GOVERNOR S TASK FORCE ON THE STUDY OF KENTUCKY S ALCOHOLIC BEVERAGE CONTROL LAWS. Recommendations of the Licensing Committee

Transcription

1 GOVERNOR S TASK FORCE ON THE STUDY OF KENTUCKY S ALCOHOLIC BEVERAGE CONTROL LAWS Recommendations of the Licensing Committee

2 RECOMMENDATIONS OF THE LICENSING COMMITTEE INTRODUCTION This report contains the final recommendations of the Licensing Committee of the Governor s Task Force on the Study of Kentucky s Alcoholic Beverage Control Laws. In accordance with the terms of the Executive Order, Task Force Chair Robert Vance created the committee to study and review the licensing laws. Stephanie Stumbo, malt beverage administrator of the Department of Alcoholic Beverage Control was appointed chairman of the committee. The committee was charged as a working group for the Governor s Alcohol Task Force. This committee was tasked with meeting regularly to develop and recommend potential improvements related to existing licensing issues and Kentucky s overall licensing scheme to the task force. Like the task force, the Licensing Committee s membership brought together a collaboration of industry representatives, advocates, regulators, executive and legislative branch members, local and county government partners, licensees and public constituents. Members of the Licensing Committee and Participants The following task force members served on the committee: Jitter Allen - Large Brewers Larry Bond - Governor s Office Mayor Tom Bozarth - Kentucky League of Cities (KLC) Rep. Larry Clark Tony Dehner - Kentucky Alcohol Beverage Control (ABC) Jennifer Doering - Kentucky Malt Beverage Council Gay Dwyer - Kentucky Restaurant Association Eric Gregory - Kentucky Distillers Association John Harris - Kentucky Beer Wholesalers Association Sen. Jimmy Higdon Rep. Dennis Keene Lowell Land - Kentucky Vineyard Society and Small Farm Wineries Roger Leasor - Kentucky Retail Coalition Dan Meyer - Wine and Spirits Wholesalers of Kentucky Danny Reed - Kentucky Alcohol Beverage Control Stephanie Stumbo - Kentucky Alcohol Beverage Control Sec. Robert Vance - Task Force Chair Adam Watson - Kentucky Guild of Brewers (Microbreweries) Neil Wellinghurst - Kentucky Retail Federation. Page 24

3 In addition to the listed task force members, the committee also included active participation by approximately 40 non-task force individuals. The committee was staffed by Department of Alcohol Beverage Control employees and volunteer non-task force members. Acknowledgements The large volume of work, preparation and research that was required was a major component of the Licensing Committee s meeting agendas, materials and work. No part of this project would have been possible without the generosity and support of many non-task force individuals and the Department of Alcoholic Beverage Control staff. The committee is most grateful to the following individuals for volunteering their time, talent and research abilities which provided critical assistance to this project. These individuals are: Bryan Allman, Steve Amato, Bryce Amburgey, Dianne Andrews, Jason Baird, Maurice Brown, Sam Crain, Angie Donahue, Leo Camp, Gene McLean, Steve Humphress, Sonya Semones and Phil St. John. Most especially the committee wishes to thank Stacy Kula for her interest and generosity of her time, talent and extensive research and work on specific licensing subject matter she provided to the committee. The Licensing Committee met seven times during the four-month period beginning with its first meeting on Aug. 29, 2012, and concluding with its last meeting on Nov. 29, Additional meetings were held on Sept.11, 2012, Sept. 27, 2012 (volunteers from the committee met), Oct. 9, 2012, Oct. 23, 2012 and Nov.12, PROCESS Scope of the Committee s Work The committee was tasked with meeting regularly to develop and recommend potential improvements related to existing licensing issues and Kentucky s overall licensing scheme to the task force. The goal of the Licensing Committee was to streamline and modernize Kentucky s alcohol licensing structure in a manner whereby the Department of Alcoholic Beverage Control would remain revenue neutral while preserving existing licensee s privileges. The key objectives of the committee s recommendations were as follows: Evaluate the need of all existing licensing types and criteria for licensing and develop tangible recommendations to create a series of general license types that would consolidate and reduce the number of ABC licenses; Page 25

