The Complex World of Alcohol Beverage Laws-It's Enough to Make You Dizzy
 
October 1, 1999
 

Savvy timeshare and resort developers focused on providing the best in hospitality services know that the ability to offer, sell and serve alcoholic beverages is an integral part of a successful business. Developers who offer adult vacationers access to alcoholic beverages cultivate not only happy guests, but also healthy bottom lines from the profit margins enjoyed in alcoholic beverage sales.

While obtaining some form of beverage alcohol license (a beer and wine license or a full liquor license) is desirable, if not critical, developers sometimes get tripped up in the maze of laws and regulations in the licensing process.

Location, Location, Location

Developers devote countless hours visiting and considering various sites for their next big project. Developers contemplating property where alcoholic beverages will be served must be careful in their zoning due diligence.

Liquor licensing authorities often talk in terms of "wet" and "dry" zones. Businesses can sell and serve alcoholic beverages in a wet-zoned area; they cannot in a dry-zoned area. Any developer that wants to serve alcohol anywhere in the project must ensure that wet zoning is included in the due diligence. Otherwise, a developer may sign a lease or purchase agreement only to find out that the property is not properly zoned for liquor licenses.

Wet-zoning ordinances vary by local jurisdiction (city or county). In some areas, wet zoning can vary within a jurisdiction. In parts of Texas, for example, Lot A could be wet zoned and allow for alcohol sales, but Lot B across the street could be dry zoned. Similarly, a site could be zoned for on-premise alcohol consumption (for example, in a restaurant or bar), but not zoned for off-premise alcohol consumption (for example, through package sales of closed containers of alcoholic beverages in the timeshare's convenience store).

Even if the necessary zoning does not exist, all may not be lost. A rezoning is one remedy, but this can be a lengthy and involved process, and may delay a timely opening. Clearance of wet zoning issues in the preliminary stages of site selection prevents headaches later.

Distance requirements (such as no alcoholic beverages within 1,000 feet of a park, church, school, day care center or government building) vary by jurisdiction and can potentially prevent a developer from obtaining a liquor license for the proposed site. Some jurisdictions do have waiver provisions for distance requirements, but this may involve the developer in negotiations with the local governing body, local leaders, or the affected parks, churches, schools, etc. This can become a contentious political and public relations battle that most developers prefer to avoid.

"Welcome! Sorry, we have no beer, no wine, and no distilled spirits."

You have planned, worked, coordinated, and worried for months about your grand opening. You picture crowds of people arriving at your newest and best timeshare, hotel or resort and a lively active bar. When the day of the grand opening arrives, however, the liquor license has not been issued. It is then that you face one of a developer's worst nightmares. No alcohol can be sold or served!

Selling alcoholic beverages is not a right but a privilege that is subject to strict governmental control. First and foremost, a determination must be made concerning the type and availability of the required liquor license. Many local jurisdictions limit the number of liquor licenses that may be issued within a given geographic area. Because of the limited number of available licenses, they are often referred to as quota licenses.

Quota licenses often present a problem when the jurisdiction requires each separate place at which alcoholic beverages are sold to be licensed, even if they are all located within the same development or tract of land. If resort may have an outside bar area, an indoor restaurant, and a convenience store that sell alcoholic beverages, each may require a separate liquor license.

Fortunately, quota licenses are not always necessary. Liquor licenses by application are often sufficient for uses ancillary to a restaurant. What some applicants do not fully appreciate is that the liquor license application process is time-consuming and complex.

Some jurisdictions have mandatory minimum processing times for liquor licenses. For example, Chicago imposes a minimum 45-day period for processing a city liquor license application. Some state liquor license agencies may take up to 180 days from the date of filing to issue a liquor license. Alcohol beverage license applicants are subject to extensive background investigations prior to being licensed. Licensing agencies often request financial and other detailed information and documentation concerning the applicant and related entities. Zoning and tax clearances often must be obtained.

