New Rules for Charitable Events in Tennessee

By - May 15, 2015 | Alcoholic Beverage Law | Email Will Cheek

Nonprofits in Tennessee have a huge fundraising advantage for special events.  Unlike restaurants, bars, caters and other LBD license holders, nonprofits can accept donated alcohol and do not have to pay sales and liquor taxes, which average 24.25%.

For as long as we can remember, which takes us back just short of the Jurassic period, nonprofits could pull a license from the ABC for an event that was thrown by a restaurant, liquor store, promoter or just a strong supporter.  The nonprofit got a check for doing essentially nothing.

The system was a simple way to raise money for nonprofits.

Recently, the Tennessee ABC changed the rules for nonprofit events, which we blogged about here.

Today, May 15, 2015, we received a copy of an official letter from the ABC that lays out detailed rules for special occasion events.  A redacted copy is here.

Many of the rules in the letter are new to us.  The rules significantly increase the role of nonprofits in special events.  For large festivals, which rely on nonprofits for licensing, but are far too complicated to be thrown by a nonprofit, the new rules present major obstacles.

Many festivals may not survive the new rules.  The new ABC rules may put large music events and food festivals out of business.

Nonprofit fundraising brings to mind the Grandmaster Flash rap classic The Message:

Bill collectors they ring my phone
And scare my wife when I’m not home
Got a bum education, double-digit inflation
Can’t take the train to the job, there’s a strike at the station

Section 3 of the letter is a game changer for many events.  The letter prohibits event promoters from being paid based on revenue.  A promoter can only be paid a flat fee.

Most festivals make a donation to a nonprofit – either a fixed amount, a portion of profits or a mix of the two.  The promoter takes the risk that the festival will lose money, but also profits if the festival makes money.

As we read the ABC letter, promoters are prohibited from participating in profits.  This also suggests that the nonprofit must bear the risk of loss from an event.

The letter also requires that nonprofits file a copy of all contracts with a promoter.  Based on our experience, these agreements are generally an oral understanding.  The new ABC rule requires that promoter agreements be in writing and a copy must be filed with the ABC.

Drafting and filing promoter contracts is an additional burden for nonprofits.  Because of the strict rules set out by the ABC for special events, we encourage nonprofits to be very careful about the terms of written agreements with promoters.  The contracts could be fertile ground for big fines.

We have not had an opportunity to discuss these new rules with the ABC and caution readers that the ABC may issue more guidance.