4 Identify and create recommendations to correct current statutory problems or inconsistencies within the licensing structure; Simplify the licensing process; and Update the existing fee schedule. Committee members were furnished with binders which included, but was not limited to, informational documents related to membership of the committee, Kentucky s existing licensing statutes and regulations, licensing statistical data, the committee s goals and objectives, a list of existing license types by statute, cost and privileges, a comparison of Kentucky s licensing scheme from 1942 versus the present, other state s responses to Kentucky s questionnaire on licensing information, a review of other states licensing schemes, Distilled Spirits Counsel of the United States (DISCUS) Report 2011, National Alcoholic Beverage Control Association (NABCA) Report 2011, the Alcohol and Tobacco Tax and Trade Bureau (TTB) Federal Basic Application form and other licensing materials or research applicable to the subject matters of interest. RECOMMENDATIONS During the course of the four-month period, the committee discussed a variety of alcohol licensing related topics that were generated from their brainstorming activities. The committee also researched and received reports on several additional states licensing statutes and regulations as well as licensing schemes for consideration. After careful review the committee collectively reached consensus that although there were good aspects to the other states there was no one state s scheme that could be copied or adopted. It is the opinion of the committee that Kentucky s overall licensing structure and the statutes supporting those licensing types is valid. To move forward, the committee chose to look at what Kentucky has as a licensing scheme and determine where improvements and efficiencies could be made, and to try to bundle license types in an effort to reduce the number of license types. The committee engaged in two comprehensive brainstorming activities as reference to generate ideas and suggestions on where improvements could be made, issues or inconsistencies exist and ideas on how and where to reduce licensing types. After development of the exhaustive lists by the committee, the members then discussed each item, completed research as needed and determined which items could be put forward as sound recommendations for improvements. Committee volunteers agreed to assist to review all of the committee s identified licensing-related items and ideas, look at the existing licensing structure, and collapse down as much as possible to the narrowest licensing scheme, without unintended consequences or without giving privileges to another license that is not authorized by the General Assembly, reducing Page 26

5 privileges already authorized by the General Assembly, or accidentally creating something that is not already in statute. (As well as assist with the development of all ongoing information documents and research items). Once the initial document was developed for discussion purposes, the committee carefully considered each proposed item and continued to narrow the actions and scope of items to move forward as formal recommendations. The detailed record of all committee discussions and actions are contained within the committee minutes. The detailed minutes of all of the Licensing Committee meetings can be found at aspx. The committee has proposed 19 recommendations which ensure the state s approach addressed the two main licensing topics (licensing scheme/licensing types and issues or inconsistencies within licensing) set forth. The 19 recommendations that follow assure that the committee s body of work is both comprehensive and substantive in nature, not change for the sake of change. The recommendations address issues specifically within the scope of the committee and align to the specific goals and objectives. It should be noted that the proposed recommendations only discuss license types where changes are recommended. Several existing license types are not discussed or listed in the report because they remain as currently written in statute. Additionally, the committee s report includes sub-recommendations for actions, licensing items of significant importance that require further review and examination by a future body or task force and budgetary items that require additional work by the appropriate budget entities. The report also identifies items that passed the committee by vote but did not have consensus support. Page 27

6 Recommendation No. 1 Subject: Licensing Laws Issue: Two-year licenses for producers, wholesalers/distributors Background: KRS (1) provides that all licenses issued by the Department of Alcoholic Beverage Control (the department ), except special event or temporary licenses, shall be valid for a period of no more than one year. See also KRS , KRS and 804 KAR 4:390. Provide that all producers and wholesalers/ distributors of alcoholic beverages shall have the option of obtaining or renewing licenses for a one-year term or a twoyear term. Rationale for Change/Additional Comments: Producer and wholesaler/ distributor level business changes are less frequent and such businesses are generally financially sound. As a result, multi-year licensing for such businesses would not create any difficulties for the department or the licensees. If two-year licenses were implemented for such licensees, the department s licensing division would have fewer license renewals to process each year, resulting in decreased workload. Producers and wholesalers/distributors undergo business changes from time to time including business location changes and corporate restructuring. Because KRS requires approval of such changes by new application and fee, such licensees should be given the option of renewing on a one-year or biennial basis. Recommendations: Amend KRS (1) to say that, Except as provided in Section 4, all licenses issued by the department, except special event or temporary licenses, shall be valid for a period of no more than one year. Create a new Section (4) to KRS to provide that all producers and wholesalers/distributors of alcoholic beverages shall have the option of obtaining or renewing licenses for a one-year term or a two-year term. Page 28

7 Recommendation No. 2 The department has seen an increase in special temporary licenses across the state, and a corresponding increase in abuse. Subject: Licensing Laws Issue: Temporary license abuse Background: KRS creates a special temporary distilled spirits and wine license and special temporary wine license. KRS (1) provides that such licenses may be issued to any regularly organized fair, exposition, racing association or other party, when in the opinion of the Kentucky Alcoholic Beverage Control Board (the board ), a necessity therefore exists. KRS (2) also provides that the license may be issued in conjunction with any public or private event, including but not limited to weddings, receptions, reunions or similar occasions. Licenses cannot exceed 30 days. KRS creates a special temporary malt beverage license. KRS provides that a special temporary malt beverage license may be issued in conjunction with any regularly organized fair or racing association for a particular fair, race or race meeting conducted by the association, or for special temporary occasions such as picnics, bazaars and carnivals. The board is granted authority to establish privileges by regulation. The board promulgated 804 KAR 4:250 to address all special temporary licenses. By 804 KAR 4:250, Section 3, the board limits special temporary licenses to any regularly organized fair, exposition, racing association or nonprofit organization, political campaign function or any for-profit individual, corporation or organization when used in conjunction with an organized charitable, civic or community sponsored event. The per-event license fee for a special temporary liquor license is $100 (KRS (16)), for a special temporary wine license it is $50 (KRS (24)) and for a special temporary license it is $50 (KRS (7)). Rationale for Change/Additional Comments: In recent years, the department has seen an increase in special temporary licenses across the state, and a corresponding increase in abuse. Some applicants are obtaining temporary licenses for a specific day every week for several months. Such frequency appears inconsistent with a special and temporary license. 804 KAR 4:250, Section 3, permits a special temporary license to be issued to a for-profit applicant if used for an organized charitable, civic or community sponsored event. (emphasis added). Page 29

