Administrative Rules of the State of Montana

BEFORE THE DEPARTMENT OF REVENUE

OF THE STATE OF MONTANA

In the matter of the adoption of New Rules I through V, the amendment of ARM 42.12.105, 42.12.106, 42.12.133, 42.12.209, 42.12.302, 42.12.401, 42.13.111, 42.13.405, 42.13.601, and 42.13.802, the transfer and amendment of ARM 42.12.134, 42.12.135, 42.12.136, 42.12.137, and 42.13.138, and the repeal of ARM 42.12.122, 42.12.126, 42.12.139, 42.12.213, 42.12.312, 42.12.314, 42.13.301, 42.13.304, 42.13.305, 42.13.602, and 42.13.805 pertaining to the premises suitability requirements and conditions for operating all types of alcoholic beverage licenses

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NOTICE OF PUBLIC HEARING ON PROPOSED ADOPTION, AMENDMENT, TRANSFER AND AMENDMENT, AND REPEAL

TO: All Concerned Persons

1. On December 15, 2016, at 1 p.m., the Department of Revenue will hold a public hearing in the Liquor Warehouse Conference Room, located at 2517 Airport Road, Helena, Montana, to consider the proposed adoption, amendment, transfer and amendment, and repeal of the above-stated rules.

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 no later than 5 p.m. on December 5, 2016, to advise us of the nature of the accommodation you need. Please contact Laurie Logan, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-7905; fax (406) 444-3696; or e-mail lalogan@mt.gov.

3. GENERAL STATEMENT OF REASONABLE NECESSITY. The department conducted a thorough evaluation of its rules related to the suitability and condition requirements for operating the different types of alcoholic beverage licenses located in ARM Title 42, chapters 12 and 13, and determined that it was reasonably necessary to update the rules to provide better guidance to prospective and current licensees by eliminating redundant and outdated information; adding more detailed information where needed; and reorganizing the rules in a manner that places the subject matters more closely together by license type for ease of locating.

The proposed rulemaking actions in this notice include the placement of the suitability requirements for all license types together in ARM Title 42, chapter 12, and the placement of the condition requirements for all license types together in ARM Title 42, chapter 13. In all, the department proposes adopting five new rules, amending ten rules, amending and transferring five additional rules, and repealing eleven rules.

Numerous actions being proposed in this notice are interrelated. For example, the five proposed new rules consist of information currently found in ARM 42.12.122, a general "suitability of premises" rule, but the new rules will provide this information separately, by license type, and with more detail. The proposed actions also include amending and transferring five rules currently located in ARM Title 42, chapters 12 and 13, to achieve a similar result for rules covering the "conditions for operating" the different license types. Additional proposed actions cover changes to other rules impacted by the relocation of the "premises suitability" and "conditions for operating" language. Among the other actions included in this notice are the amendment of four and repeal of two definition rules.

In addition to reorganizing the information in ARM Title 42, chapters 12 and 13, there are new provisions being proposed in some of the rules. Therefore, while this general statement of reasonable necessity covers the basis for the following proposed rule actions, it is supplemented where necessary to explain any provisions being included in a rule that were not previously located elsewhere in an existing rule.

With regard to any premises suitability requirements that were not previously in rule, the department is not requiring licensees to come into immediate compliance. Rather, current licensees would be required to comply when there is a change in location, alteration, or transfer of ownership interest in an existing license requiring the vetting of a new party pursuant to 16-4-401, MCA.

4. The rules proposed to be adopted provide as follows:

NEW RULE I ON-PREMISES CONSUMPTION BEER AND ALL-BEVERAGE LICENSE - PREMISES SUITABILITY REQUIREMENTS (1) The department shall determine the suitability of the premises where an on-premises consumption beer or all-beverage retailer proposes to operate a license when a party applies to obtain a license, transfer ownership interest in an existing license requiring the vetting of a new party pursuant to 16-4-401, MCA, change the location where a license will be operated, or make alterations to a premises with a floor plan that the department approved.

(2) The premises of an on-premises consumption beer or all-beverage retailer may be considered suitable only if:

(a) the applicant or licensee has possessory interest in the premises and the land upon which the premises are located;

(b) the applicant or licensee has adequate control over the premises;

(d) the premises are identified by a unique address;

(e) the premises are located in one building or a specific portion of one building, except that a patio/deck may extend the premises beyond the interior portion of the building. The interior portion of the premises must be a continuous area that is not broken by any area in which the applicant or licensee does not have adequate control, such as another business or a common area shared with other building tenants. Subject to the exception in 16-3-311(2), MCA, if the premises are located in a portion of a building, the premises must be separated by permanent floor-to-ceiling walls from any other business, including any other business operated by the licensee. The only access from the premises to another business may be through a single lockable door, no more than six feet wide, in the permanent floor-to-ceiling wall. An additional lockable door in the permanent floor-to-ceiling wall may be allowed only upon department approval;

(f) building, health, and fire code approval is obtained;

(g) the premises are located on regular police beats and can be properly policed by local authorities, which includes the premises being located on property to which law enforcement has unrestricted access;

(h) the premises are not located where a local government ordinance prohibits the sale of alcoholic beverages;

(i) the premises are either solely dedicated to the on-premises consumption of alcoholic beverages or are within a business directly related to the on-premises consumption of alcoholic beverages;

(j) the type of business is readily determinable due to indoor and outdoor signage and the premises' general layout and atmosphere;

(k) alcoholic beverages are advertised and displayed as being available for purchase;

(l) there are no signs, posters, or advertisements displayed on the exterior portion of the premises that identify an alcoholic beverage manufacturer, importer, wholesaler, or distributor in any manner. This prohibition extends to buildings adjacent to the premises only if the retailer has possessory interest in the building. This prohibition does not apply to temporary advertisements allowed under 16-3-244, MCA;

(m) the floor plan accurately states the dimensions of the premises, includes the entity name, alcoholic beverage license number, physical address, and date and identifies any service area, seating required under (o), stationary drink preparation area, storage area, patio/deck, perimeter barrier, permanent floor-to-ceiling wall required between the premises and another business, off-premises sales area, and separation barrier required between the on-premises and off-premises sales areas;

(n) the interior premises include at least one stationary drink preparation area. The premises may have more than one drink preparation area, including drink preparation areas on the patio/deck and moveable drink preparation areas, subject to department approval;

(o) the interior premises include a service area containing not less than twelve seats, exclusive of any seats at gambling machines;

(p) there is interior access to any interior portion of the premises;

(q) all storage areas are located in the interior portion of the premises;

(r) alcoholic beverages will not be sold through a drive-up window;

(s) except as provided for in (t), the physical layout and equipment utilized prevent the self-service of alcoholic beverages. This includes a prohibition against the service of alcoholic beverages through self-service devices and vending machines. Reach-in coolers and open shelving are prohibited unless they are located in a drink preparation area and the department determines that sufficient physical safeguards are in place to prevent the self-service of alcoholic beverages; and

(t) any off-premises sales area is contiguous with the on-premises sales area and there is a separation barrier between the off-premises sales area and the on-premises sales area. The off-premises sales area may contain reach-in coolers and open shelving. It must include a cash register or other equipment for conducting sales transactions.

(3) The premises may have a patio/deck. A patio/deck may be considered suitable only if:

(a) building, health, and fire code approval is obtained;

(b) subject to the exception in (c), the patio/deck is contiguous with and immediately accessible from the interior premises;

(c) any path connecting the interior premises and the patio/deck is under the possessory interest of the licensee, is clearly marked, and the department determines that sufficient physical safeguards are in place to ensure proper service and consumption of alcoholic beverages; and

(d) with the exception of a patio/deck at a golf course, a perimeter barrier clearly marks where the service and consumption of alcoholic beverages are allowed.

(4) The premises must meet and maintain compliance with all suitability standards in place at the time the premises are inspected. The department may, at any time, verify that the premises remain in compliance with all suitability standards in place at the time the suitability of the premises was last determined. Upon determining that the premises do not meet all applicable suitability standards, the department may deny an application or take administrative action against a licensee, including license revocation.

(5) The privileges granted under a license extend only to the premises depicted in the floor plan approved by the department. The licensee shall follow the process in ARM 42.13.106 for a premises alteration.

AUTH: 16-1-303, MCA

IMP: 16-3-244, 16-3-309, 16-3-311, 16-4-402, 16-4-405, MCA

REASON: In addition to the proposed actions included in the general statement of reasonable necessity at the beginning of this notice, which covers the proposed adoption of a new rule to provide the premises suitability requirements for on-premises consumption beer and all-beverage licensees in a single location, the department proposes including the following new provisions in New Rule I.

A premises may encompass an interior portion of a building as well as an exterior patio/deck. To ensure the licensee has sufficient control over the entire premises, (2)(a) proposes to require the licensee to have possessory interest in the premises and the land upon which the premises are located.

The proposed requirement for adequate control over the premises in (2)(b) ensures the licensee can effectively manage the sale, service, and consumption of alcoholic beverages to prevent self-service, overconsumption, and consumption by underage persons. For example, a licensee would not have adequate control over a common area shared with other building tenants because the licensee would not have exclusive authority to govern the conduct in these areas. Accordingly, such areas cannot be part of the premises.

Subsection (2)(d) proposes to require the premises to be identified by a unique address. This requirement was formally included in the definition of "premises" in ARM 42.13.111, which is also proposed to be amended in this notice. A unique address is required to ensure the proposed location does not share its premises with another alcoholic beverage establishment and that required floor-to-ceiling walls exist between the alcoholic beverage business and any other business. These measures work to ensure that the licensee will have adequate control over the premises.

Subsection (2)(e) proposes to require the interior portion of the premises to be a continuous area and provides examples of situations that would not meet this requirement. Such examples demonstrate insufficient control of the area to ensure the responsible possession and consumption of alcoholic beverages to protect public safety. Subsection (2)(e) also requires floor-to-ceiling walls between the premises and another business. This requirement stems from 16-3-311, MCA, and the statutory exception for compliance with this requirement is also set out in this rule. Subsection (2)(e) further proposes to allow the premises to have additional doors between the premises and another business to allow the licensee the flexibility to have multiple access points to the premises. Approval by the department is needed to confirm the licensee will retain adequate control over the premises.

