that serve more than 50% food, file business plans before applications can be approved. The rule does not apply to other types of liquor-by-the-dinrk licenses, like hotels and caterers.

Fortunately, Mr. Bell is not looking for a full-blown business plan that would please a business school professor.

Based on our experience, the business plan needs to focus on facts specific to the percentages of food to liquor, beer and other income. Projected income with percentages are key.

Other facts to include are hours of food service (lunch and dinner, as opposed to just late night), number of food prep and service staff, or plans for bartenders preparing food, basic summary of the kitchen, number seats at traditional restaurant tables, how food will be marketed to patrons, and any other facts directly related to food sales.

Confidentiality of projected earnings is an issue that has not resolved. With the exception of social security numbers and other sensitive personal data, anything filed at the ABC becomes a public record.

We suggest folks follow Jimmy Buffet's advice: If life gives you limes, make margaritas.

New Kid in Town Lays Down the Law at Tennessee ABC

Things have been changing quite rapidly at the Tennessee Alcoholic Beverage Commission. 1970's Rock Kings the Eagles sum it up well:

Where you been lately? There's a new kid in town 
Everybody loves him, don't they? ...Everybody's talking 'bout the new kid in town.

Keith Bell was named ABC Assistant Director nearly a year ago. Mr. Bell and staff attorney Ginna Winfree are making waves in the Tennessee liquor-by-the-drink licensing world.

Several LBD industry members have seen an uptick in enforcement and the seriousness of penalties imposed by the ABC. The new kid in town appears to be telling the industry that he is going to make a point of cracking down on industry violations.

Keith Bell is laying down the proverbial law.

With ABC Director Danielle Elks expected to resign at the end of October, Mr. Bell is the heir apparent to the ABC throne.

Ms. Elks has served the ABC for over two decades. During Ms. Elks' reign as Director, the playing field has been mostly neutral. Rules and enforcement priorities have been occaisionally tough for industry, but relatively predictable. If you violate the law, you get an expensive fine to make you pay attention. If you fail to do your best to avoid violating the law in the future, you are looking at a suspension or revocation.

The rules have apparently changed.

The TABC has had more than its fair share of relatively high profile negative press in the past few years. Some say the ABC has been drug through the media mud. 

We suspect that the ABC Commissioners appointed by Governor Haslam have directed the TABC staff to clean up its act, regardless of whether media criticism was warranted.

We advise folks to avoid playing fast and loose with ABC laws and regs. If caught, penalties are likely to be much stiffer, including imposition of suspensions and revocations for more serious offenses like sales to minors, service to intoxicated patrons and failure to meet food service requirements.

What might have lead to an expensive fine in the past may lead to a notice of a hearing to revoke your liquor license. Expect to serve real suspensions of your license for serious violations.

The new kid in town is walking tall.

The good news is that Mr. Bell has a long career as an entrepreneur in the legal industry and seems to understand that LBD licensees are real business owners working to make a living. He gets it.

Kung Fu Fighting Not Good for Bar Business

Watch your bouncers. This is the lesson from a high-stakes lawsuit filed against a reputable downtown Nashville restaurant.

Rippy's Bar & Grill is defending a 4.5 million dollar lawsuit arising from allegations that bouncers violently choked a customer who was dining at the restaurant one afternoon during CMA Fest.  According to Rippy's attorney, the customer was "arrogant and aggressive." The Tennessean has more.

Bouncers should be trained to handle "arrogant and aggressive" patrons. According to the lawsuit, several witnesses called 911. One caller reported that: "There's a guy that's choking a guy out, and he's on the back staircase of Rippy's...he's trying to kill him." The lawsuit alleges that one of the bouncers is a martial arts Brazilian jiu-jitsu fighter.

Over the past couple of years, there have been several lawsuits brought against downtown and midtown bars over claims of aggressive bouncing. We suspect that most involve out of control customers. 

Regardless, bouncers should know how to detain "arrogant and aggressive" patrons; not teach them a lesson. Teaching a lesson can lead to an expensive lawsuit.

In Heaven There Is No Beer

Need a Metro Nashville beer permit in September? Better plan carefully. You may find that real life mirrors the afterlife.