8 The wording of Section 3 has become increasingly abused by applicants. A for-profit applicant will apply for a temporary license and be denied because the contemplated event is purely for profit and not related to a charitable, civic or community event. The department has received temporary license applications for cage fights, weekly rock concerts, etc. Denied applicants often reapply with a letter from a legitimate charity by which the charity claims to sponsor the event. Usually, the for-profit promoter approaches a real charity and agrees to give them some money from alcohol sales in exchange for the letter and sponsorship. By such arrangements, the charity may receive $200 but the for-profit promoter makes $3,000 from alcohol sales for an event, as an example. The most frequently abused situation for temporary licenses involves for-profit individuals and organizations who obtain temporary licenses purportedly for a charitable sponsored event. The most frequently abused situation for temporary licenses involves these for-profit individuals and organizations who obtain temporary licenses purportedly for a charitable sponsored event. 804 KAR 4:250 can be easily amended to eliminate this problem and still permit non-profit charities to obtain temporary licenses in their own names. Many temporary license applicants also claim to be part of a civic event without any approval or endorsement by the local government. In the past, city or county local governments passed resolutions or had meeting minutes which endorsed or approved certain events. Such resolutions were provided with temporary license applications or verified by city officials. Applicants now claim to be civic events but local governments have not endorsed the event by resolution or otherwise. Sometimes local officials are unaware of the event, even when the event actually appears to be civic in nature. Recently, the department has begun to see temporary applications where events to simply drink alcoholic beverages are the purported civic events. Historically and statutorily, the civic event would be something like a fair, festival, race, etc., and the temporary license made alcoholic beverages available at the event. For example, the department has received applications for beer festivals by which the applicants claim the festivals are the civic or chartable events. Recommendations: Amend 804 KAR 4:250, Section 3, to provide in pertinent part that special temporary licenses may be issued to the following: any regularly organized fair, exposition, racing association or nonprofit organization, political campaign function or any for-profit individual, corporation or organization when used in conjunction with an organized charitable, civic or community sponsored event. By this amendment, a private promoter will no longer be able to exchange a charity s sponsorship letter for a meager donation. Page 30

9 Amend 804 KAR 4:250 to include a definition of an organized civic or community sponsored event to mean any public gathering of broad appeal where citizens are invited and encouraged to attend without significant cost of admission that is sponsored or acknowledged by the city or county government in which the event is conducted, including, but not limited to, any convention, conference, celebration, pageant, parade, festival, fair, public display, commemoration or other type of public assemblage conducted for benefit and enjoyment of the general public. Amend 804 KAR 4:250 to provide that applications by for-profit individual, corporate or organizational applicants for a temporary license in conjunction with an organized civic or community sponsored event must submit some written or documentary evidence of the civic nature of the event, including but not limited to, promotional materials or news articles evidencing the local government s knowledge of, and support for, the event for which the applicant seeks a temporary license. Page 31

10 Recommendation No. 3 Renewals based on zip codes are confusing for local ABC administrators, distributors/wholesalers and retailers. Subject: Licensing Laws Issue: Modification of license renewal schedule Background: KRS (2) provides the department with authority to promulgate administrative regulations establishing a renewal system with staggered dates to distribute the workload as uniformly as possible within the offices of the local administrators and the Department of Alcoholic Beverage Control. The department promulgated 804 KAR 4:390 to provide for a staggered licensing renewal system based on zip codes. 804 KAR 4:390, Section 2, incorporates by reference the ABC Table of License Expiration Dates by Zip Code, 07/15/04 edition. The months of July and August are used for batch renewals. Licensees who hold two or more licenses across multiple zip codes are permitted batch renewal of all licenses in the same month each year. Right now batch renewals are separated alphabetically based on the first letter of the licensee name: July for A-L and August for M-Z. The month of December is used for the renewal of approximately 1,500 out-of-state license holders. Prior to the enactment of KRS (2) in 1998, all licenses expired on June 30th of each year. Rationale for Change/Additional Comments: Prior to the enactment of KRS (2) in 1998, all license renewals were performed by the department in June, so that the department s licensing division was very busy that month. The department promulgated 804 KAR 4:390 to provide a monthly renewal so as to distribute the renewal work throughout the year. Although well-intended, renewals based on zip codes are confusing for local ABC administrators, distributors/wholesalers and retailers. Because of their larger populations, Jefferson County and Fayette County have multiple zip codes. In these counties, it is very confusing because one business license might expire one month but a similar business across the street in a separate zip code has licenses that do not expire until a different time. Batching renewals, discussed above, add to the confusion as the same street could have licensees with four different license renewal dates. Distributors/wholesalers cannot legally sell alcoholic beverages to a retailer whose license has expired. Because of the confusion, it is difficult for them to keep track of license renewals despite active online licensing status check Page 32

