Monthly Archives: February 2014
Nashville Business Journal reporter Scott Harrison covers the news.
Shout out to Scott for prominently quoting us.
Many folks do not know that before prohibition, Tennessee Whiskey was a huge business, involving scores of distilleries across the Volunteer State. The industry peaked in the 1880’s, with Robertson County being the leader in production. At its apex, Charles Nelson’s Greenbrier Distillery produced over 1,000 gallons of whiskey per day. In comparison, Jack Daniels was producing less than 100 gallons per day.
According to a Nashville newspaper article in 1886, distilling was the largest industry in Tennessee. A fabulous history of Tennessee Whiskey is at History of Tennessee Whiskey.
Only two distilleries survived prohibition: Jack Daniels and George Dickel. Pritchard’s became the third Tennessee distillery in the 1990’s.
Recent changes to Tennessee liquor laws have led to an explosion in the number of distilleries in Tennessee. Today, February 26, 2014, saw what could be a historic gathering of Tennessee distillers at the Tennessee Distillers Guild.
Pop rockers Huey Lewis and the News capture the moment in 1980’s hit Back to the Future:
Tell me, doctor
Where are we goin’ this time?
Is this the 50’s, or 1999
All I wanted to do was play my guitar and sin
The Tennessee Distillers Guild was organized today with 11 Tennessee distilleries. Although distilling may never reclaim its spot as the leading industry in Tennessee, we see the distillery business as a huge boom to tourism and attracting well-educated workers to relocate to the Volunteer State.
Wine in Grocery Stores (WIGS) is a game changer for Tennessee retail liquor stores. We expect many stores will go out of business. The next few years are going to see epic changes in the wine and spirits business in Tennessee.
But business-savvy owners can take advantage of several provisions of WIGS. Now is the time to plan for seizing the benefits of WIGS. One of the biggest wins for retail liquor stores is being able to combine beer and liquor stores. Classic rockers Pink Floyd capture the message in four simple words:
Tear down the wall.
Retail liquor store lobbyist David McMahan scored a number of key victories for liquor stores as the WIGS train barreled through the legislature. The stakes are high for WIGS, and the law is a complicated consensus that is confusing.
Rob Pinson compiled the bill at 2014 WIGS House Compiled. We expect the final version of WIGS will be identical or very close to the House Bill.
Here is a summary:
Beginning July 1, 2014, retail package stores can sell beer and other related retail items, like cups, ice and corkscrews. The full list is at Section 10 of the compiled bill.
Retail stores can sell beer without having to deal with the local beer board. The right to sell beer is included under a retail liquor license.
Retail package stores must make least 65 percent of their sales from alcoholic beverages, including wine and beer. A licensee that does not meet this requirement will be given one year to comply before the license is suspended or revoked.
Retail package stores may have two entrances rather than one main entrance. We presume this is to facilitate tearing down the wail with adjacent beer stores.
One person may hold more than one retail package store license, subject to certain conditions.
WIGS eliminates the prohibition against a liquor store owner holding a restaurant or other on-premise license. Keep in mind that this allows restauranteurs to enter the package store business.
WIGS legalizes growlers and kegs of wine and spirits. Note that there are federal restrictions that may prohibit the sale of spirits via growlers and kegs.
The law has a number of complicated exceptions, and we encourage folks to carefully study the law before boldly going where no liquor store has gone before.
Looks like Tennesseans will be Krogering for wine starting summer of 2016. Wine in Grocery Stores, affectionately known as WIGS on Capital Hill, sailed through the Tennessee House this morning, February 20, 2014. WIGS has already been approved by the state Senate.
1977 Styx mega-hit “Come Sail Away” is stuck in our heads:I thought that they were angels, but to my surprise, We climbed aboard their starship, we headed for the skies Singing come sail away, come sail away, come sail away with me lads
Although there are some differences between the House and Senate version of WIGS, rumor has it that the Senate will adopt the House bill and WIGS will become law, once signed by the Governor. Given the sweeping changes to the liquor laws in WIGS, the differences between the House and Senate bills are relatively minor.