There may be no beer in heaven, but a bar without beer in Tennessee is not bound for eternity.

The beer board is moving to the Third Floor of the Howard School complex starting on Friday September 14, 2012. According to official notices, the beer board offices will be closed from Friday until Tuesday September 18.

We have been told, reminded and admonished that no one - absolutely no one - will be able to get a temporary or permanent beer permit until the offices reopen on Tuesday September 18. No one. No, not even you.

Office moves are often fraught with difficulty, and we advise folks to count on the possibility of delays with the beer board reopening date.

If you need a beer permit the week of September 17, we encourage you to obtain the permit on Thursday September 13. The beer board meets that day at 11:30.

More Breweries for Nashville?

Pending Metro Nashville legislation will greatly increase potential locations for breweries in Music City. Currently, breweries must be on land zoned for industrial use.

Industrial areas are usually located in remote areas, away from retail centers and houses. Who wants a horse rendering plant making glue near their shop or house?

But breweries are different. Although classified as an industrial use, breweries like Yazoo and Jackalope work well in retail commercial districts. Part of the Gulch is zoned for manufacturing, but popular commercial areas in East Nashville and Hillsboro Village prohibit breweries, because they are classified as industrial plants - as if they made glue from horses.

Fat Bottom Brewery ran into this issue when working on its new brewery in the old Fluffo Mattress site on Gallatin Pike. Scott Davis, the local Metro council member, introduced legislation to fix the problem for future brewers.

Davis' legislation allows "nano-breweries" that produce less than 1,250 barrels of beer per month to be located in most commercial zones. Davis' legislation has some simple rules that require breweries to be sensitive to neighborhood concerns. The proposed ordinance and the specific restrictions are at this link.

We think the nano brewery legislation is great for Nashville and its budding suds-stewing scene. If you support local beer brewing in Nashville, e-mail your local council member. You can find your local council member on the map at this link. Click on the e-mail link and let our representatives know Nashville loves beer.

Boom Boom, Out Go the Lights for Tennessee Tax Man

The Tennessee Department of Revenue was closed this afternoon, September 4, 2012. We understand that power suddenly failed, following a loud boom in the basement of the Andrew Jackson Building.

Reminds us of the Pat Travers Band rocking one hit wonder: "Boom Boom, Out Go the Lights."

Time to rejoice?

Not if you are a restaurant or bar owner trying to obtain tax clearance for a new or renewed Tennessee liquor license. The ABC will not be able to clear licenses until power is restored and tax officials catch up. Expect delays.

We hear that Revenue offices will likely be closed Wednesday. There was no estimate for when power would be restored.

Just another day in paradise for licensing in Tennessee.

Let us know how this affects your business by leaving comments so we can keep everyone posted.

Old McDonald Sells Wine in Dry Tennessee Counties

Russellville Tennessee made history at the Tennessee ABC this summer with approval of the first Farm Winery License.

Russellville is an unincorporated community in Hamblen County, Tennessee, located along U.S. Route 11E, midway between Whitesburg and Morristown, and north of Knoxville. We suspect that the town is as dry as the day is long.

In it's infinite wisdom, in the 2012 Session, the Tennessee General Assembly legalized the sale of wine made from grapes grown on  farms, even in dry counties.

Old McDonald grows the grapes and contracts with a winery to make wine. He can then offer tastings of the wine at the farm and sell bottles of wine to tourists, and to locals.

Unlike traditional retail package stores, we see no restrictions on sales on Sunday, popular holidays like July 4, or late at night, after liquor stores are legally required to be closed. Of course, in a dry area, competition is limited only to beer.

The applicant, Katie Martin, has contracted with Hillside Winery in Sevierville to produce the wine on behalf of The Grape Barn at Nolichucky Vineyard.

Wildcats Not Buying Wine in Volunteer Groceries

Media hype seized upon the recent Kentucky case that ruled in favor of wine in grocery stores. The front-page headline of The Tennessean trumpeted: "Wine-in-grocerires effort gets boost from Kentucky Ruling."

Not so - from a legal perspective. Tennessee and Kentucky law are vastly different. It's an apples and oranges comparison.