11 ability. To avoid this confusion, several local governments kept the old June 30 renewal date for local ABC licenses. However, this situation creates a different problem as licensees will sometimes forget to renew either the state or local license when due on a different date than the other license. Recommendations: Amend 804 KAR 4:390 to modify the renewal schedule. All wet counties, except for Jefferson and Fayette counties, would continue to be renewed based upon zip codes for a specific month. Renewal batching would be continued but consolidated to one month. All licenses in Jefferson County would expire in the same month. All licenses in Fayette County would expire in the same month. Licenses in several county zip codes for different months would also be consolidated. The committee proposes that all licenses in county zip codes that expire in January, February and March be consolidated so as to expire in January. There would be approximately 1,500 license renewals for January. Counties that would be renewed in January would be: Ballard, Breckinridge, Bullitt, Butler, Caldwell, Calloway, Carlisle, Christian, Crittenden, Cumberland, Daviess, Edmonson, Fulton, Graves, Grayson, Green, Hancock, Hardin, Hart, Henderson, Hickman, Larue, Livingston, Lyon, Marshall, McCracken, McLean, Meade, Metcalfe, Monroe, Ohio, Owen, Spencer, Trigg, Trimble, Union and Webster. The committee proposes that all licenses in county zip codes that expire in April and May be consolidated so as to expire in April. There would be approximately 1,020 license renewals for April. Counties that would be renewed in April would be: Adair, Allen, Barren, Bath, Bell, Boyle, Breathitt, Casey, Clark, Clay, Clinton, Elliott, Estill, Fleming, Floyd, Garrard, Harlan, Harrison, Hopkins, Jackson, Jessamine, Johnson, Knott, Knox, Laurel, Lawrence, Lee, Leslie, Letcher, Lincoln, Logan, Madison, Magoffin, Marion, Martin, McCreary, Menifee, Mercer, Montgomery, Morgan, Muhlenberg, Nelson, Owsley, Perry, Powell, Pulaski, Rockcastle, Russell, Simpson, Taylor, Todd, Warren, Washington, Wayne and Whitley. The committee proposes that all licenses in county zip codes that expire in June would remain the same and simply add Grant County licenses to this month. Grant County licenses currently expire in November. There would be approximately 510 license renewals for June. Counties that would be renewed in June would be: Anderson, Bourbon, Boyd, Bracken, Carroll, Carter, Franklin, Gallatin, Grant, Greenup, Henry, Lewis, Mason, Nicholas, Oldham, Pendleton, Pike, Robertson, Rowan, Scott, Shelby, Wolfe and Woodford. The committee proposes that August be designated for all batch renewals. There would be approximately 1,790 license renewals for August. Since Page 33

12 most batch renewals are handled by large chain stores with trained personnel, this volume is easily manageable. Currently, batch renewals occur in two months: July and August. The committee proposes that all licenses in Jefferson County would be renewed in October. There would be approximately 1,600 license renewals for October. Currently, Jefferson County has renewals in seven different months. The committee proposes that all licenses in Fayette County would expire in November. Campbell, Kenton and Boone counties are already renewed in November and would remain the same. There would be approximately 1,530 license renewals for November. Currently, Fayette County has renewals over three different months. The committee proposes that all out-of-state licenses would continue to expire and be renewed in December. There would be approximately 1,500 license renewals for December. The committee proposal would provide for renewals of licenses in all 120 counties so that if a dry county votes to permit alcohol sales, a license renewal date will already exist. The committee proposal allows the department s licensing staff to concentrate on their many other job duties, unrelated to renewals, during the months of February, March, May, July and September. Page 34

13 Recommendation No. 4 Subject: Licensing Laws Issue: Eliminate bonds Background: KRS (1) provides every applicant for a brewer s, distiller s, rectifier s, bottling house or vintner s license, must file a bond to the state in the amount of $1,000. At license renewal, the applicant must provide a new bond or an affidavit that states the bond remains in force, and a copy of consent of surety. The bonding requirement often delays issuance of licenses and license renewals. KRS (2) provides that every applicant for a wholesaler s license must file the minimum amount of $2,000 or an amount equal to three times the monthly tax liability, whichever is less, and up to a maximum amount of $25,000. KRS (2) requires a wholesaler to provide a certified copy of a bond to the Department of Revenue. KRS (4) provides that the Department of Revenue has authority to require a bond, computed as provided in KRS (2), from any person liable for Kentucky distilled spirits, wine or malt beverage taxes if such person is not otherwise required to post a bond. An applicant for a non-resident transporter license or through transporter license must file a bond in the amount of $2,500. See 804 KAR 4:030 and 804 KAR 4:170. An applicant for a special storage warehouse must also file a bond. See 804 KAR 4:200. KRS provides procedures for the department to require a better surety on a bond or to increase surety. Rationale for Change/Additional Comments: Based upon 40 years of department institutional knowledge, neither the department nor the Department of Revenue has ever attempted to enforce a bond against a surety. The bonding requirement often delays issuance of licenses and license renewals. Recommendations: Amend KRS , 804 KAR 4:030 and 804 KAR 4:200 to eliminate bonding requirements. Repeal KRS , KRS and KRS Page 35

