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| Montana Administrative Register Notice 42-2-851 | No. 19 10/14/2010 | |
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BEFORE THE DEPARTMENT OF REVENUE OF THE STATE OF
TO: All Concerned Persons 1. On November 8, 2010, at 1:30 p.m., a public hearing will be held in the Third Floor Reception Area Conference Room of the Individuals planning to attend the hearing shall enter the building through the east doors of the 2. The Department of Revenue will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing or need an alternative accessible format of this notice. If you require an accommodation, contact the Department of Revenue no later than 5:00 p.m., November 1, 2010, to advise us of the nature of the accommodation that you need. Please contact Cleo Anderson, Department of Revenue, Director's Office, 3. The proposed new rule does not replace or modify any section currently found in the Administrative Rules of Montana. The proposed new rule provides as follows: NEW RULE I DEFINITIONS The following definitions apply to this subchapter: (1) "Cross collateralization" means collateral for one loan also serving as collateral for other loans. AUTH: 16-1-303, MCA IMP: 16-4-401, 16-4-402, 16-4-404, 16-4-801, MCA REASONABLE NECESSITY: The department is proposing to adopt New Rule I to create a definition rule for subchapter 2 that will contain all terms used in the rules contained in this subchapter. The definition of "cross-collateralization" is necessary to enhance the liquor license applicant's understanding of secured loans. 4. The rules proposed to be amended provide as follows, stricken matter interlined, new matter underlined: 42.12.206 PROHIBITION AND EXCEPTION REGARDING LEASING OF LICENSE (1) A license issued under the provisions of Title 16, chapter 4, parts 1 through 5, MCA, is a privilege personal to the licensee, and in no case shall the licensee lease the license to any other person. (2) Golf course beer and wine licenses owned by the state, a unit of the university system, or a local government, fairground complex beer and wine licenses owned by a political subdivision of the state, and airport all-beverages licenses are exempt from this rule. (3) The lessee of the licenses in (2) are required to qualify under 16-4-401, MCA. AUTH: 16-1-303, MCA IMP: 16-4-109, 16-4-208, 16-4-306, 16-4-401, 16-4-404, MCA REASONABLE NECESSITY: The department is proposing to amend ARM 42.12.206 to include statutory changes made by the 2009 Legislature in House Bill 621 (Ch. 169, L. 2009). House Bill 621 allows an exception for a local government entity to acquire an existing license for exclusive use at a fairgrounds complex and allows the licensee to lease the license to any other person. 42.12.208 TEMPORARY OPERATING AUTHORITY (1) and (2) remain the same. (3) Temporary operating authority will be issued for a 45-day period (4) through (6) remain the same. AUTH: 16-1-303, MCA IMP: 16-4-404, MCA REASONABLE NECESSITY: The department is proposing to amend ARM 42.12.208 to ensure consistent and equitable treatment of liquor licensees in the application of liquor control laws. If an application has temporary operating authority and their application is still in processing, the department will automatically extend temporary operating authority for another 45 days without an extension request from the applicant. 42.12.209 TRANSFER OF A LICENSE TO ANOTHER PERSON (1) remains the same. (2) A potential buyer of an ownership interest of 10% or more in a liquor license (3) through (5) remain the same. (6) The buyer of the license can acquire the seller's alcoholic beverage inventory.
AUTH: 16-1-303, MCA IMP: 16-4-401, 16-4-402, 16-4-404, MCA
REASONABLE NECESSITY: The department is proposing to amend ARM 42.12.209 to correct the language so that it reflects the statutory provision of 16-4-401, MCA, and to allow for the buyer of a license to acquire the seller's alcoholic beverage inventory. 42.12.210 COMPLETED TRANSACTIONS UNDER BONA FIDE SALES (1) and (2) remain the same. (3) An option to purchase represents an impermissible interference with the licensee's ability to control and operate the license. Such an option, with or without conditions, is prohibited because it constitutes an additional ownership interest in the license. AUTH: 16-1-303, MCA IMP: 16-4-401, 16-4-402, 16-404, MCA REASONABLE NECESSITY: The department is proposing to amend ARM 42.12.210 to enhance a liquor licensee's understanding of options to purchase which will help eliminate any confusion.