Convenience stores and pharmacies are the big losers. WIGS requires that 20 percent of the facility’s gross sales be from food products, defined as items treated as food for state sales tax purposes.
We credit David McMahan, lobbyist for Tennessee retail liquor stores, for wining some major deal terms as the WIGS train barreled forward to passage. WIGS is obviously a game changer for retail liquor stores, but McMahan scored a number of victories that will help liquor store owners adapt.
Our resident WIGS expert, Rob Pinson, lays out the differences between the two laws here.
• License fees: SB is $850; HB is $1,250
• HB allows grocery stores to enter into franchise or management agreements to sell wine on premises
• HB restricts ownership of a grocery store and a direct-shipper or non-resident seller in addition to SB restrictions
• HB explicitly states that certificates of compliance for grocery stores cannot be conditioned on residency within a city or county or contain other conditions not listed in state law (no distance restrictions?!?)
• HB allows deliveries of wine to grocery stores via common carrier or contract carrier in addition to company-owned trucks
• SB has provision regarding surplus license fees from grocery stores going into general fund with “surplus” defined as expenses attributable to such licenses form the prior year plus 20%
• HB authorizes ABC to enforce beer laws for retail package stores; SB does not expressly state this
• HB adds prohibition on under sales and intoxicated person sales for beer for liquor stores
• HB imposes quantity discount prohibition on grocery stores; SB imposes on all stores (liquor and grocery)
• HB expands areas eligible for liquor wholesalers to any county where either retail liquor stores or LBD have been approved (74 counties); SB only allows for counties with populations of or greater than 120,000 (11 counties)
• HB restriction on liquor stores within 1500 feet of existing stores only applies to new stores and clarifies it does not apply to purchase of existing stores or relocations of existing stores within the same jurisdiction
• HB 20% mandatory mark-up on wine does not apply to closeouts, case discounts and other occasional discounts as determined by the ABC, while SB does not contain these exceptions (but both bills except business liquidations and fiduciary or court-ordered sales)
• HB changes effective dates to make most provisions effective 7/1/14 except for:
o Referendum provisions – immediately!!
o Mandatory 20% mark-up – 7/1/16
• SB make everything effective immediately
The Tennessee Alcoholic Beverage Commission has been stepping up enforcement against restaurants, bars and other liquor license holders. For sales to minors, the new penalties are game changing.
In the past, the TABC fined licensees that were trying to effectively card. It was the local beer board that worried license holders about sales to minors.
Tennessee has gotten tough on sales to minors. A state law passed last year requires both the ABC and local beer boards to notify each other of sales to minors. One sale now usually results in two penalties.
For no real reason, Aerosmith’s classic 1975 hit “Walk This Way” pops into our head:schoolgirl sweetie with a classy kinda sassy little skirt’s climbin’ way up the knee… walk this way just gimme a kiss like this!
The Tennessee ABC has upped the ante for sales to minors. We have seen 10 to 14 day suspensions for second sales to minors within a couple of years. Although the rules are not clear, the TABC indicates that it will seek revocation for a third sale to a minor in three years
We advise folks to beef up carding policies to avoid the wrath of the Tennessee ABC.
Over the past year or so, we have reported about dozens of new Tennessee ABC policies. We probably sound like a broken record, repeating all the new rule changes.
Readers are likely to recall Dead or Alive’s 1985 infectious single:
You spin me right round, baby
Right round like a record, baby
Recently, the TABC has laid out new rules for how manufacturers and wholesalers can market wine and spirits in Tennessee. Based on our experience, the new rules change existing practices and every industry member should pay attention. The TABC is imposing significant fines for violations of these rules.
Here is what we know. A wholesaler cannot give a liquor store, restaurant or other retailer a bottle as a sample, gift or promotion. Donated booze for charitable events is still ok, if zero invoiced through the three-tier system to a charity that holds a special occasion license.
It is ok for a wholesaler to educate a retailer about a wine or spirit by offering a free tasting, but giving away bottles to the retailer is now taboo. Wine and spirits can be provided gratis for consumer education seminars conducted by a retailer.