14 Recommendation No. 5 Subject: Licensing Laws Issue: Caterers employed by charities who obtain special temporary distilled spirits and wine auction licenses Background: KRS (4) provides that a charitable organization possessing a special temporary distilled spirits and wine auction license may be conducted on licensed or unlicensed premises. KRS (4) provides that a licensed caterer cannot cater alcoholic beverages at locations for which retail alcoholic beverage licenses or special temporary licenses have been issued. Rationale for Change/Additional Comments: Some charities contract with caterers to cater fundraising events for them. Some of the fundraising events involve special temporary distilled spirits and wine auctions. When KRS (4) was enacted in 1992, the special temporary distilled spirits and wine auction license did not exist so that section was only intended to prevent caterers from catering at the same locations covered by temporary liquor, wine or beer licenses. When the special temporary distilled spirits and wine auction license was created in 1996, KRS (4) was not amended accordingly. Since a special temporary distilled spirits and wine auction license is a temporary license, it is unclear whether KRS (4) prohibits a caterer from catering fundraising events for which a KRS special temporary distilled spirits and wine auction license has been issued. Recommendation: Amend KRS (4) to add a sentence at the end of the section which provides that caterers are permitted to cater fundraising events for which a KRS special temporary distilled spirits and wine auction license has been issued. Page 36

15 Recommendation No. 6 Subject: Licensing Laws Issue: Master files for businesses with multiple licenses Background: KRS (2) provides that all license applications must be on forms furnished by the department. KRS (2) also requires all applications be verified and to set forth in detail such information concerning the applicant and the premises for which the license is sought as required by regulation. By allowing businesses to initially submit only common information for their businesses and update common information only once when a material change of ownership or management occurs, the licensing process is simplified for both the licensee and the department s licensing division. The department has created various application forms and schedules and requires their use by 804 KAR 4:400 and 804 KAR 4:410. The department requires a separate application to be filed for each licensed premise, and thereafter maintains a separate file for each licensed premise. A separate application must be filed for each licensed premise. The applicant must state that each officer, director, member, partner, managerial employee and owner referred to above, has no disqualifying criminal convictions under KRS (1). To verify these statements and an applicant s qualifications, the department requires criminal background checks of each officer, director, member, partner and managerial employee identified by the applicant. Rationale for Change/Additional Comments: Each licensed premise has a separate licensing application and file. Several businesses have multiple locations throughout the state. Currently, each premise location is separately licensed which requires a business with several licensed premises to submit much the same information about ownership, officers, directors, managerial employees and criminal background checks for each separate premises. If a material change occurs with the business ownership and officers, the business must separately update all information for each separately licensed location. By allowing businesses to initially submit only common information for their business and update common information only once when a material change in ownership or management occurs, the licensing process is simplified for both the licensees and the department s licensing division. This type of licensing authorization is generally referred to as a master file licensing process. Recommendation: Amend KRS to create a new section which provides that businesses with more than two licensed premises would be required to submit only common information about ownership, officers, directors, managerial employees and criminal background checks (if current) once initially for all separately licensed premises in one master file. The new section would further provide that such businesses would need to amend only master file information for KRS (2) material changes or KRS ownership transfers. Page 37

16 Recommendation No. 7 The ABC s Licensing Division cannot recall ever issuing a blender s license. Subject: Licensing Laws Issue: Eliminating blender s license as unnecessary and renaming vintner s license to winery license Background: Like most states after Prohibition, Kentucky adopted a threetier alcohol distribution system of producers, wholesalers and retailers so as to prevent some of the societal problems that led to Prohibition. Under a three-tier system, producers produce alcoholic beverages and sell to wholesalers/distributors; wholesalers/distributors sell to retailers; and retailers sell to consumers. Kentucky has two similar types of producer level licenses: rectifier s license (KRS ) and blender s license (KRS ). The term rectifier is defined in KRS (35). Both license types permit the holder to mix and blend whiskey. The annual license fees for a blender s license and a rectifier s license are the same: $2,500. KRS (3) and (4). Kentucky has two producer level licenses which authorize the production of wine: vintner s license (KRS ) and small farm winery license (KRS ). The following related terms are also defined: small farm winery (KRS (45)), vintner (KRS (50)), winery (KRS (55)) and wine (KRS (54)). Attached to these recommendations as Appendices A, B and C are documents prepared from department records showing the corresponding types of licenses, number of licenses, license fee costs, and any applicable totals or averages for the licenses referenced above. Rationale for Change/Additional Comments: As a way of reducing and simplifying the current licensing system, the Licensing Committee has also identified the elimination of unnecessary licenses as a way of reducing the number of license types. Although the number and type of producer licenses are reasonable, the blender s license appears to be unneeded. A rectifier s license appears to permit all the same functions as a blender s license does without the restrictive conditions of a blender s license. See KRS (35), KRS and KRS Since the license fee is the same and the holder of a rectifier license has more production flexibility, there is no benefit in obtaining a blender s license. The department s licensing division cannot recall ever issuing a blender s license. Page 38