Subsection (2)(g) proposes to require unrestricted access to property where the premises are located. This requirement enables law enforcement to effectively ensure public safety without a locked gate or other barrier preventing access.

Section 16-3-244, MCA, specifically prohibits signage from brewers, beer importers, and beer wholesalers on the exterior portion of the premises and adjacent buildings. That statutory language, however, is unclear as to whether the licensee would need to have possessory interest in the adjacent building for the prohibition to apply. Because the licensee cannot exert control over a building in which it does not have possessory interest, the department is proposing to clarify the need for possessory interest in (2)(l). Additionally, the department is proposing to extend this advertising prohibition to all manufacturers, importers, distributors, and wholesalers to ensure retailer independence from other alcoholic beverage tiers and to reduce public confusion as to the type of business being conducted at the premises.

Subsection (2)(m) proposes to require that certain areas be labeled on the floor plan. The instructions on applications have long required the floor plan to be labeled. The department is proposing to add this as a suitability requirement to ensure an accurate floor plan is on file with the department prior to licensing. An accurate floor plan is necessary to enable evaluation of premises suitability and alteration requests.

Subsection (2)(n) proposes to require at least one interior drink preparation area to ensure the premises are easily recognizable as a place that offers alcoholic beverages and to ensure the floor plan accurately identifies the primary location from which alcoholic beverages are available. The department proposes to allow additional drink preparation areas that are movable or located on a patio/deck to provide licensees the ability to serve patrons in multiple locations on the premises.

The proposed requirement for interior access to any interior portion of the premises in (2)(p) ensures patrons have access to all sales areas without leaving the premises. Where interior access does not exist, a separate license is required.

Subsection (2)(q) proposes to require any area designated for the storage of alcoholic beverages to be located on the interior portion of the premises to reduce unauthorized access and protect public safety.

Subsection (2)(s) proposes to require reach-in coolers and open shelving to be located in the drink preparation area to ensure the licensee has direct involvement in the service of alcoholic beverages to prevent self-service, overconsumption, and consumption by underage persons. The department proposes to allow such equipment in the off-premises sales area where necessary safeguards are in place to prevent the on-premises consumption of alcoholic beverages.

The proposed requirement of a separation barrier in (2)(t) is to ensure there is a clear physical distinction between the on-premises sales area and the off-premises sales area. This is necessary so that patrons and the licensee can identify the different areas, which operate under different rules and requirements. This separation helps ensure the licensee has control over the consumption of alcoholic beverages on the premises to prevent self-service, overconsumption, and consumption by underage persons.

The inclusion of the proposed requirement for equipment to conduct sales transactions in (2)(t) will enable the licensee to record sales in that area to ensure compliance with a proposed provision, also in the proposed set of rules in this notice, requiring that 95 percent of the sales in the off-premises sales area come from the sale of alcoholic beverages.

Under existing rule, a licensee is only required to obtain approval from a fire official for the inclusion of a patio/deck, but (3)(a) proposes to also require approval from building and health officials. All three approvals are necessary to ensure the proposed patio/deck is safe for public use.

Section (4) proposes to provide information about the department's regulatory authority. Although the department's oversight function is not new, the reference is proposed to be included here for transparency.

NEW RULE II RESTAURANT BEER AND WINE LICENSE - PREMISES SUITABILITY REQUIREMENTS (1) The department shall determine the suitability of the premises where a restaurant beer and wine retailer proposes to operate a license when a party applies to obtain a license, transfer ownership interest in an existing license requiring the vetting of a new party pursuant to 16-4-401, MCA, change the location where a license will be operated, or make alterations to a premises with a floor plan that the department approved.

(2) The premises of a restaurant beer and wine retailer may be considered suitable only if:

(a) the applicant or licensee has possessory interest in the premises and the land upon which the premises are located;

(b) the applicant or licensee has adequate control over the premises;

(d) the premises are identified by a unique address;

(f) building, health, and fire code approval is obtained;

(h) the premises are not located where a local government ordinance prohibits the sale of alcoholic beverages;

(i) the type of business is readily determinable due to indoor and outdoor signage and the premises' general layout and atmosphere;

(j) alcoholic beverages are advertised and displayed as being available for purchase;

(k) there are no signs, posters, or advertisements displayed on the exterior portion of the premises that identify an alcoholic beverage manufacturer, importer, wholesaler, or distributor in any manner. This prohibition extends to buildings adjacent to the premises only if the retailer has possessory interest in the building. This prohibition does not apply to temporary advertisements allowed under 16-3-244, MCA;

(l) the floor plan accurately states the dimensions of the premises, includes the entity name, alcoholic beverage license number, physical address, and date and identifies any service area, service bar, dining room, kitchen, storage area, patio/deck, perimeter barrier, and permanent floor-to-ceiling wall required between the premises and another business;

(m) there is seating for patrons totaling not more than the seating capacity for which the premises are licensed;

(n) there is an interior service bar. The premises may have more than one service bar, including service bars on the patio/deck, subject to department approval;

(o) there is interior access to any interior portion of the premises;

(p) all storage areas are located in the interior portion of the premises;

(q) the physical layout and equipment utilized prevent the self-service of alcoholic beverages. This includes a prohibition against the service of alcoholic beverages through self-service devices and vending machines. Reach-in coolers and open shelving are prohibited unless they are located in the service bar area and the department determines that sufficient physical safeguards are in place to prevent the self-service of alcoholic beverages; and

(r) the sale of alcoholic beverages will not occur through a drive-up window.

(3) The premises may have a patio/deck. A patio/deck may be considered suitable only if:

(a) building, health, and fire code approval is obtained;

(b) subject to the exception in (c), the patio/deck is contiguous with and immediately accessible from the interior premises;

(d) a perimeter barrier clearly marks where the service and consumption of alcoholic beverages are allowed.

AUTH: 16-1-303, MCA

IMP: 16-3-244, 16-3-309, 16-3-311, 16-4-402, 16-4-405, 16-4-421, MCA

REASON: In addition to the proposed actions included in the general statement of reasonable necessity at the beginning of this notice, which covers the proposed adoption of a new rule to provide the premises suitability requirements for a restaurant beer and wine licensee in a single location, the department proposes including the following new provisions in New Rule II.

The proposed requirement for a licensee to have adequate control over the premises in (2)(b) ensures the licensee can effectively manage the consumption of alcoholic beverages to prevent self-service, overconsumption, and consumption by underage persons. For example, a licensee would not have adequate control over a common area shared with other building tenants because the licensee would not have exclusive authority to govern the conduct in these areas. Accordingly, such areas cannot be part of the premises.

Subsection (2)(d) proposes to require the premises to be identified by a unique address. This requirement was previously included in the definition of "premises" in ARM 42.13.111, which is also proposed to be amended in this notice. A unique address is required to ensure the proposed location does not share its premises with another alcoholic beverage establishment and that required floor-to-ceiling walls exist between the alcoholic beverage business and any other business. These measures work to ensure that the licensee will have adequate control over the premises.

Subsection (2)(e) proposes to require the interior portion of the premises to be a continuous area and provides examples of situations that would not meet this requirement. Such examples demonstrate insufficient control of the area to ensure the responsible possession and consumption of alcoholic beverages to protect public safety. Subsection (2)(e) also requires floor-to-ceiling walls between the premises and another business. This requirement stems from 16-3-311, MCA, and the statutory exception for compliance with this requirement is also memorialized in this rule. Subsection (2)(e) further proposes to allow the premises to have additional doors between the premises and another business to allow the licensee the flexibility to have multiple access points to the premises. Approval by the department is needed to confirm the licensee will retain adequate control over the premises.

Section 16-3-244, MCA, specifically prohibits signage from brewers, beer importers, and beer wholesalers on the exterior portion of the premises and adjacent buildings. That statutory language, however, is unclear as to whether the licensee would need to have possessory interest in the adjacent building for the prohibition to apply. Because the licensee cannot exert control over a building in which it does not have possessory interest, the department is proposing to clarify the need for possessory interest in (2)(k). Additionally, the department is proposing to extend this advertising prohibition to all manufacturers, importers, distributors, and wholesalers to ensure retailer independence from other alcoholic beverage tiers and to reduce public confusion as to the type of business being conducted at the premises.

Subsection (2)(l) proposes to require that certain areas be labeled on the floor plan. The instructions on applications have long required the floor plan to be labeled. The department is proposing to add this as a suitability requirement to ensure an accurate floor plan is on file with the department prior to licensing. An accurate floor plan is necessary to enable evaluation of premises suitability and alteration requests.

Subsection (2)(n) proposes to allow more than one service bar on the premises to allow the licensee to store and prepare alcoholic beverages in multiple locations. Approval by the department is required to ensure adequate safeguards are in place to prevent self-service by patrons. The department proposes to no longer prohibit patrons from sitting at the service bar because no public harm exists. A patron is still required to order food items regardless if they are sitting at a table, booth, eating counter, or across from the service bar.

The proposed requirement for interior access to any interior portion of the premises in (2)(o) ensures patrons have access to all sales areas without leaving the premises. Where interior access does not exist, a separate license is required.

Subsection (2)(p) proposes to require any area designated for the storage of alcoholic beverages to be located on the interior portion of the premises to reduce unauthorized access and protect public safety.

NEW RULE III OFF-PREMISES BEER AND TABLE WINE LICENSE - PREMISES SUITABILITY REQUIREMENTS (1) The department shall determine the suitability of the premises where an off-premises beer and table wine retailer proposes to operate a license when a party applies to obtain a license, transfer ownership interest in an existing license requiring the vetting of a new party pursuant to 16-4-401, MCA, change the location where a license will be operated, or make alterations to a premises with a floor plan that the department approved.