Kentucky law allows drug stores to sell liquor anywhere inside the store. Grocery stores have to have a separate store, where access by minors is controlled.

A Kentucky licensing friend, Dan Meyer, was quoted as explaining that "the law dealing with the sale of wine and liquor in pharmacies and grocery stores dates to Prohibition, when prescriptions could be obtained to buy alcohol at drug stores." The sales were restricted in grocery stores, he said, because the thought was that minors are often in grocery stores and should not be exposed to booze.

Judge Heyburn noted that in modern times, drug stores and grocery stores sell similar goods and both are frequented by minors. The judge found that Kentucky failed to justify “why a grocery-selling drugstore like Walgreens may sell wine and liquor, but a pharmaceutical-selling grocery store like Kroger cannot. The Louisville Times Courier has more details.

We understand why the judge found that Kentucky's law was invalid. 1930's drugstores are completely different from today's Walgreens and CVS, which cater to the same audience as grocery stores - including minors. Personally, both my kids are drawn to Walgreens and CVS for impulse purchases of holiday items, toys and candy.

  

Tennessee liquor laws do not allow drugstores or grocery stores to sell liquor. Tennessee requires that liquor store owners be Tennessee residents. Liquor stores can only sell liquor, cash checks and sell lottery tickets. Only one liquor store can be owned by one person or shareholders.

In Tennessee, a pharmacy, as well as a grocery store, does not qualify for a liquor license.

There may be legal issues with Tennessee's retail liquor store laws, but the problems that lead to the failure of the Kentucky law are not relevant to Tennessee.

Tennessee Whiskey Trail

Recent changes to Tennessee's distilling laws have rekindled interest in a cherished industry that was almost wiped out by Prohibition: whiskey making. 


Before whiskey making was outlawed, dozens of popular distilleries flourished in Tennessee. In the late 1800's, whiskey was a huge business for Tennessee. Demand for corn, oak for barrels and cash for expansion of successful distilleries like Charles Nelson's Greenbrier Distillery was a leading industry for Tennessee. 


After Prohibition, only Jack Daniels and George Dickel carried on the tradition. Until recently.


Important changes to Tennessee law, which previously limited the location of Tennessee distilleries, has sparked interest in Tennessee's whiskey legacy. Whiskey entrepreneurs are now free to resurrect the age-old tradition and legally make and sell Tennessee Whiskey.


Tennessee's whiskey heritage is a potentially serious attraction for national and international tourists.  Jack Daniels is one of the most famous brands in the world and a huge tourist attraction. We look forward to the proliferation of Tennessee artisan distilleries as an important step toward growing Tennessee as a destination for tourists interested in whiskey.


The Tennessee Whiskey Trail features old and new Tennessee distilleries. Visit these entrepreneurs and help resurrect Tennessee's proud history. 

2012 Tennessee Liquor Legislation Recap

Our annual summary of new Tennessee liquor laws is at this link.

If you would like to added to our mailing list, please email me here with your email address and your business type (package store, bar, distillery). We generally send two to four emails a year, and we promise not to spam you.

Metro Nashville Fixing Liquor Privilege Tax?

Many restauranteurs and bar owners have been badgered by Nashville for payment of two or three years of past due fees for a "liquor by the ounce permit." We have been following the issue and advising owners to hold invoices until a couple of legal questions are resolved.

As expected, Metro has changed the way the liquor tax is collected. Several folks have received letters like the following:

We have been in contact with the Metro Collections Office about the legality of collecting back taxes and the tax rate assessed. We continue to advise licensees to hold invoices pending discussions. Although some tax is definitely due, the amount may be significantly less than originally invoiced by Metro.

Stay tuned.

Tennessee Attorney General Tosses Residency Requirements

On June 6, 2012, the Tennessee Attorney General declared that the Tennessee residency requirements for alcoholic beverage wholesalers and retailers violates the Commerce Clause of the U.S. Constitution.  State law requires that the owners of wholesalers and retail package stores meet Tennessee residency requirements.  

For example, all owners of package stores must be Tennessee residents for two years before applying, with a few exceptions. A full copy of the Opinion is here.