17 The task force was also directed to simplify the laws to make them more understandable. Inconsistent terms cause confusion. Although most people are familiar with the term winery, many do not know that a vintner also produces wine. Furthermore, the licensing scheme uses inconsistent terms in creating a small farm winery license (KRS ) for wineries that produce less than 50,000 gallons in a calendar year. See KRS (45). Wineries exceeding the 50,000 gallons in a calendar year must obtain a vintner s license. See KRS Recommendations: Repeal KRS which creates the blender s license. Amend any statutes that reference blender s license so the license is deleted. Repeal the definition of vintner in KRS (50). Amend the definition of winery in KRS (55) to contain the current exception of vintner definition so that a winery would not include premises where wine is manufactured for sacramental purposes exclusively. Amend all statutes and regulations which reference vintner and replace that term with winery. See KRS (4), KRS , KRS , KRS , KRS , KRS , KRS , KRS , KRS , KRS , KRS , 804 KAR 1:050, 804 KAR 1:070, 804 KAR 4:030 and 804 KAR 4:280. Amend KRS (county licenses) and KRS (city licenses), if applicable, consistent with this recommendation and result of Recommendation No. 19. Page 39

18 Recommendation No. 8 Subject: Licensing Laws Issue: Bundling souvenir retail liquor license with distiller s license Background: A distiller s license is a producer level which permits the holder to produce and sell distilled spirits to wholesalers. (KRS ). The following related terms are defined: distiller (KRS (19)), distillery (KRS (20)), distilled spirits (KRS (18)) and souvenir package (KRS (46)). In 1996, the legislature created a limited exception for distilleries which permitted them to obtain a supplemental souvenir retail liquor license (KRS ) so as to permit limited retail sales to consumers. The annual fee for a distiller s license is $2,500 and a souvenir retail liquor license is $500. See KRS (1) and (26). Attached to these recommendations as Appendices A, B and C are documents prepared from department records showing the corresponding types of licenses, number of licenses, license fee costs, and any applicable totals or averages for the licenses referenced above. The Licensing Committee has identified the bundling/merging of supplemental licenses into primary license types as a possible way of reducing the number of license types. Rationale for Change/Additional Comments: Beginning in the 1980 s, the legislature began to exponentially increase the types of alcohol licenses in order to circumvent the quota system and permit certain activities as requested by licensees based on evolving business needs. Over the years, various supplemental licenses have been created to specifically permit certain activities by existing licensees. As a way of reducing and simplifying the current licensing system, the Licensing Committee has identified the bundling/merging of supplemental licenses into primary license types as a possible way of reducing the number of license types. Since most distilleries obtain a supplemental souvenir retail liquor license, it appears that the supplemental license could be easily eliminated and merged into activities permitted by a distiller s license. Recommendations: Amend KRS s title from souvenir retail liquor license to souvenir package retail sales by distilleries license. Amend KRS (1) to provide that only licensed distilleries located in a wet territory and having gift shops or other retail outlets on their premises, may sell souvenir packages at retail as provided in the section. Amend KRS to remove references to souvenir retail license and reworded to provide that the distiller s license permits souvenir package sales with all the same restrictions and privileges currently existing. Page 40

19 Amend KRS (26) to remove souvenir retail liquor license and the cost of $500 per annum. Amend any statutes that reference a souvenir retail liquor license so that license type is deleted. See KRS and KRS Since the souvenir retail liquor license will be eliminated, and privileges of those licenses bundled into the distiller s license, KRS (1) would be amended to increase the annual license fee for a distiller s license from the current cost of $2,500 to a revised amount as determined in Recommendation No. 19 so that changes remain revenue neutral. Alternatively, the annual fee for the distiller s license would be determined pursuant to Recommendation No. 19. By said recommendation, the Office of State Budget Director, the Legislative Research Commission s budget staff and the Public Protection Cabinet s General Administration and Program Support (GAPS) Division of Budgets would study all legislatively accepted recommendations affecting licensing types, utilize the department s Fiscal Year 2011 (FY11) and Fiscal Year 2012 (FY12) data (Appendices A, B and C), and develop a new licensing fee scheme that remains revenue neutral for the department (average revenue for FY11 and FY12 was $5,336,740.50), and that distributes any fee changes equitably across all license types. Amend KRS (county licenses) and KRS (city licenses) consistent with this recommendation and result of Recommendation No. 19. Page 41