(2) The premises of an off-premises beer and table wine retailer may be considered suitable only if:

(a) the applicant or licensee has possessory interest in the premises and the land upon which the premises are located;

(b) the applicant or licensee has adequate control over the premises;

(d) the premises are identified by a unique address;

(e) the premises are located in one building or a specific portion of one building. The interior portion of the premises must be a continuous area that is not broken by any area in which the applicant or licensee does not have adequate control, such as another business or a common area shared with other building tenants. If the premises are located in a portion of a building, the premises must be separated by permanent floor-to-ceiling walls from any other business, including any other business operated by the licensee. The only access from the premises to another business may be through a single lockable door, no more than six feet wide, in the permanent floor-to-ceiling wall. An additional, lockable door or a doorway larger than six feet wide in the permanent floor-to-ceiling wall may be allowed only upon department approval;

(f) building, health, and fire code approval is obtained;

(h) the premises are not located where a local government ordinance prohibits the sale of alcoholic beverages;

(i) the premises are in a stand-alone beer and/or table wine business, a grocery store, or a drugstore licensed as a pharmacy;

(j) the type of business is readily determinable due to indoor and outdoor signage and the premises' general layout and atmosphere;

(k) alcoholic beverages are advertised and displayed as being available for purchase;

(n) there is interior access to any interior portion of the premises;

(o) all storage areas are located in the interior portion of the premises; and

(p) the sale of alcoholic beverages will not occur through a drive-up window.

(3) The premises must meet and maintain compliance with all suitability standards in place at the time the premises are inspected. The department may, at any time, verify that the premises remain in compliance with all suitability standards in place at the time the suitability of the premises was last determined. Upon determining that the premises do not meet all applicable suitability standards, the department may deny an application or take administrative action against a licensee, including license revocation.

(4) The privileges granted under a license extend only to the premises depicted in the floor plan approved by the department. The licensee shall follow the process in ARM 42.13.106 for a premises alteration.

AUTH: 16-1-303, MCA

IMP: 16-3-244, 16-3-309, 16-4-115, 16-4-402, 16-4-405, MCA

REASON: In addition to the proposed actions included in the general statement of reasonable necessity at the beginning of this notice, which covers the proposed adoption of a new rule to provide the premises suitability requirements for an off-premises beer and table wine licensee in a single location, the department proposes including the following new provisions in New Rule III.

To ensure the licensee has sufficient control over the entire premises, (2)(a) proposes to require the licensee to have possessory interest in the premises and the land upon which the premises are located.

The proposed requirement for adequate control over the premises in (2)(b) ensures the licensee can effectively manage the sale of alcoholic beverages to prevent sales to intoxicated or underage persons. For example, a licensee would not have adequate control over a common area shared with other building tenants because the licensee would not have exclusive authority to govern the conduct in these areas. Accordingly, such areas cannot be part of the premises.

Subsection (2)(e) proposes to require the interior portion of the premises to be a continuous area and provides examples of situations that would not meet this requirement. Such examples demonstrate insufficient control of the area to protect public safety. Subsection (2)(e) also requires floor-to-ceiling walls between the premises and another business. This requirement stems from 16-3-311, MCA, and the statutory exception for compliance with this requirement is also set out in this rule. Subsection (2)(e) further proposes to allow for a doorway larger than six feet wide between the premises and another business to allow greater flow between businesses. This suitability requirement is not allowed for on-premises licensees as the larger entry point diminishes an on-premises licensee's ability to control alcoholic beverages from being brought on the premises and minimizes the public's ability to know where alcoholic beverages may be consumed on the premises. Approval by the department is needed to confirm the licensee will retain adequate control over the premises. Subsection (2)(e) also proposes to allow the premises to have additional doors between the premises and another business to allow the licensee the flexibility to have multiple access points to the premises.

The proposed requirement for interior access to any interior portion of the premises in (2)(n) ensures patrons have access to all sales areas without leaving the premises. Where interior access does not exist, a separate license is required.

Subsection (2)(o) proposes to require any area designated for the storage of alcoholic beverages to be located on the interior portion of the premises to reduce unauthorized access and protect public safety.

Section (3) proposes to provide information about the department's regulatory authority. Although the department's oversight function is not new, the reference is proposed to be included here for transparency.

NEW RULE IV BEER WHOLESALER AND TABLE WINE DISTRIBUTOR - PREMISES SUITABILITY REQUIREMENTS (1) The department shall determine the suitability of the premises of the principal place of business and any subwarehouse where a beer wholesaler and table wine distributor propose to operate a license when a party applies to obtain a license, transfer ownership interest in an existing license requiring the vetting of a new party pursuant to 16-4-401, MCA, change the location where a license will be operated, or make alterations to a premises with a floor plan that the department approved.

(2) The premises of a beer wholesaler and table wine distributor may be considered suitable only if:

(a) the applicant or licensee has possessory interest in the premises and the land upon which the premises are located;

(b) the applicant or licensee has adequate control over the premises;

(d) the premises are identified by a unique address;

(e) building, health, and fire code approval is obtained;

(f) the premises are located in one building or a specific portion of one building. The interior portion of the premises must be a continuous area that is not broken by any area in which the applicant or licensee does not have adequate control, such as another business or a common area shared with other building tenants. If the premises are located in a portion of a building, the premises must be separated by permanent floor-to-ceiling walls from any other business, including any other business operated by the licensee. The only access from the premises to another business may be through a single lockable door, no more than six feet wide, in the permanent floor-to-ceiling wall. An additional lockable door in the permanent floor-to-ceiling wall may be allowed only upon department approval;

(h) the premises include sufficient space for the storage and distribution of beer and/or table wine in large quantities;

(i) there is interior access to any interior portion of the premises; and

(j) all storage areas are located in the interior portion of the premises.

(3) The premises may include more than one building for storage and distribution purposes only if the property on which the buildings are located is contiguous and the licensee has possessory interest in the property on which the buildings are located. To seek approval, the licensee shall submit a form provided by the department. All buildings on the premises are subject to suitability requirements in (2).

AUTH: 16-1-303, MCA

IMP: 16-4-103, 16-4-108, 16-4-402, MCA

REASON: In addition to the proposed actions included in the general statement of reasonable necessity at the beginning of this notice, which covers the proposed adoption of a new rule to provide the premises suitability requirements for a beer wholesaler and table wine distributor in a single location, the department proposes including the following new provisions in New Rule IV.

The proposed requirement for adequate control over the premises in (2)(b) ensures the licensee can effectively manage the receiving, storage, and distribution of alcoholic beverages. For example, a licensee would not have adequate control over a common area shared with other building tenants because the licensee would not have exclusive authority to govern the conduct in these areas. Accordingly, such areas cannot be part of the premises.

Subsection (2)(f) proposes to require the interior portion of the premises to be a continuous area and provides examples of situations that would not meet this requirement. Such examples demonstrate insufficient control of the area to protect public safety. Subsection (2)(f) also requires floor-to-ceiling walls between the premises and another business. Subsection (2)(f) further proposes to allow the premises to have additional doors between the premises and another business to allow the licensee the flexibility to have multiple access points to the premises. Approval by the department is needed to confirm the licensee will retain adequate control over the premises.

Subsection (2)(g) proposes to require that certain areas be labeled on the floor plan. The instructions on applications have long required the floor plan to be labeled. The department is proposing to add this as a suitability requirement to ensure an accurate floor plan is on file with the department prior to licensing. An accurate floor plan is necessary to enable evaluation of premises suitability and alteration requests.

The proposed requirement for interior access to any interior portion of the premises in (2)(i) ensures access to all areas without leaving the premises. Where interior access does not exist, a separate license is required.

Subsection (2)(j) proposes to require any area designated for the storage of alcoholic beverages to be located on the interior portion of the premises to reduce unauthorized access and protect public safety.

Section (3) proposes to allow wholesalers and distributors to utilize additional buildings for storage where certain conditions are met. Although this was previously allowed for certain manufacturers, the additional storage opportunity is being extended to wholesalers and distributors to accommodate the needs of growing businesses.

NEW RULE V WINERY, BREWERY, AND DISTILLERY - PREMISES SUITABILITY REQUIREMENTS (1) The department shall determine the suitability of the premises where an alcoholic beverage manufacturer proposes to operate a license when a party applies to obtain a license, transfer ownership interest in an existing license requiring the vetting of a new party pursuant to 16-4-401, MCA, change the location where a license will be operated, or make alterations to a premises with a floor plan that the department approved.

(2) The premises of a manufacturer may be considered suitable only if:

(a) the applicant or licensee has possessory interest in the premises and the land upon which the premises are located;

(b) the applicant or licensee has adequate control over the premises;

(c) a single alcoholic beverage license of any kind will be operated on the premises, except as authorized under an approved alternating proprietor arrangement;

(d) the premises are identified by a unique address;

(e) building, health, and fire code approval is obtained;

(f) the premises are located in one building or a specific portion of one building, except that a patio/deck may extend the premises beyond the interior portion of the building. The interior portion of the premises must be a continuous area that is not broken by any area in which the applicant or licensee does not have adequate control, such as another business or a common area shared with other building tenants. If the premises are located in a portion of a building, the premises must be separated by permanent floor-to-ceiling walls from any other business, including any other business operated by the licensee. The only access from the premises to another business may be through a single lockable door, no more than six feet wide, in the permanent floor-to-ceiling wall. An additional lockable door in the permanent floor-to-ceiling wall may be allowed only upon department approval;

(g) the floor plan accurately states the dimensions of the premises, includes the entity name, alcoholic beverage license number, physical address, and date and identifies any manufacturing area, storage area, sample room, drink preparation area, patio/deck, perimeter barrier, permanent floor-to-ceiling wall required between the premises and another business, off-premises sales area, and separation barriers required between the on-premises and off-premises sales areas;

(h) there is interior access to any interior portion of the premises;

(i) all storage areas are located in the interior portion of the premises;

(j) access by unauthorized persons to manufacturing areas is restricted; and

(k) it is readily determinable that a manufacturer operates at the premises due to outdoor signage and the existence of the equipment necessary to undertake the activities for which the premises are licensed.

(3) The premises may include more than one building for manufacturing purposes only if the property on which the buildings are located is contiguous and the licensee has possessory interest in the property on which the buildings are located. To seek approval, the licensee shall submit a form provided by the department and include verification that the Alcohol and Tobacco Tax and Trade Bureau approved the licensee's registration to operate any additional building under the manufacturer's existing federal permit or notice. All buildings on the premises are subject to the suitability requirements in (2).