For many cities in Tennessee, the Opinion may not have an immediate impact on licensing for retail package stores.  Nashville, for example, has a local residency requirement of 2 years.  The Attorney General Opinion does not directly address local residency requirements, which most likely would have failed if analyzed by the Attorney General.

The Tennessee Alcoholic Beverage Commission has deferred to advice provided by the Attorney General on numerous occasions.  Whether or not the Commission follows this opinion will most likely be decided by the full Commission.  The Commission is not legally bound by the Opinion.

The fall of the residency requirement could be a game changer for wholesalers.

If the ABC adopts the Opinion, out-of-state wholesalers will be able to enter the market. Although a handful of existing wholesalers have been acquired by out-of-state wholesalers, these acquisitions do not increase the total number of wholesalers.  New wholesalers mean more competition, although brand franchise laws will hamper market penetration for new wholesalers.

For retail package stores, the decision did not address the one store per person limitation.  With the one store limitation remaining in effect, the fall of residency requirements is not as likely to dramatically affect the market for retail package stores.

For example, although an out-of-state grocery chain may be able to obtain one retail license, the chain could not obtain licenses for any other stores.  Plus, the liquor store would have to be completely separate from the grocery store.

Tom Humphreys from the Knoxville News Sentinel has more analysis at this link.

Liquor Tax Woes Make Progress in Metro Nashville Davidson County Tennessee

The Metro Nashville's city council is considering legislation to move the collection of liquor privilege taxes from the City Clerk to the Treasurer. We see this as progress.

The City Clerk's mishandling of liquor privilege taxes has fueled considerable chatter among restaurant owners and licensing professionals. Earlier this spring, hundreds of invoices were mailed demanding payment for three year's worth of taxes, at a rate higher than authorized by state law.

We blogged about the letters here.

Once the legislation becomes law, we expect the Treasurer to consult with Metro Legal and work through the issues with the liquor privilege tax. We have spoken to the Treasurer and offered our assistance.

Until resolved, we recommend that folks continue holding onto invoices. Some tax is undoubtedly due, but we suspect the amount will be less than originally demanded.

Stay tuned for more news.

Why Do I Need A Lawyer at the Beer Board?

Smart business owners often navigate the labyrinth of liquor laws without legal counsel. Why should folks spend for legal counsel?

A recent case before the Nashville Beer Board involving a grocery that was accused of selling to a minor answers the query.

At a hearing on a sale to a minor, a local grocery store plead guilty with explanation. Pleading guilty with explanation is the way a permit holder admits it messed up and sold to a minor, but wants to tell the board how they try to prevent sales to minors.

The guilty with explanation defense does not reduce penalties, but allows the permittee to vent a bit and hopefully pave the way for a better defense for a subsequent sale to minor.

The grocery plead guilty with explanation. But after witnesses testified, a beer board member moved to dismiss the charge because the minor used a fake ID to purchase the beer. If the motion was adopted, the charge would have been dismissed.  The grocery would have been found not guilty.

Because the grocery had already plead guilty with explanation, the board could not dismiss the charge. The grocery legally had admitted that it was guilty.  

Instead of dismissing the charge, the beer board imposed probation. Although the penalty did not affect beer sales, it goes down on the permanent record of the grocery.

The grocery could have easily avoided a citation if it was represented by qualified legal counsel.

Tennessee Business Owners Beware of the Taxman's Sucker Punch

Tennessee business owners know government imposes an almost infinite number of potential traps for the unwary. Recent news about the padlocking of a century-old restaurant in Murfreesboro reminds us of an important lesson about taxes.


Employees, food and beverage wholesalers, the landlord, utilites and other critical vendors demand payment. Uncle Sam and the Volunteer State are not quite as aggressive, at least not as quickly.


But ignoring the taxman is playing with fire.


City Cafe on the courthouse square in Murfreesboro has seen more than 100 years of diners, defying defeat by more modern chains. Last month, the historic business was padlocked by Tennessee Department of Revenue officials .


According to The Tennessean, "Tennessee Department of Revenue agents showed customers to the door around 9 a.m. May 23 before seizing the cash register and changing the locks, in addition to putting a note on the door stating it had been closed by order of the Tax Enforcement Division for uncollected taxes."