20 Recommendation No. 9 Subject: Licensing Laws Issue: Storage licenses Background: Kentucky has the following types of storage licenses: special storage or warehouse license (KRS ); bonded warehouse license (804 KAR 4:200); special off-premises retail storage license (804 KAR 4:130); malt beverage warehouse license (KRS (13)); and distributor s storage license (804 KAR 4:140). The license fees for a special storage or warehouse license is $500 (KRS ); bonded warehouse license is $1,000 (804 KAR 4:200); special off-premises retail storage license is $100 (804 KAR 4:130); malt beverage warehouse license is $1,000 (KRS (13)); and distributor s storage license is $250 (804 KAR 4:140). Attached to these recommendations as Appendices A, B and C are documents prepared from department records showing the corresponding types of licenses, number of licenses, license fee costs, and any applicable totals or averages for the licenses referenced above. Because new license types have been created piecemeal at different times for different specific purposes, many similar storage license types exist. Rationale for Change/Additional Comments: As stated in Recommendation No. 8, various supplemental and new licenses have been created over the years to specifically permit certain activities requested by existing licensees based on evolving business needs. Because new license types have been created piecemeal at different times for different specific purposes, many similar storage license types exist. One license type can permit different activities based upon statutory application. For example, KRS was amended in 2007 to permit different activities by caterers in different territories dependent upon the wet status, or moist or limited wet status, of that territory. The storage licenses are similar license types so they could be easily merged to permit different activities dependent upon the type of desired business activity currently permitted by existing storage licenses. By merging storage licenses into two types of licenses, a malt beverage storage license and a distilled spirits/wine storage license, the legislature can easily amend these statutes in the future if requested by existing licensees or businesses based on evolving business models for some sort of storage ability. New license types would no longer be created. Page 42

21 Furthermore, businesses and persons wanting to know Kentucky law about storage of alcoholic beverages will no longer be confused by trying to find the many different statutes and regulations dealing with storage located in a hodge-podge of different statutory chapters, statutes and regulations. Persons would be able to look at one statute dealing with storage and be able to quickly know applicable laws on the subject. Recommendations: Create a new business authorized statute for a malt beverage storage license. The first section would provide that a malt beverage storage license may be issued as a supplementary license to a regular retail beer license. Move and amend provisions in 804 KAR 4:130 for a special off-premises retail storage license to a new section. The section will provide that a retail beer licensee holding a malt beverage storage license may store malt beverages in a warehouse convenient to his regular retail beer licensed premise and to transport the malt beverages as belonging to the holder of the license to and from the warehouse by way of the nearest route to his regular licensed retail beer premise, if he sells no beer except at his regular beer licensed premise. The second section would provide that a malt beverage storage license may be issued as a supplementary license to a regular distributor s beer license. Move and amend provisions in 804 KAR 4:140 for a distributor s storage license to a new section. The section will provide that a distributor holding a malt beverage storage license may store beer there if there is an emergency. Although KRS (13) identifies and sets a fee for a malt beverage warehouse license, no statute or regulation identifies the business authorized by this license type. The third section of a new statute would also provide for the type of business currently authorized by a malt beverage warehouse license. Create a new business authorized statute for a distilled spirits/wine storage license. The first section would provide that a distilled spirits/wine storage license may be issued as a primary license or as a supplementary license to a licensed distiller or rectifier. Move and amend provisions in 804 KAR 4:200 for business authorized by a bonded distilled spirits warehouse license to the new statute as part of section. The section would read in pertinent part, a distilled spirits/wine storage license may be issued, upon proper application, to any person, firm or corporation operating a bonded warehouse for Page 43

22 distilled spirits, and who does not at the same time, and for the same premises, hold a federal operating permit for distilling purposes, but who possesses only a federal operating permit for a bonded warehouse for distilled spirits as defined by federal law (26 USC, IRS, 5171, 5251). 804 KAR 4:200, Section 2 would also be included so that provisions remain the same. For the second section of the new distilled spirits/wine storage license statute, move and amend provisions in KRS for business authorized by special storage or warehouse license. The section would read, a distilled spirits/wine storage license may be issued to parties not otherwise entitled under Kentucky law to store or warehouse distilled spirits or wine, but who are so authorized by the federal government. The license shall authorize the licensee to operate a warehouse or place of storage for distilled spirits or wine on the premises specifically designated. Repeal 804 KAR 4:130, 804 KAR 4:140, 804 KAR 4:200 and KRS Amend KRS to include a distilled spirits/wine storage license. Amend KRS to include a malt beverage storage license. The annual fee for the distilled spirits/wine storage license would be determined pursuant to Recommendation No. 19. The annual fee for the malt beverage storage license would be determined pursuant to Recommendation No. 19. By Recommendation No. 19, the Office of State Budget Director, the Legislative Research Commission s budget staff and the Public Protection Cabinet s GAPS Division of Budgets would study all legislatively accepted recommendations affecting licensing types, utilize the department s FY11 and FY12 data (Appendices A, B and C), and develop a new licensing fee scheme that remains revenue neutral for the department (average revenue for FY11 and FY12 was $5,336,740.50), and that distributes any fee changes equitably across all license types. Amend KRS to remove special storage or special warehouse license and bonded warehouse license. Amend KRS to remove special off-premises retail storage license, malt beverage warehouse license and distributor s storage license. Page 44