(4) A domestic brewery may operate a warehouse on property that is not contiguous to property on which the manufacturing premises are located only if the warehouse is used exclusively for storage. To seek approval, the licensee shall submit a form provided by the department. A licensee may seek approval for more than one warehouse. Each warehouse must have a separate storage depot license. All warehouses are subject to the suitability requirements in (2) and must be equipped with refrigeration and cooling apparatus.

(5) A domestic distillery may operate a warehouse on property that is not contiguous to property on which the manufacturing premises are located only if the warehouse is used exclusively for storage. To seek approval, the licensee shall submit a form provided by the department and include verification that the Alcohol and Tobacco Tax and Trade Bureau approved the licensee's registration to operate the warehouse. A licensee may seek approval for more than one warehouse. Each warehouse must have a separate domestic distillery storage warehouse license. All warehouses are subject to the suitability requirements in (2).

(6) In addition to all other requirements, a manufacturer's premises with a sample room shall be considered suitable only if:

(a) there is a single contiguous sample room;

(b) the sample room is located in the interior portion of the premises;

(d) the sample room contains a drink preparation area. The premises may have more than one drink preparation area, including drink preparation areas on the patio/deck, subject to department approval; and

(e) the physical layout and equipment utilized prevent the self-service of alcoholic beverages. This includes a prohibition against the service of alcoholic beverages through self-service devices and vending machines. Reach-in coolers and open shelving are prohibited unless they are located in a drink preparation area and the department determines that sufficient physical safeguards are in place to prevent the self-service of alcoholic beverages.

(7) In addition to all other requirements, a manufacturer's premises with an off-premises sales area shall be considered suitable only if there is a separation barrier between the off-premises sales area and a sample room where the areas are contiguous. The off-premises sales area may contain reach-in coolers and open shelving. It must include a cash register or other equipment for conducting sales transactions.

(8) A manufacturing premises with a sample room may have a patio/deck. The patio/deck will be considered suitable only if:

(a) building, health, and fire code approval is obtained;

(b) the patio/deck is contiguous with and immediately accessible from the sample room, except where the department approves a path connecting the sample room and the patio/deck. The use of a path may only be approved if the licensee holds possessory interest in the path, the path is clearly marked, and the department determines that sufficient physical safeguards are in place to ensure proper service and consumption of alcoholic beverages;

(d) the physical layout and equipment prevent the self-service of alcoholic beverages. This includes a prohibition against the service of alcoholic beverages through self-service devices and vending machines. Reach-in coolers and open shelving are prohibited unless they are located in a drink preparation area and the department determines that sufficient physical safeguards are in place to prevent the self-service of alcoholic beverages.

(9) The premises must meet and maintain compliance with all suitability standards in place at the time the premises are inspected. The department may, at any time, verify that the premises remain in compliance with all suitability standards in place at the time the suitability of the premises was last determined. Upon determining that the premises do not meet all applicable suitability standards, the department may deny an application or take administrative action against a licensee, including license revocation.

(10) The privileges granted under a license extend only to the premises depicted in the floor plan approved by the department. The licensee shall follow the process in ARM 42.13.106 for a premises alteration.

AUTH: 16-1-303, MCA

IMP: 16-4-102, 16-4-402, MCA

REASON: In addition to the proposed actions included in the general statement of reasonable necessity at the beginning of this notice, which covers the proposed adoption of a new rule to provide the premises suitability requirements for a winery, brewery, and distillery in a single location, the department proposes including the following new provisions in New Rule V.

The proposed requirement for adequate control over the premises in (2)(b) ensures the licensee can effectively manage the manufacturing operations and consumption of alcoholic beverages to prevent self-service, overconsumption, and consumption by underage persons. For example, a licensee would not have adequate control over a common area shared with other building tenants because the licensee would not have exclusive authority to govern the conduct in these areas. Accordingly, such areas cannot be part of the premises.

Subsection (2)(c) proposes to restrict the operation of multiple alcoholic beverages licenses at the premises other than under an approved alternating proprietor arrangement. Alternating proprietor arrangements are allowed in ARM 42.13.1002. These arrangements allow a manufacturer to utilize the premises and equipment of another manufacturer to produce and/or package alcoholic beverages. The exception provided in this rule enables the alternating proprietor arrangements to occur without a violation of the single license requirement.

The proposed requirement for interior access to any interior portion of the premises in (2)(h) ensures access to all areas without leaving the premises. Where interior access does not exist, a separate license is required.

Subsection (2)(i) proposes to require any area designated for the storage of alcoholic beverages to be located on the interior portion of the premises to reduce unauthorized access and protect public safety.

Section (6) proposes the suitability requirements for a manufacturer's sample room. These sample rooms were previously addressed in ARM 42.13.405, 42.13.601, and 42.13.805, which are proposed to be amended or repealed in this same rulemaking notice. Although not new, the department proposes to provide better guidance by incorporating these requirements in a single rule. Subsection (6)(a) proposes to require a single contiguous sample room to protect patrons' safety by ensuring the sample room is not crossing manufacturing and storage areas which should be restricted. Subsection (6)(b) proposes to require the sample room to be on the interior portion of the premises so the public can easily determine that the business offers alcoholic beverages and to ensure the floor plan accurately describes the primary location where alcoholic beverages are available in the sample room. Subsection (6)(c) proposes to prohibit the sample room from being in storage warehouses because these building are specifically licensed for storage purposes only. Subsection (6)(d) proposes to allow the licensee to have multiple drink preparation areas, including multiple drink preparation areas on the patio/deck, to allow the licensee to serve patrons from multiple areas so long as proper controls are in place.

The proposed requirement of a separation barrier in (7) is to ensure there is a clear physical distinction between the sample room and a contiguous off-premises sales area. This is necessary so that patrons and the licensee can identify the different areas, which operate under different rules and requirements. This separation helps ensure the licensee has control over the consumption of alcoholic beverages on the premises to prevent self-service, overconsumption, and consumption by underage persons.

Under existing rule, a licensee is only required to obtain approval from a fire official for the inclusion of a patio/deck, but (8)(a) proposes to also require approval from building and health officials. All three approvals are necessary to ensure the proposed patio/deck is safe for public use.

Section (9) proposes to provide information about the department's regulatory authority. Although the department's oversight function is not new, the reference is included here for transparency.

5. The rules proposed to be amended provide as follows, new matter underlined, deleted matter interlined:

42.12.105 ELECTRONIC SUBMISSION OF DOCUMENTS AND ELECTRONIC SIGNATURES (1) through (4) remain the same.

AUTH: 16-1-303, MCA

IMP: 16-4-402, 45-7-202, MCA

REASON: The department proposes amending ARM 42.12.105 to add a missing implementing statute to the rule. This is a housekeeping measure only and unrelated to the general amendments in this proposal notice.

42.12.106 DEFINITIONS The following definitions apply to this chapter:

(1) "Adjacent to," with regard to alcoholic beverage advertising limitations for premises suitability, means:

(a) the premises share a common internal or external wall with the building at issue; or

(b) there is an absence of another building between the premises and the building at issue; and

(c) the distance between the nearest exterior wall of the premises and the building at issue is equal to or less than 100 feet.

(1) remains the same, but is renumbered (2).

(3) "Alteration" means a structural change or modification to the premises other than a cosmetic change. Examples include adding a patio/deck or removing a half wall.

(2) remains the same, but is renumbered (4).

(3) "Bar preparation area" means a bar area where alcoholic beverages can be purchased and consumed. The area must have sufficient seating and must include supplies to prepare, consume, and deliver alcoholic beverages.

(4) "Bona fide grocery store" means a retail establishment where a variety of articles of staple foodstuffs, including meats, vegetables, fruits, bakery items, dairy products, and household supplies, are sold for consumption off-premises.

(5) "Bona fide sale" means a transaction that completely transfers the ~~license~~ property to a qualified purchaser for consideration.

~~(6) "Business operated under the license" means the privilege of keeping alcoholic beverages for sale.~~

(6) "Building" means an enclosed structure with external walls and a roof. Separate structures or structures connected by skyways are not considered one building for licensing purposes.

(7) "Business directly related to the on-premises consumption of alcoholic beverages" means a business that is readily associated with on-site alcoholic beverage consumption, such as a hotel, bowling alley, casino, or restaurant. It does not include alcoholic beverage manufacturers or off-premises alcoholic beverage businesses.

(7) through (10) remain the same, but are renumbered (8) through (11).

(12) "Contiguous" means touching or sharing a common border.

(13) "Cross collateralization" means collateral for one loan also serving as collateral for another loan.

(14) "Drink preparation area" means the bar area on the premises where alcoholic beverages are stored and prepared for on-premises consumption and from which alcoholic beverages may be sold for off-premises consumption.

(11) and (12) remain the same, but are renumbered (15) and (16).

(17) "Floor plan" means a diagram with measurements of the premises as seen from above.

(18) "Grocery store" means a self-service retail establishment where a variety of perishable and nonperishable food items and household goods are sold for use off the premises.

(13) remains the same, but is renumbered (19).

(20) "Interior access" means entry that does not impede customer foot traffic from accessing any interior portion of the premises. Interior access is not found where a customer would be required to leave the interior portion of the premises.

(14) through (16) remain the same, but are renumbered (21) through (23).

(24) "Manufacturing area" means the portion of a manufacturing premises that is not designated as a sample room or off-premises sales area.

(17) remains the same, but is renumbered (25).

(26) "Off-premises sales area" means an area on the premises of an on-premises consumption licensee or a manufacturer where alcoholic beverages are available for purchase in original packaging for off-premises consumption.

~~(18)~~(27) "Ownership interest" means the involvement in the business operated under the license by someone who owns some or all of the assets of the business, shares any portion of the profits, or any portion of the losses or liabilities of the business. Someone with an ownership interest in a liquor license shares in the financial risks of the business and is entitled to the profits or suffers the losses. Ownership interest includes the right to control the location or ownership of a license. Examples of ownership interests would include the authority to participate in such business decisions as the sale of the license, relocation of the license, or change or creation of any financial arrangements for loan repayment or funding sources~~, or any responsibilities listed in ARM 42.12.132 to be held by the licensee~~. Participation in business decisions does not include providing advice. A right of first refusal is not an ownership interest.