This Monday June 3, 2012, City Cafe reopened. We are not privy to the specific tax woes of City Cafe, but the sudden closure of the historic diner serves as a reminder that the taxman cannot be ignored.

Winemakers Rejoice: First Tennessee Facility for Home Wine Makers

Tennessee is known for music, football and whiskey. Wine is not at the top of the list.  Instead of wineries, Dollywood, Graceland and the Grand Ole Opry are top tourist destinations.


Oenophiles are committed to altering the landscape. Some Tennessee wineries are making wine that some enthusiasts pronounce rivals acclaimed wines from California and other known wine states.


At the April ABC meeting, the first Tennessee winery for amateur wine makers was approved. Under the new law, individuals can use a winery's equipment to make wine for personal consumption  This is a huge opportunity - serious wine makers say that there is no reasonably affordable home wine making equipment comparable to a winery.


The first permit was approved for a Tullahoma winery owned by Cathy Manis. We have no details.


We suspect that the license will become more popular, particularly in cities with serious wine enthusiasts.

Why Do You Drink? To Get a Wee Bit Tipsy?

It ain't right to mess with a Hank Williams classic. We drink to get drunk, at least some of the time.

A couple of high profile Nashville drunk driving fatalities have Tennessee ABC agents and Metro Nashville police investigating several popular watering holes. Naturally, this has spooked bar owners.

The problem is that many patrons visit bars to get intoxicated. Yet the law does not allow a bar to serve intoxicated patrons. What gives?

Regulators and police informally recognize that revellers at bars often tie one on. As long as patrons don't get behind the wheel, get into fights or otherwise cause too much trouble, the law usually allows folks to have a little fun.

Unless there is a fatal drunk driving accident or other serious tragedy. Suddenly the news media, police and lawyers are accusing the bar of over serving and not doing enough to prevent the patron from driving drunk.

The legal issue is “what constitutes intoxicated.” For driving, the standard is fairly low and is set by a blood test. For bars, there is no set standard. Bartenders serving a bustling weekend crowd have to make quick judgments based only on observations.

I personally love a Tennessee Supreme Court decision that determined if a patron was drunk at an infamous Nashville watering hole:

When we analyze this soldier's actions in terms of his stated intention “to get bombed,” the conclusion is inevitable that success crowned his efforts. While he lolled, loafed, and loitered about the Classic Cat satisfying his lickerish craving for liquor by lapping up lavish libations, he fell from his chair, clutching his drink in his hand, into the waiting hands of vice squad officer McElhaney, who helped him up and took him to jail.

We subject his conduct to the most liberal standard that has come to the attention of the author of this opinion: 

Not drunk is he who from the floor
Can rise alone and still drink more;
But drunk is he, who prostrate lies,
Without the power to drink or rise. 

This soldier fails the test. He was drunk openly, visibly, notoriously, gloriously and uproariously drunk. 

The Classic Cat II violated one of the great commandments by which “beer joints” must live. In summary and in short, in paraphrase and in idiom, the law “don't allow no (drunken) hanging around” beer establishments.

Tennessee is flirting with imposing more responsibility on the server of alcohol. Tennessee has a fairly business-friendly statute for "dram shop" actions. The majority of the fault lies with the individual that consumes alcohol, unless the person is visibly intoxicated or under-aged.

But purveyors of alcohol are under increasing public scrutiny for the actions of their drunk patrons.

The Tennessean recently ran a feature about a tragic alcohol induced car accident that killed two pedestrians. 

The article vividly illustrates the level of scrutiny placed after the fact on a server of alcohol, which in this case was an office party.

In the wake of a tragic death, it is easy to say that more could have been done to stop the person from driving. What may look easy in retrospect is usually beyond what is possible to do for every single patron on every single day.

We expect that regulators and police may lower the threshold for what constitutes intoxicated for purposes of cutting off a patron. There is no set standard, and its easy to see why police and regulators would prefer for folks to stay on the sober side.

High Profile and Very Expensive Spanking for Playing Games with Tips and Server Wages

New York Celebrity Chef Batali, of “Iron Chef America,” “The Chew“ and “Mario Eats Italy” fame, has agreed to pay out $5.25 million to employees to settle an employee class-action lawsuit about tipping.