23 Amend any statute that uses the term special storage or warehouse license, bonded warehouse license, special off-premises retail storage license, malt beverage warehouse license, or distributor s storage license, and replace with distilled spirits/wine storage license or malt beverage storage license. See KRS Amend KRS (county licenses) and KRS (city licenses), if applicable, consistent with this recommendation and result of Recommendation No. 19. It should be noted that the current laws relating to storage of alcoholic beverages could be simplified more and made even easier to understand. However, a directive of the Licensing Committee was to maintain current laws without increasing or decreasing privileges. The current recommendation that incorporates existing laws accomplishes that purpose. The Licensing Committee hopes that successful efforts by the task force will result in future simplification efforts. Page 45

24 Recommendation No. 10 Transportation licenses could be easily merged into one license type so as to permit different activities dependent upon the type of activity desired that is currently permitted by existing law. Subject: Licensing Laws Issues: Transporter licenses Background: Kentucky has the following existing types of transporter licenses: air transporter liquor license (KRS ); transporter license (distilled spirits and wine) (KRS and 804 KAR 8:010, 804 KAR 8:020 and 804 KAR 8:030); transport permit-nonresident license (804 KAR 4:030); through transporter license (804 KAR 4:170); freight forwarder license (804 KAR 4:180); special beer transporter license (804 KAR 4:160) and transporter license (beer) (KRS ). The annual license fees for an air transporter liquor license is $500; a transporter license (distilled spirits and wine) is $100; transport permit-nonresident license is $100; through transporter license is $100; freight forwarder license is $100; special beer transporter license is $100; and transporter license (beer) is $100. Attached to these recommendations as Appendices A, B and C are documents prepared from department records showing the corresponding types of licenses, number of licenses, license fee costs, and any applicable totals or averages for the licenses referenced above. Rationale for Change/Additional Comments: As stated in prior recommendations, various supplemental and new licenses have been created over the years to specifically permit certain activities requested by existing licensees based on evolving business needs. Because new license types have been created piecemeal at different times for different specific purposes, many different transporter license types exist. The transportation licenses are similar license types. For this reason, they could be easily merged into one license type so as to permit different activities dependent upon the type of activity desired that is currently permitted by existing law. Beginning in the 1980 s, the legislature began creating combo licenses by which one license type permitted business activities for all three types of alcoholic beverages: distilled spirits, wine and malt beverages. Prior to the creation of the combo licenses, Kentucky operated under a dual licensing system. A business needed a license type listed in KRS to transact business in distilled spirits and wine, and also needed a separate license type listed in KRS to transact business in beer. Although combo licenses permit transactions in all alcoholic beverage transactions, the legislature has placed combo license types and fees in KRS Page 46

25 Since 2000, the new types of legislatively created local option elections now operate under a combo license scheme instead of dual license scheme: golf course license, limited restaurant license and qualified historic site license. This combo licensing system has operated well. Most of the other states licensing schemes examined by the Licensing Committee for simple schemes utilized combo licenses. Since combo licenses reduce license types and have been successfully used in the state for more than a decade, all the transportation licenses could be merged into one transportation license. By merging transportation licenses into one license type, the legislature can easily amend the business authorized statute in the future if requested by existing licensees or businesses based on evolving business needs requiring some new transportation activity. New types of transportation licenses would no longer be created. Furthermore, businesses and persons wishing to learn about applicable transportation laws would no longer be confused in trying to locate them among a hodge-podge of chapters, statutes and regulations. Persons would be able to find and examine one statute dealing with transportation and be able to quickly know applicable laws on the subject. Recommendations: Create a new business authorized statute for a combo transporter license. The first section of a new statute would provide that a transporter license may be issued as a primary license to persons authorized by persons engaged in the business of a common carrier. Move provisions in KRS (2) to Section 1 of a new statute so as to provide that a transporter license shall authorize the licensee to transport distilled spirits and wine to, or from, the licensed premise of any licensee if both the consignor and consignee in each case are authorized by the law of the states of their residence to sell, purchase, ship or receive the alcoholic beverages. Move and amend provisions in 804 KAR 8:010 to Section 1 to provide holders of a transporter license may transport distilled spirits and wine in Kentucky only in conformity with the provisions of their common carrier certificate issued by the Transportation Cabinet. Such licenses are specifically prohibited from transporting distilled spirits or wine anywhere within the state except upon the route authorized by their respective common carrier certificates. Move and amend other substantive provisions in 804 KAR 8:010, 8:020, and 8:030 to Section 1. Page 47