(19) remains the same, but is renumbered (28).

~~(20)~~(29) "Patio/Deck" means an outdoor ~~area~~ portion of the premises where the preparation, service, and consumption of alcoholic beverages is permitted ~~that is part of the licensed premises, specifically designated on a floor plan, with a perimeter barrier and immediately adjacent to, and accessible from, the indoor portion of the licensed premises~~.

~~(21)~~(30) "Perimeter barrier" means a barrier enclosing the perimeter of the patio/deck ~~portion of a licensed premises, which~~. The barrier shall be constructed in a manner that impedes foot traffic and clearly defines the boundary of the ~~licensed~~ exterior portion of the premises ~~in a way that~~. The barrier shall be at least three feet high at all points and may have a single six-foot-wide entrance permitting public access from an unlicensed area to the patio/deck. Upon the department's determination that the barrier accomplishes its intended purpose, the barrier may:

(a) ~~clearly marks for patrons, licensees, licensees' employees, investigators, local law enforcement, or other interested parties, where consumption of alcohol is allowed~~ be constructed of materials such as lattice or wrought iron that do not form a solid structure;

(b) ~~impedes access to the service areas by underage persons or others who may attempt to enter the premises without the licensee's knowledge~~ have a portion of it be water; ~~and~~

(c) consists of a fence or wall at least three feet high, or an alternative barrier that accomplishes the same purposes and is approved by the department. A perimeter barrier may be with or without entrances from the parking lot, sidewalk, or other areas beyond the patio/deck regardless of whether those areas beyond the licensed premises are land or water. In the case of a patio/deck which abuts a river, lake, or other body of water, the edge of the water may serve as a portion of the perimeter barrier, subject to department approval have additional entrances permitting public access to the patio/deck; and

(d) be less than three feet in height.

~~(22) "Prepared-food business" means a restaurant, except the food need not be prepared on-site.~~

~~(23) "Primarily meals with table service" means a restaurant where the business records show that the gross sales of food is greater than the sum of any other activity conducted on the premises.~~

(31) "Permanent floor-to-ceiling wall" means a continuous structure spanning from floor to ceiling that remains in a fixed position and serves as a solid physical barrier. The wall may be constructed of brick, glass, stone, wood, and other materials as approved by the department. The wall may not be constructed of materials such as lattice or wrought iron that do not form a solid physical barrier.

(32) "Premises" means the area identified in the floor plan approved by the department on which the activities authorized under the license may be conducted.

~~(24)~~ "Restaurant," as it applies to an all-beverages license or a retail on-premises beer or beer and wine license (but not a restaurant beer and wine license), means a public eating establishment allowing for seated service for a minimum of 12 persons at tables or booths where food is prepared, sold, and served on-site.

(25) and (26) remain the same, but are renumbered (33) and (34).

~~(27)~~(35) "Sample room" means ~~a specific~~ the area of a manufacturer's premises where the service, sale, and on-premises consumption of alcoholic beverages are permitted designated on a floor plan where samples of product produced on site may be provided to the public; and the floor plan that accompanied the application for a brewery, distillery, or winery, was approved by, and is on file with, the department.

(36) "Self-service of alcoholic beverages" means allowing persons other than the licensee or its employees to have access to alcoholic beverages prior to the licensee or its employees providing the alcoholic beverage to the person.

(37) "Separation barrier" means a barricade that limits entry from the on-premises sales area to the off-premises sales area through an entrance no wider than six feet. An additional entrance in the separation barrier may be allowed only upon department approval. The separation barrier shall span from floor to ceiling and remain in a fixed position unless alternative construction that accomplishes the same purpose is approved by the department. The barrier may be constructed of materials such as lattice or wrought iron that do not form a solid physical barrier.

(38) "Service area" means the area on the premises where the service, sale, and on-premises consumption of alcoholic beverages are permitted. The service area includes any patio/deck and drink preparation area.

(39) "Service bar" means an area on a restaurant beer and wine licensee's premises where alcoholic beverages are stored and prepared for on-premises consumption.

(28) and (29) remain the same, but are renumbered (40) and (41).

(42) "Storage area" means any portion of the premises that is accessible only by the licensee or its employees and where alcoholic beverages are stored in original packaging.

(30) through (32) remain the same, but are renumbered (43) through (45).

AUTH: 16-1-303, MCA

IMP: 16-1-302, ~~16-4-105, 16-4-205, 16-4-207, 16-4-301, 16-4-401, 16-4-402, 16-4-404, 16-4-413, 16-4-420, 16-4-423,~~ MCA

REASON: The department proposes amending ARM 42.12.106 to define new terms and to strike terms that are no longer used in ARM Title 42, chapter 12.

The department is proposing to define when buildings will be considered to be "adjacent to" one another for purposes of the alcoholic beverage advertising limitations in the proposed premises suitability rules. Subsection (1)(a) addresses buildings with a shared wall, while (1)(b) and (1)(c) are used together to define when buildings that do not share a common wall will be considered adjacent. The use of this defined term in the advertisement limitations is needed to ensure retailer independence from other alcoholic beverage tiers and to reduce public confusion as to the type of business being conducted at the premises.

The department also proposes to amend the definition of when a business is considered to be directly related to the on-premises consumption of alcoholic beverages for purposes of the proposed premises suitability rules. A retail license is required to be operated in a business solely dedicated to the on-premises consumption of alcoholic beverages or within a business directly related to the on-premises consumption of alcoholic beverages. As previously defined, a directly related business did not allow a retail license to be operated on the same premises as a manufacturing or off-premises retail license. Although this specific language is being added, no new requirements are being imposed.

The department proposes to add a definition of the term "interior access" as it is a requirement the department proposes to have between different interior portions of a licensed premises. The proposed definition provides guidance to licensees on what the department considers interior access.

The department proposes to amend the definition of "ownership interest" by removing content pertaining to managers from ARM 42.12.132. The department is in the process of amending ARM 42.12.132 in a separate notice, and this information needs to be stricken to accommodate those proposed rule amendments.

The department proposes to amend the definition of "perimeter barrier" to incorporate a size limitation on the entrance to ensure that entrances are not so prevalent that no barrier is actually in place to define the boundary. This will help ensure the licensee can adequately control the service and consumption of alcoholic beverages to prevent self-service, overconsumption, and service to underage persons.

The department proposes to specifically state that a "permanent floor-to-ceiling wall" must be a solid physical structure and provides examples of acceptable construction materials. This is not a new requirement, as the department has long interpreted 16-3-311, MCA, based upon the plain meaning of a floor-to-ceiling wall.

The self-service of alcoholic beverages is prohibited in the on-premises sales area of a retailer. Therefore, the proposed definition of "self-service" ensures the licensee has adequate control of the premises to prevent overconsumption and consumption by underage persons.

The department proposes to require a separation barrier as defined to ensure there is a clear physical distinction between the on-premises sales area and the off-premises sales area. This is necessary so that patrons and the licensee can identify the different areas, which operate under different rules and requirements. This separation helps ensure the licensee has control over the consumption of alcoholic beverages on the premises to prevent self-service, overconsumption, and consumption by underage persons. The proposed definition of "separation barrier" provides examples of what the barrier may be constructed of to enhance applicants' and licensees' understanding of the term.

The department proposes to add a definition of the term "storage area" as it is a portion of the premises the department proposes to have the licensee identify on the floor plan. The storage area requires limited access to prevent the self-service of alcoholic beverages by patrons.

Furthermore, the department reviewed the current implementing statutes as cited for the rule and proposes striking those that serve no purpose or no longer apply.

42.12.133 CONCESSION AGREEMENTS (1) remains the same.

(2) In addition to the general suitability rule requirements in ~~ARM 42.12.122~~ [NEW RULE I], and other rules specific to the license type, the premises for any license operated under a concession agreement can only be considered suitable for the retail sale of alcoholic beverages if the existence of a concession agreement and the names of the parties to the concession agreement are plainly disclosed to the public both inside and outside of the licensed premises by signage as follows:

(a) through (6) remain the same.

AUTH: 16-1-303, MCA

IMP: 16-3-305, 16-3-311, 16-4-401, 16-4-402, MCA

REASON: The department proposes amending ARM 42.12.133 to remove the reference to ARM 42.12.122, which is being proposed to be repealed in this same rulemaking notice, and replace it with New Rule I, associated with premises suitability requirements that are proposed to be adopted in this same rulemaking notice.

42.12.209 TRANSFER OF A LICENSE TO ANOTHER PERSON (1) through (6) remain the same.

(7) Prior to the department granting written approval:

(a) a certificate, stock, or other evidence of the proposed ownership interest may not be registered in the licensee's records; and

(b) earnest money may be paid to the license seller, not to exceed five percent of the license purchase price, but any additional funds or other consideration for the liquor license may not be exchanged unless:

(i) through (10) remain the same.

AUTH: 16-1-303, MCA

IMP: 16-4-401, 16-4-402, MCA

REASON: The department proposes amending ARM 42.12.209 to provide the industry with the maximum amount of earnest money an intended purchaser is allowed to pay an intended seller of an alcoholic beverage license without it being held in escrow. The proposed maximum on the earnest money allows the seller to collect a reasonable amount of funds to help ensure that potential buyers are serious and intend to follow through with their agreement to a purchase transaction.

42.12.302 DEFINITIONS The following ~~terms will be used in~~ definitions apply to this subchapter:

~~(1) "Association" is defined in ARM 42.2.304.~~

~~(2) "Civic or community enterprise" means an activity organized for the public at large.~~

(3) and (4) remain the same, but are renumbered (1) and (2).

~~(5) "Contiguous" is defined in ARM 42.2.304.~~

(6) remains the same, but is renumbered (3).

(4) "Fortified wine" means wine that contains more than 16 percent, but not more than 24 percent, of alcohol by volume. Fortified wine constitutes liquor for distribution purposes.

~~(7) "Manufacture" includes distillation, rectification, bottling, and processing, as defined under the provisions of the laws of the United States.~~

(8) remains the same, but is renumbered (5).