The ABC has been imposing fines of $350 a bottle, which can add up quickly.
Follow the rule: no product can be donated unless it’s for a non-profit or consumer education seminar.
The ABC has also indicated that it is cracking down on manufacturer promotions at restaurants and bars. We hear that some manufacturers have been providing free product to customers at bars in connection with bold promotional efforts. We expect the TABC to impose significant fines for these marketing practices.
The Tax Man has changed the rules again – this time for filing and payment deadlines for Tennessee Business Taxes.
Taxes always make us think about Johnny Cash’s classic song “After Taxes:”
You can dream about vacation in the sun
You can dream but you can’t never have you one
‘Cause by the time your good old Uncle Sam gets done
You’ve got just enough for gas
Our liquor team tax expert, Rob Pinson, sounded the alarm on this change.
Starting January 1, 2014, businesses must report and pay business taxes based on their fiscal year. For example, if you operate on a calendar year (January 1 to December 31), you will now start reporting and paying your business taxes for the calendar year.
Previously, reporting periods were based on business classes. Class 2 – Restaurants – had to report their business taxes from April 1 to March 31. Class 3 – Hotels – had to report their business taxes from July 1 to June 30.
Going forward all Classes will report on their fiscal year, which for most small businesses will be January 1 to December 31. This will be the same reporting period for Tennessee Franchise and Excise taxes.
To complicate the change, the new law mandates short or long tax return periods. Depending on your fiscal year, you will be required to file a transition tax return which may be six months up to seventeen months. This transition tax year will get your company on track to start filing fiscal year tax returns starting in 2014. For a calendar year restaurant, the transitional tax return will cover April 1, 2013 to December 31, 2013 and will be due April 15, 2014. The next tax return filed by the restaurant will cover January 1 to December 31 of 2014 and be due April 15, 2015. Click on the link for charts to assist in determining this transitional year.
The new law also mandates electronic filing of business tax returns and electronic payment of taxes. This is another step in the Department of Revenue’s shift towards online reporting and paying for all taxes. It is recommended all business register for business taxes online to avoid delays.
We installed a fresh set of batteries in our crystal ball and – voila – Wine in Grocery Stores, affectionately known on the Hill as WIGS, has become Wine in Gas Stations.
At least that is the gossip in the hallowed halls of the Tennessee General Assembly.
The Tennessee House and Senate are both moving WIGS bills that have a many things in common. Conspicuously absent from both versions of the law are gas stations and pharmacies. Neither qualifies for a wine license.
In the storied 1964 heavyweight boxing match Muhammad Ali vs. Sonny Liston, Ali famously boasted that he would: “float like a butterfly and sting like a bee.”
Ali’s fighting words are a perfect motto for WIGS. We think some form of WIGS bill is destined to pass this year – WIGS will Float Like a Butterfly. The question is who will be the victors and who will be the losers in the bloody fight – the legislation Stings Like a Bee.
For several years, we have predicted that the fight over convenience stores will be a serious final battle when WIGS passes. We understand that the C-Store lobby has spent a formidable amount of money trying to pass WIGS over the years.
Yet wine at C-Stores is probably one of the most controversial facets of WIGS. Many C-Stores brazenly sell over-sized grab and go beers on ice in prominent displays near check out counters. The practice is widespread, and temperance forces consider this reckless. Many of the customers will drink and drive.
If C-Stores can sell wine, the fear is that fortified wines will be added to the grab and go coolers. Strong wine is much more dangerous than regular beer.
Complicating the mix for C-Stores are the inner-city markets that cater to habitual drunks. Allowing higher proof wine in these stores is like throwing gasoline on the fire for some inner-city legislators.
The discussion about Wine in Gas Stations this week may be part of the opposition strategy to derail passage of WIGS this year. Or it may be a legitimate effort by the C-Store lobby to be included in the final law.
Our crystal ball does not see much discussion of pharmacies, who are left high and dry in the current versions of the bill.
The shenanigans over WIGS will certainly Sting Like a Bee for some businesses.