The settlement involves 1,100 employees, but serves as an expensive lesson about the consequences of playing fast and loose with federal wage and hour laws and skimming off tipping pools.


According to the Toronto Sun, "Batali and the other owners of the eateries unlawfully skimmed four to five percent of the staff’s wine or alcoholic beverage sales from the tip pool, taking an unlawful “tip credit,” paying staff members less than the minimum wage, and failing to provide “spread-of-hours” pay — that is, extra pay when a double shift extends over a certain number of hours in the day."


Lesson learned.  Don't mess with tips and basic rules about wages.

Minting Money But Avoiding the Grim Reaper in Downtown Nashville This Weekend

Downtown Nashville bars and restaurants are poised to have a huge weekend, with St. Patrick's Day falling on a Saturday, and NCAA men's basketball playoff's at Bridgestone Arena on Friday and Sunday. Cash registers will be ringing nonstop.

So why is Will Cheek blogging about this?

The NCAA tournament will draw a huge college crowd, with tons of under 21 year-olds looking to try to grab a drink at watering holes. St. Patrick's Day is infamous for inspiring revellers to drink to excess. The combination makes for a dangerous weekend mix of profitable sales, underage consumers and exuberantly intoxicated patrons.

Surprise! Nashville police and ABC agents plan to be out in full force this weekend. Plan on visits by law enforcement. Make sure your staff is ready and that everyone is vigilant about carding and taking care of intoxicated patrons.

Spring Snags an Hour of Alcohol Sales from Tennessee Saloons

Hope springs eternal, but not for Tennessee restaurants and bars in the wee hours of Sunday morning March 11, when clocks spring forward for daylight savings time. At 2 am, clocks spring forward an hour.

Suddenly, it is 3 am. Is it closing time?

The Tennessee ABC says yes. Last Call is an hour early. At 2 pm standard time, when clocks are set forward one hour for daylight savings time, alcohol sales must cease. The Nashville Beer Board concurs. On Sunday morning, closing time is 2 am.

There is good news at the end of summer. On Sunday November 4, bars get a bonus hour and can close at the equivalent of 4 am, when clocks fall back at 2 am. At 2 am, suddenly it is 1 am. 

Confusion over daylight savings time is rampant. But the Tennessee ABC is clear about the rule. Close at 2 am this Sunday March 11.

Pay the Piper, Sings Davidson County Clerk

From Una to Belle Meade, restaurant and bar owners across Metro Nashville Davidson County are getting letters that remind us of a famous Beatles song:

If you drive a car, I'll tax the street;

If you try to sit, I'll tax your seat;

If you get too cold, I'll tax the heat; 

If you take a walk, I'll tax your feet. 

The letters from the Taxman demand payment for two or three years of the obscure "liquor by the ounce permit." Based on what we know, Metro has not invoiced the tax in the past couple of years, because of a computer glitch. All of a sudden, Metro is demanding payment for several years of the tax.

Here is a letter many folks are receiving:

 

The taxman has some baggage he is not sharing.

First, state law only authorizes the taxman to collect a tax equal to the 2003 ABC license fee. The law is not entirely clear, but if the taxman collects the current ABC license fee amount, the taxman has to pay some of the tax back to the ABC.

For example, the letter above demands $1,200 for three years.  We believe the city is only entitled to $1,000 for each year. 

Second, the privilege tax is not a mandatory tax, like sales and LBD taxes. Since the city failed to ask for the tax for the past couple of years, we question if the city can ask for the optional tax retroactively. To our knowledge, no law requires a licensee to pay the tax, unless the city assesses the tax.

Last but not least, Nashville, like most cities and counties, refers to the tax as a liquor by the ounce "permit." It is not a permit; it is only a tax. Although Nashville can sue a taxpayer for delinquent taxes, the city cannot prevent a restaurant or bar from serving liquor, unless the Tennessee ABC takes action. 

We are recommending that licensees keep the notices, but not pay them until these issues are resolved. Stay tuned and if you want specific advice, email me at will@willcheek.com.