(9) "Recreational or sporting activity" refers to those facilities that support the recreational and sporting activities commonly understood as resort activity and activity upon which a resort is based. This includes but is not limited to hiking, skiing, boating, swimming, horseback riding and golfing. This does not include such secondary activity as shopping, movie-going, dining, and sight-seeing.

~~(10)~~(6) "Resort area" means a location ~~or site~~ in Montana developed for ~~where a recreational development, either proposed or existing, is located. The~~ the primary purpose of ~~the resort area must be to provide~~ providing a suitable location and the necessary facilities where the general public may engage in recreational ~~or sporting~~ activity. Recreational activity includes hiking, skiing, boating, swimming, horseback riding, and golfing. It does not include such activities as shopping, movie-going, dining, and sight-seeing. ~~The resort development may not qualify as a resort area until it has been approved as such by the department.~~

~~(11) "Special event" is defined in ARM 42.12.106.~~

(12) remains the same, but is renumbered (7).

AUTH: 16-1-201, 16-1-303, MCA

IMP: 16-1-201, 16-4-201, 16-4-202, 16-4-301, MCA

REASON: The department proposes amending ARM 42.12.302 to remove terms that are no longer used in ARM Title 42, chapter 12, subchapter 3. This includes the terms "association," "civic or community enterprise," "manufacture," and "special event."

The department also proposes amending and transferring the definition of "contiguous" to ARM 42.12.106, as this term will be applicable to all of chapter 12, not just this subchapter, and proposes adding a definition for "fortified wine" to provide clarity regarding its distribution.

The department further proposes striking "recreational or sporting activity" as an independently defined term and amending the definition of "resort area" to provide examples of recreational activities there instead, to provide the public and licensees better guidance without the need to refer to multiple definitions.

42.12.401 DEFINITIONS The following ~~terms will be used in~~ definitions apply to this ~~chapter.~~ subchapter:

(1) ~~The following terms apply to all lottery processes:~~

~~(a)~~ "Available license" means a newly created license which can be issued by the department or an existing license that can be transferred between quota areas because of:

~~(i)~~(a) a population increase verified by the most recent census population figures; or

~~(ii)~~(b) a lapse or revocation of an existing license.

~~(b) "Conditional approval letter" is defined in ARM 42.12.106.~~

(c) "Continuously open to the public" means open during designated business hours on a weekly basis with no interruption in those business hours. Documented exceptions not causing unreasonable closure that would be considered are:

~~(i) acts of nature, such as a flood, earthquake, tornado, or blizzard;~~

~~(ii) other acts beyond the owner's control; or~~

~~(iii) a remodeling project of no greater than a one-month duration.~~

~~(d)~~(2) "Existing ~~beer/wine/all-beverages~~ license" means ~~either~~ an on-premises or off-premises consumption retail license that is ~~either~~ currently being used at the location in question, or has been approved for nonuse status, or is a license for which a sale has occurred or is pending but not approved by the department.

(e) through (h) remain the same, but are renumbered (3) through (6).

~~(2) The following terms specifically apply to restaurant beer and wine licenses:~~

~~(a) "Evening dinner meal" means individually priced meals served at least four days a week for at least two hours a day between the hours of 5 p.m. and 11 p.m.~~

~~(b)~~(7) "Preference" means a priority provided to a restaurant beer and wine lottery applicant based upon eligibility.

~~(c) "Restaurant" as it refers to a restaurant beer and wine license, means a public eating place:~~

~~(i) where individually priced meals are prepared and served for on-premises consumption;~~

~~(ii) where at least 65 percent of the restaurant's annual gross income from the operation is from the sale of food (including nonalcoholic beverages) and not from the sale of alcoholic beverages;~~

(iii) that has a dining room, a kitchen, and the number and kinds of employees necessary for the preparation, cooking, and serving of meals in order to satisfy the department that the space is intended for use as a full-service restaurant;

(iv) that serves an evening dinner meal at least four days a week for at least two hours a day between the hours of 5 p.m. and 11 p.m. This provision does not apply to a restaurant for which a restaurant beer and wine license is in effect as of April 9, 2009, or to subsequent renewals of that license;

~~(v) that offers~~ ~~individual sales of beer and wine by the drink;~~

~~(vi) that serves beer and wine only to a patron who orders food;~~

~~(vii) where beer and wine purchases will be stated on the food bill;~~

~~(viii) that has a service bar as defined in ARM~~ 42.12.401~~, at which the consumption of alcoholic beverages by patrons or any other person is not permitted;~~

~~(ix) that provides table service of alcoholic beverages from the service bar; and~~

~~(x) that has sufficient seating to accommodate the number of patrons indicated by the restaurant beer and wine licensing fees indicated in~~ 16-4-420~~, MCA.~~

(d) "Restaurant beer and wine license" means a license which must be used in conjunction with a restaurant where beer and wine can only be served to patrons who order food or who are waiting to be seated.

(e) "Service bar" means an area where alcoholic beverages are stored and prepared for table service delivery to patrons for on-premises consumption. Consumption of alcoholic beverages by patrons or any other person is not permitted at the service bar. The table service area, including the eating counter, must be noticeably separated from, and not attached or connected to, the service bar.

~~(f) "Table service" means service of alcoholic beverages to a table, booth, or eating counter by a licensee or licensee's employees.~~

AUTH: 16-1-303, MCA

IMP: 16-4-105, 16-4-201, 16-4-204, 16-4-420, 16-4-502, MCA

REASON: The department proposes amending ARM 42.12.401 to update the introductory statement to make it clear that the definitions in the rule apply to the subchapter only, and not the entire chapter of rules in ARM Title 42, chapter 12. Additionally, the department intends to change the title of ARM Title 42, chapter 12, subchapter 4, from "Restaurant Beer and Wine License Lottery Process" to "Alcoholic Beverage License Lottery" as the subchapter addresses more than just restaurant beer and wine licenses.

The department proposes striking the definition of "conditional approval" as the term is already defined in ARM 42.12.106, which applies to the entire chapter. The department also proposes removing the definition "service bar" from this subchapter rule and adding it to ARM 42.12.106, as proposed to be amended in this same rulemaking notice.

The department also proposes striking the definitions for "continuously open to the public," "irrevocable letter of credit," and "table service" because these terms are not currently used in ARM Title 42, chapter 12 and, therefore, defining them here is unnecessary.

The department further proposes striking the definitions for "evening dinner meal" and "restaurant" and relocating the relevant information within newly numbered ARM 42.13.1103, pertaining to the conditions of operating a restaurant beer and wine license, in an effort to make it more convenient for the industry and public to locate information in a single location rather than needing to refer to multiple rules.

The relocation of these definitions or parts of definitions is part of the proposed general reorganization of the licensee suitability and condition rules in ARM Title 42, chapters 12 and 13, as set forth in the general statement of reasonable necessity at the beginning of this notice.

42.13.111 DEFINITIONS The following definitions apply to this subchapter:

(1) "Alcohol beverage service training" means any server training program conducted by the department or the department designee, or a qualified server training program that has been preapproved in writing by the department.

(2) remains the same, but is renumbered (1).

~~(3)~~(2) "Building" means an enclosed structure with external walls and a roof. ~~A series of structures linked together, such as a commercial mall,~~ Separate structures ~~contained on a city block~~ or structures connected by skyways, are not considered one building for licensing purposes.

(3) "Contiguous" means touching or sharing a common border.

(4) through (9) remain the same.

(10) "Drink preparation area" means the bar area on the premises where alcoholic beverages are stored and prepared for on-premises consumption and from which alcoholic beverages may be sold for off-premises consumption.

(11) "Flavors and nonbeverage ingredients containing alcohol" means any intermediate product containing alcohol that is used in the production of beer.

(12) "Floor plan" means a diagram with measurements of the premises as seen from above.

(13) "Fortified wine" means wine that contains more than 16 percent, but not more than 24 percent, of alcohol by volume. Fortified wine constitutes liquor for distribution purposes.

(10) remains the same, but is renumbered (14).

(15) "Grocery store" means a self-service retail establishment where a variety of perishable and nonperishable food items and household goods are sold for use off the premises.

~~(11)~~(16) "Industry member" is any person engaged in business as a manufacturer, importer, or wholesaler of ~~distilled spirits, wine, or malt~~ alcoholic beverages.

(12) remains the same, but is renumbered (17).

~~(13)~~(18) "Mitigating circumstances" means a justification ~~or excuse~~ for a violation ~~of the code, but which, in fairness, may be considered as~~ that the department considers extenuating enough to ~~reduce~~ warrant a reduction of the penalty ~~imposed~~ ~~for the purpose of ARM 42.13.101~~ that would otherwise be proposed.

(19) "Off-premises sales area" means an area on the premises of an on-premises consumption licensee or manufacturer where alcoholic beverages are available for purchase in original packaging for off-premises consumption.

(20) "Original packaging" means the sealed container in which a manufacturer packages its product for retail sale. It includes bottles, cans, kegs, and growlers, but does not include lines or piping carrying product from a manufacturer's premises to a retailer's premises.

~~(14)~~(21) "Patio/deck" means an outdoor ~~area~~ portion of the premises where the preparation, service, and consumption of alcoholic beverages is permitted ~~that is part of the licensed premises, specifically designated on a floor plan, with a perimeter barrier and immediately adjacent to, and accessible from, the indoor portion of the licensed premises~~.

~~(15)~~(22) "Perimeter barrier" means a barrier enclosing the perimeter of the patio/deck ~~portion of a licensed premises, which~~. The barrier shall be constructed in a manner that impedes foot traffic and clearly defines the boundary of the ~~licensed~~ exterior portion of the premises ~~in a way that~~. The barrier shall be at least three feet high at all points and may have a single six-foot-wide entrance permitting public access from an unlicensed area to the patio/deck. Upon the department's determination that the barrier accomplishes its intended purpose, the barrier may:

(a) ~~clearly marks for patrons, licensees, licensees' employees, investigators, local law enforcement, and the general public where consumption of alcohol is allowed~~ be constructed of materials such as lattice or wrought iron that do not form a solid structure;

(b) ~~impedes access to the service areas by underage persons or others who may attempt to enter the premises without the licensee's knowledge~~ have a portion of it be water; ~~and~~

(d) be less than three feet in height.