42.12.212 LOAN STANDARDS (1) and (2) remain the same. (3) The department will require any noninstitutional lender to complete documents authorizing examination and release of information, a personal history statement, and fingerprint cards on forms provided by the department, as well as any contract, purchase agreement, or other documents from the lender deemed necessary to assess the suitability of an applicant's source of funding as required in 16-4-401, MCA. (a) A loan agreement may not restrict the movement or transfer of a license. (b) Cross collateralization language is unenforceable as it relates to loans securing the liquor license as collateral. (c) In the event of default, the lender's rights are protected under 16-4-801, MCA. Upon default exercised the license must be placed on nonuse status pending transfer to a qualified purchaser or temporary operating authority. The lender is prohibited from leasing the collateral. (4) Institutional lenders may secure loans made to a license applicant or licensee with security interests on assets belonging to the license applicant or licensee. In securing the assets of a license applicant or licensee, an institutional lender may limit the movement of the assets, including a liquor license. (5) For loans made to a license applicant or licensee, an institutional lender may require loan guarantees and may secure guarantee agreements with assets of the guarantor. (6) An institutional lender may require payment from loan guarantors without initially exhausting all remedies against the borrower under the following conditions: (a) the guarantor must be an owner of applicant/licensee, i.e., partner, shareholder, member; (b) the payment is made with the owner/guarantor's own funds or funds borrowed from an institutional source or department-approved noninstitutional source; (c) if the guarantor is not an owner, payment may only be made as a loan to the owners or licensed borrower/entity. Funds used to loan the money for the payment under the guarantee, must be the guarantor's own funds or funds borrowed from an institutional source. The guarantor must be found suitable as a source of credit as part of the application or loan approval process by submitting a personal history statements and a complete set of fingerprint cards; (d) as required by the Internal Revenue Code, a loan guarantor must annually elect to treat payments made under a loan guarantee agreement as loans, as paid in capital, or as other equity contributions; (e) if the guarantor elects to treat the payments as loans to the licensee, the licensee must follow requirements for disclosing noninstitutional lenders; and (f) prior department approval is not required on loans to a licensed entity by an approved (licensed) owner of the entity (shareholder, member, partner) under the following conditions: (i) the loan is used to meet an obligation of the licensed entity that cannot be met with its existing operating accounts and reserves; (ii) the funds loaned to the licensed entity must be those of the owner or funds borrowed from an institutional source; (iii) the loan must be memorialized by an agreement between the licensed entity and owner. The loan agreement must meet the department's evaluation standards; (iv) the borrower's and lender's financial records must accurately reflect the transaction; and (v) failure to maintain adequate records of the transaction or source of funds loaned will be considered a violation of this rule. (7) If the guarantor elects to treat payments as an equity contribution, and such election changes the percentage of ownership in the license, the licensee must notify the department at the time of the election to disclose the change in percentage. AUTH: 16-1-303, MCA IMP: 16-4-401, 16-4-402, 16-4-404, 16-4-801, MCA
REASONABLE NECESSITY: The department is proposing to amend ARM 42.12.212 to reflect the statutory amendments to 16-4-401, MCA, made by the 2007 Legislature in House Bill 113 (Ch. 197, L. 2007) and statutory amendments to 16-4-801, MCA, made by the 2009 Legislature in House Bill 94 (Ch. 62, L. 2009). House Bill 113 established requirements for noninstitutional lenders to qualify and meet all requirements to hold ownership interest in the effect of default. The addition of (3) is necessary to inform the public of the process of qualifying a noninstitutional lender. The proposed rule also stipulates a noninstitutional loan agreement cannot restrict the movement or transfer of a license to reflect the department's current practice. The remainder of the proposed amendments to ARM 42.12.212 are due to House Bill 94 which provides that a regulated lender can use language that is consistent with what the lender generally uses in loan documents, and that such language will not constitute control over the licensed business. The rule amendments further detail the allowable practices and the requirements necessary for licensees and institutional lenders. 5. Concerned persons may submit their data, views, or arguments, either orally or in writing, at the hearing. Written data, views, or arguments may also be submitted to: Cleo Anderson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-5828; fax (406) 444-4375; or e-mail canderson@mt.gov and must be received no later than November 12, 2010. 6. Cleo Anderson, Department of Revenue, Director's Office, has been designated to preside over and conduct the hearing. 7. An electronic copy of this Notice of Public Hearing is available through the department's site on the World Wide Web at www.mt.gov/revenue, under "for your reference"; "DOR administrative rules"; and "upcoming events and proposed rule changes." The department strives to make the electronic copy of this Notice of Public Hearing conform to the official version of the notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the notice and the electronic version of the notice, only the official printed text will be considered. In addition, although the department strives to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems. 8. The Department of Revenue maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list shall make a written request, which includes the name and e-mail or mailing address of the person to receive notices and specifies that the person wishes to receive notices regarding particular subject matter or matters. Notices will be sent by e-mail unless a mailing preference is noted in the request. Such written request may be mailed or delivered to the person in 5 above or faxed to the office at (406) 444-4375, or may be made by completing a request form at any rules hearing held by the Department of Revenue. 9. The bill sponsor contact requirements of 2-4-302, MCA, apply and have been fulfilled. The primary bill sponsor, Representative Bill Wilson, HB 621 (2009 Session), Representative Bill McChesney, HB 113 (2007 Session), and Representative Walter McNutt, HB 94 (2009 Session) were contacted on March 3, 2010, and March 6, 2010, by electronic mail. /s/ Cleo Anderson /s/ Dan R. Bucks CLEO ANDERSON DAN R. BUCKS Rule Reviewer Director of Revenue Certified to Secretary of State October 4, 2010
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