Owners, lessees, officers, directors, shareholders or partners are required to submit a wealth of personal information, fingerprints and other information that the agency requests to complete criminal background checks. A person who has been convicted of a felony or a violation of the jurisdiction's liquor laws is often precluded from obtaining a license. In light of the severe civil and criminal penalties for violations of the applicable disclosure requirements, care must be taken to ensure that no material information is concealed from the state or local government and that the precise interests of parties related to the prospective licensee are adequately disclosed.

A liquor license, once issued, is generally not considered a contract with the government, but rather a revocable privilege to operate the licensed business in compliance with all applicable local, state and federal laws.

Liquor license holders can incur fines or have their licenses suspended or revoked for any number of causes. Virtually no other type of business regulated by the states (with the possible exception of gaming) has such a high standard of behavior to meet on a continuing basis in order to retain licensure in good standing.

Watch Those Sales!

The unlawful sale or service of alcohol to a minor is a common violation cited when licensing agencies conduct stings or scheduled investigations.

In addition, most local and state alcoholic beverage statutes and regulations prohibit sales of alcoholic beverages to patrons outside the boundaries of the licensed premises and to patrons who are intoxicated or habitually addicted to alcohol. Servers also may be confronted by foreign owners or guests who have different customs and attitudes regarding the use of alcoholic beverages.

Many states have "dram shop" laws that permit people who are injured by intoxicated individuals to file lawsuits against the individual and/or company that sold or served alcohol. If the developer is the liquor license holder, dram-shop liability is a potential threat. Careful developers and operators will evaluate whether dram-shop liability is an issue in their particular jurisdiction.

Comprehensive vendor or server training programs to teach responsible sales and service of alcohol are essential. These training programs are mandatory for license holders in some states, and may even allow insureds to obtain a more favorable insurance premium against alcohol liability. Training programs may also be a mitigating factor in reducing penalties if the business is cited for a violation.

The Renewal and Transfer Minefield

Stores, restaurants and bars have been forced to pull product off the shelves (and lose profits) because they failed to renew a liquor license. This is one of the easiest problems to avoid. Renovation of the property subsequent to the time the liquor license was issued, changes in officers, directors or the manager, or a name change all may trigger filings with the licensing agency.

In some jurisdictions, the local manager of the establishment at which alcoholic beverage sales occur, rather than an absentee corporate owner, must be licensed. This becomes a problem for the owner when the licensed employee/manager is terminated as no alcoholic beverage sales can occur until a new manager has been licensed.

Transfer of a liquor license in the context of sale of the business presents certain challenges. Some jurisdictions provide for temporary licenses and others require completion of the application process and issuance of a new license. Interim operating agreements utilizing a seller's license may solve this dilemma, but this cannot be used in every jurisdiction. Extreme care and expert legal advice is essential in this area. Violations of transfer regulations, particularly when a large SUSPENSION sign is posted on the front door or window of the establishment can obviously result in negative publicity, disgruntled owners and guests, and diminished sales. A buyer should ensure that the liquor license being purchased is in good standing and conduct a lien search to confirm that no other party has a security interest in the liquor license.

Other Requirements

Liquor licensees are typically required to pay various license fees and/or franchise taxes and must file special tax returns based on alcoholic beverage sales volume in addition to the usual state and/or local sales tax and corporate tax returns. In addition, most states impose record keeping requirements for all alcohol beverage purchases by a licensed retailer and restrict purchases from anyone other than a licensed wholesale distributor. Furthermore, the federal government (through the Bureau of Alcohol, Tobacco and Firearms) requires the filing of an annual Special Occupational Tax Return, due on or before July 1st of each year.

The sale and service of alcoholic beverages create a wealth of revenue opportunities for timeshare and resort developers. Unfortunately, alcoholic beverages also give rise to a wide range of legal risks. With careful planning and sound legal advice, developers can make certain that alcoholic beverages help create a hospitable environment and fun vacation for guests.

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Ms. Yang practices in the Tampa office, a member of the Beverage Alcohol practice area and serves on the Executive Steering Committee of the American Bar Association's Committee on Beverage Alcohol Practice. She can be reached at 813-227-6571and at gyang@hklaw.com.