(16) and (17) remain the same, but are renumbered (23) and (24).

~~(18)~~(25) "Premises" means ~~one building or a specific portion or portions of one building as described on~~ the area in the floor plan~~, identified by a unique address and~~ approved by the department on which the activities authorized under the license may be conducted. The premises shall contain all service areas used by the licensee and the licensee's patrons and those service areas in which the licensee operates outside of and attached to the licensed building and to which patrons are permitted free access from the building. Premises includes a patio/deck.

(26) "Prepared-food business," as it applies to an on-premises beer license with a wine amendment, means a public eating establishment where the food is not made on-site.

(19) remains the same, but is renumbered (27).

(20~~) "Proof of training" means a printed copy of a training certificate, wallet card, or online verification of completion of training received from the training provider.~~

~~(21) "Reprimand" means a written warning issued to a licensee.~~

(28) "Restaurant," as it applies to an on-premises beer license with a wine amendment, means a public eating establishment where food is made on-site.

(22) remains the same, but is renumbered (29).

(30) "Sample room" means the area of a manufacturer's premises where the service, sale, and on-premises consumption of alcoholic beverages are permitted.

(23) remains the same, but is renumbered (31).

(32) "Self-service of alcoholic beverages" means allowing persons other than the licensee or its employees to have access to alcoholic beverages prior to the licensee or its employees providing the alcoholic beverage to the person.

(24)(33) "Service area" means the area on the premises where the service, sale, and on-premises consumption of alcoholic beverages are permitted. The service area includes any patio/deck and drink preparation area ~~in which the preparation, sale, service or consumption of alcoholic beverages occurs, except as provided in 16-3-105, MCA~~.

(34) "Service bar" means an area on a restaurant beer and wine licensee's premises where alcoholic beverages are stored and prepared for on-premises consumption.

(35) "Stand-alone beer and/or table wine business" means a business in which 95 percent of the business's annual gross income comes from the sale of beer, table wine, or both.

(25~~) "Training providers" means a company or organization that has a responsible alcohol sales and service training program.~~

AUTH: 16-1-303, MCA

IMP: ~~16-3-302~~ 16-1-302, MCA

REASON: The department proposes amending ARM 42.13.111 to update the terms defined in the rule to correspond with the current content of the rules covered in this subchapter. The terms proposed to be stricken are no longer necessary to define in this subchapter. The terms proposed to be added were either previously located in rule content being relocated into this subchapter as a result of the updates currently proposed in this same rulemaking notice or not previously defined by rule and should be.

The department proposes to add the definition for "flavors and nonbeverage ingredients containing alcohol" because the department proposes repealing ARM 42.13.602 and placing the single definition from that rule into this one, to keep all definitions of terms used in chapter 13 within a single rule.

The department proposes to add the definition for "fortified wine" and to clarify that it is considered to be liquor for distribution purposes, so licensees are aware they need to purchase fortified wine through agency liquor stores.

The department proposes clarifying the definition of "original packaging" to inform manufacturers that lines and piping to a retailer's establishment are not considered original packaging. A manufacturer and retailer located next to each other are required to have different ownership and the delivery of the alcoholic beverages to the retailer should be made in the manner of kegs, cans, bottles, and growlers, no different than if the product was delivered across town or across the state to another retailer.

The department proposes striking the term "reprimand" because ARM 42.13.101 sufficiently addresses when a reprimand may be issued and how the department shall consider it in the progress penalty schedule.

The department further proposes correcting an implementing citation error. The correct statute is 16-1-302, MCA, not 16-3-302, MCA, as currently listed in the rule.

42.13.405 WINERY - ~~SAMPLES~~ CONDITIONS FOR OPERATING

(1) ~~Product samples may only be provided in the sample room as shown on the floor plan, which has been submitted and approved by the department~~ In addition to all other alcoholic beverage licensing requirements, a winery shall:

(a) refrain from providing alcoholic beverages on the premises until the department approves a sample room;

(b) not possess any interest in real or personal property owned, occupied, or used by an alcoholic beverage retailer in the conduct of the retailer's business;

(d) store on the premises only the alcoholic beverages for which the premises are licensed or those authorized under an approved alternating proprietor arrangement;

(e) sell and deliver its products for off-premises sales only in original packaging;

(f) prevent the self-service of alcoholic beverages on the premises, except in an off-premises sales area;

(g) prevent the consumption or possession of alcoholic beverages on the premises by persons who are under 21 years of age or actually, apparently, or obviously intoxicated;

(h) prevent the sale of alcoholic beverages for on-premises or off-premises consumption between 2 a.m. and 8 a.m.;

(i) prevent the consumption or possession of alcoholic beverages on the premises between 2 a.m. and 8 a.m. by removing all alcoholic beverages other than those purchased in original packaging for off-premises consumption from individuals' possession by 2 a.m.;

(j) prevent the on-premises consumption of alcoholic beverages not sold or provided at the premises and those sold in original packaging for off-premises consumption;

(k) for any alcoholic beverage purchased on the premises, prevent the consumption of alcoholic beverages on any property in which the licensee has possessory interest and that is contiguous or used in connection with the licensee's business, including any patio, deck, sitting area, smoking area, playground, or parking lot that is not part of the premises;

(l) maintain records documenting its business operations including, but not limited to the sale, production, storage, and processing of alcoholic beverages on the premises; and

(m) electronically file all required alcoholic beverage tax returns and pay any taxes owed as provided in law.

(2) A license to operate a winery ~~located in Montana~~ is not a retail ~~licensee~~ license.

(3) A sample room may include a deck or patio, as long as the deck or patio is immediately adjacent to the winery sample room and can only be accessed from the winery. The deck or patio must be enclosed in such a manner as to restrict its access and view from the general public on the street or sidewalk.

(3) A winery may sell alcoholic beverages on its premises to a consumer for off-premises consumption only as follows:

(a) the sale may not be conducted through a drive-up window;

(b) all alcoholic beverages must be in original packaging; and

(c) alcoholic beverages may only be sold from a drink preparation area in an approved sample room or an approved off-premises sales area.

AUTH: 16-1-303, MCA

IMP: ~~16-4-201~~ 16-3-301, 16-3-304, 16-3-305, 16-3-406, 16-3-411, 16-4-107, MCA

REASON: The department proposes amending ARM 42.13.405 to provide clear guidance to wineries on the conditions for operating in Montana. In addition to the proposed actions included in the general statement of reasonable necessity at the beginning of this notice, the department proposes including the following new provisions in this rule.

New (1)(a) proposes to specify that alcoholic beverages may not be provided on the premises until the department approves a sample room. This ensures all premises suitability requirements have been met to protect public health and safety.

New (1)(b) proposes to prohibit a winery from having any interest in real or personal property owned, occupied, or used by an alcoholic beverage retailer. This prohibition is consistent with federal tied-house regulations, as provided in the Code of Federal Regulations, Title 27, part 6.

New (1)(d) proposes to limit the alcoholic beverages a licensee may have on its premises to those for which the premises are licensed and those approved under an alternating proprietor arrangement. Alternating proprietor arrangements allow a manufacturer to utilize the premises of another manufacturer to produce alcoholic beverages. The proposed rule amendment prevents the licensee from receiving a violation when a manufacturer of a different alcoholic beverage type uses the premises under an approved alternating proprietor arrangement.

New (1)(e) proposes to clarify how alcoholic beverages shall be packaged for sale and delivery. The department proposes to define original packaging as a sealed container in which manufacturers package products for retail sale, such as bottles, cans, kegs, and growlers. Utilizing this defined term in this conditions rule prohibits such things as a manufacturer delivering product to a retailer by such unapproved means as pipes or hoses.

New (1)(g) proposes to require the licensee to prohibit underage and intoxicated persons from possessing alcoholic beverages on the premises to protect public safety.

New (1)(h) and (1)(i) propose to specify the times during which the sale, consumption, and possession of alcoholic beverages are prohibited. The three types of alcoholic beverage manufacturers have varying hours for the consumption, possession, and sale of alcoholic beverages. Prohibiting the consumption, possession, and sale of alcoholic beverages during these hours is needed to be consistent with 16-3-304, MCA, which requires establishments to be closed each day between 2 a.m. and 8 a.m.

New (1)(j) proposes to prohibit a licensee from allowing the on-premises consumption of alcoholic beverages that were purchased for off-premises consumption or that were brought onto the premises by the patron. This requirement helps ensure the licensee has control over the alcoholic beverages that are consumed on the premises to prevent overconsumption and consumption by underage persons.

New (1)(k) proposes to prohibit a licensee from allowing patrons to consume alcoholic beverages on any contiguous property controlled by the licensee that is not part of the premises. The department proposes this requirement because the privileges that come with a license only apply to the premises approved by the department. If the licensee expands its premises without department approval, the licensee has exceeded its license privileges.

New (1)(l) proposes to clarify what documents must be maintained to enable the department to verify the licensee is complying with the law.

New (1)(m) proposes to require the licensee to electronically file any alcoholic beverage tax returns and pay the applicable tax owned. The department is requiring this to promote the use of the department's safe and efficient online system, which is already used by the majority of wineries. This will enable the department to more efficiently receive and process these returns and payments.

The department proposes to strike the requirement in (3) that a patio/deck have a barrier restricting the public's view from a sidewalk because there is no public harm caused by the absence of this barrier.

New (3)(c) proposes to provide clarification on where alcoholic beverages may be sold from on the premises. To protect public safety, the consumption of alcoholic beverages is prohibited in certain areas, such as those areas dedicated to manufacturing or storage.

The department further proposes including references to additional statutes that this rule implements and proposes updating the rule title to reflect the content of the rule as amended.

42.13.601 ~~SMALL~~ BREWERY ~~RESTRICTIONS~~ - CONDITIONS FOR OPERATING ~~(1) Product samples may only be provided in the sample room as shown on the floor plan which has been submitted and approved by the department.~~

(1) In addition to all other alcoholic beverage licensing requirements, a brewery shall:

(a) not possess any interest in real or personal property owned, occupied, or used by an alcoholic beverage retailer in the conduct of the retailer's business;

(b) store alcoholic beverages only on the premises;

(c) store on the premises only the alcoholic beverages for which the premises are licensed or those authorized under an approved alternating proprietor arrangement;

(d) sell and deliver its product for off-premises sales only in original packaging;

(e) prevent the self-service of alcoholic beverages on the premises, except in an off-premises sales area;

(f) prevent the consumption or possession of alcoholic beverages on the premises by persons who are under 21 years of age or actually, apparently, or obviously intoxicated;

(g) prevent the on-premises consumption of alcoholic beverages not sold or provided at the premises and those sold in original packaging for off-premises consumption;

(h) for any alcoholic beverage purchased on the premises, prevent the consumption of alcoholic beverages on any property in which the licensee has possessory interest and that is contiguous or used in connection with the licensee's business, including any patio, deck, sitting area, smoking area, playground, or parking lot that is not part of the premises;

(i) maintain records documenting its business operations including, but not limited to, the sale, production, storage, and processing of alcoholic beverages on the premises; and

(j) electronically file all required alcoholic beverage tax returns and pay any taxes owed as provided in law.

(2) A ~~small~~ license to operate a brewery is not a retail license ~~beer licensee as defined in 16-4-105, MCA~~.

(3) A sample room may include a deck or patio, as long as the deck or patio is immediately adjacent to the brewery sample room and can only be accessed from the sample room. The deck or patio must be enclosed in such a manner as to restrict its access and view from the general public on the street or sidewalk.

(3) A brewery may sell alcoholic beverages on its premises to a consumer for off-premises consumption only as follows:

(a) the sale may not be conducted through a drive-up window;

(b) all alcoholic beverages must be in original packaging;

(c) alcoholic beverages may only be sold from a drink preparation area in an approved sample room or an approved off-premises sales area; and

(d) the sale of alcoholic beverages is prohibited between 2 a.m. and 8 a.m.

~~(4) Product samples for on-premises consumption may not be sold, offered for sale, or given away before 10 a.m. or after 8 p.m.~~

(4) In addition to all other requirements, a small brewery with an annual nationwide production of not less than 100 barrels or more than 10,000 barrels that operates a sample room shall:

(a) refrain from providing alcoholic beverages on the premises until the department approves a sample room;

(b) provide with or without charge no more than 48 ounces of alcoholic beverages to any individual for on-premises consumption during a business day;

(d) prevent the consumption or possession of alcoholic beverages on the premises between 9 p.m. and 10 a.m. by removing all alcoholic beverages other than those purchased in original packaging for off-premises consumption from individuals' possession by 9 p.m.

(5) On-premises consumption and possession shall not be permitted before 10 a.m. or after 9 p.m. The brewery shall be responsible for removing all product samples from patrons' possession in order to comply with this provision.

(5) In addition to all other requirements, a brewery with an annual nationwide production of more than 10,000 but less than 60,000 barrels shall:

(a) refrain from providing alcoholic beverages on the premises until the department approves a sample room;

(b) only provide samples without charge on its premises between 8 a.m. and 2 a.m.;

(d) prevent the consumption or possession of alcoholic beverages on the premises between 2 a.m. and 8 a.m. by removing all alcoholic beverages other than those purchased in original packaging for off-premises consumption from individuals' possession by 2 a.m.

~~(6) A small brewery may sell growlers. A growler is any refillable, resealable container that a brewer fills on the brewery premises for off-premises consumption.~~

AUTH: 16-1-303, MCA

IMP: 16-3-211, 16-3-213, 16-3-214, 16-3-242, 16-3-301, 16-3-304, 16-3-305, MCA

REASON: The department proposes amending ARM 42.13.601 to provide clear guidance to brewers on the conditions for operating in Montana. In addition to the proposed actions included in the general statement of reasonable necessity at the beginning of this notice, the department proposes including the following new provisions in this rule.

New (1)(a) proposes to prohibit a brewery from having any interest in real or personal property owned, occupied, or used by an alcoholic beverage retailer. This prohibition is consistent with federal tied-house regulations, as provided in the Code of Federal Regulations, Title 27, part 6.

New (1)(c) proposes to limit the alcoholic beverages a licensee may have on its premises to those for which the premises are licensed and those approved under an alternating proprietor arrangement. Alternating proprietor arrangements allow a manufacturer to utilize the premises of another manufacturer to produce alcoholic beverages. The proposed rule amendment prevents the licensee from receiving a violation when a manufacturer of a different alcoholic beverage type uses the premises under an approved alternating proprietor arrangement.

New (1)(d) proposes to clarify how alcoholic beverages shall be packaged for sale and delivery. The department proposes to define original packaging as a sealed container in which manufacturers package products for retail sale, such as bottles, cans, kegs, and growlers. Utilizing this defined term in this conditions rule prohibits such things as a manufacturer delivering product to a retailer by such unapproved means as pipes or hoses.

New (1)(f) proposes to require the licensee to prohibit underage and intoxicated persons from possessing alcoholic beverages on the premises to protect public safety.

New (1)(g) proposes to prohibit a licensee from allowing the on-premises consumption of alcoholic beverages that were purchased for off-premises consumption or that were brought onto the premises by the patron. This requirement helps ensure the licensee has control over the alcoholic beverages that are consumed on the premises to prevent overconsumption and consumption by underage persons.

New (1)(h) proposes to prohibit a licensee from allowing patrons to consume alcoholic beverages on any contiguous property controlled by the licensee that is not part of the premises. The department proposes this requirement because the privileges that come with a license only apply to the premises approved by the department. If the licensee expands its premises without department approval, the licensee has exceeded its license privileges.

New (1)(i) proposes to clarify what documents must be maintained to enable the department to verify the licensee is complying with the law.

New (1)(j) proposes to require the licensee to electronically file any alcoholic beverage tax returns and pay the applicable tax owned. The department is requiring this to promote the use of the department's safe and efficient online system, which is already used by the majority of breweries. This will enable the department to more efficiently receive and process these returns and payments.

New (3)(c) proposes to provide clarification on where alcoholic beverages may be sold from on the premises for off-premises consumption. To protect public safety, the sale of alcoholic beverages is prohibited in certain areas, such as those areas dedicated to manufacturing or storage.

New (4)(a) and new (5)(a) propose to specify that alcoholic beverages may not be provided on the premises until a sample room has been approved by the department. This ensures all premises suitability requirements have been met to protect public health and safety.

New (4)(d) and new (5)(d) propose to clarify that only those alcoholic beverages that were provided for on-premises consumption must be removed by the time specified. Those alcoholic beverages purchased for off-premises consumption are not required to be removed by the licensee, because after hours possession of alcoholic beverages that were purchased for off-premises consumption does not violate statute.

The department also proposes including references to additional statutes that this rule implements and updating the rule title to reflect the content of the rule as amended.

42.13.802 ~~DOMESTIC DISTILLERIES~~ DISTILLERY - CONDITIONS FOR OPERATING ~~(1)~~ ~~The department may issue a domestic distillery license to a person holding a federal basic permit for a distilled spirits plant.~~

(1) In addition to all other alcoholic beverage licensing requirements, a distillery shall:

(a) not sell, deliver, or provide any alcoholic beverages until the licensee has obtained a certificate of label approval or an exemption from label approval from the Alcohol and Tobacco Tax and Trade Bureau and product approval from the department;

(b) not possess any interest in real or personal property owned, occupied, or used by an alcoholic beverage retailer in the conduct of the retailer's business;

(d) store on the premises only the alcoholic beverages for which the premises are licensed or those authorized under an approved alternating proprietor arrangement;

(e) sell and deliver its product in Montana only in original packaging and to the department; and

(f) maintain records documenting its business operations including, but not limited to, the sale, production, storage, and processing of alcoholic beverages on the premises.

~~(2)~~ ~~All domestic distilleries~~ must meet the premises suitability requirements in ARM 42.12.122 and 42.12.139. A domestic distillery's premises may include more than one building if the land on which the buildings are located is contiguous and the licensee has complete control over and possessory interest in the property.

(2) A license to operate a distillery is not a retail license.

(3) Upon approval by the department, a domestic distillery licensee may own, lease, maintain, and operate a non-contiguous warehouse for the sole purpose of storing liquor. To seek approval, the licensee shall submit a form provided by the department and include:

~~(a) verification that the Alcohol and Tobacco Tax and Trade Bureau approved the licensee's registration to operate the warehouse;~~

~~(b) verification that local building, health, and fire officials approved the warehouse for its intended use; and~~

~~(c) proof of complete control over and possessory interest in the land and warehouse.~~

(3) In addition to all other requirements, a microdistillery shall:

(a) electronically file all required alcoholic beverage tax returns and pay any taxes owed as provided in law;

(b) only transfer alcoholic beverages from a manufacturing area or storage area to a sample room or off-premises sales area in original packaging;

(c) for any alcoholic beverage purchased on the premises, prevent the consumption of alcoholic beverages on any property in which the licensee has possessory interest and that is contiguous or used in connection with the licensee's business, including any patio, deck, sitting area, smoking area, playground, or parking lot that is not part of the premises;

(d) prevent the self-service of alcoholic beverages on the premises, except in an off-premises sales area;

(e) prevent the consumption or possession of alcoholic beverages on the premises by persons who are under 21 years of age or actually, apparently, or obviously intoxicated;

(f) prevent the on-premises consumption of alcoholic beverages not sold or provided at the premises and those sold in original packaging for off-premises consumption;

(g) only provide alcoholic beverages to consumers at a microdistillery for on-premises or off-premises consumption that have been produced at the microdistillery. For purposes of this requirement only, an alcoholic beverage is considered to have been produced at a microdistillery only if:

(i) on a quarterly basis, at least 90 percent of the liquor provided at the microdistillery for on-premises or off-premises consumption was distilled at the microdistillery; and

(ii) all liquor provided at the microdistillery for on-premises and off-premises consumption contains alcohol that was distilled at the microdistillery;

(h) notify the department of the percentage of alcohol distilled at the microdistillery for each liquor product prior to providing the product to consumers at the microdistillery for on-premises or off-premises consumption. The microdistillery shall notify the department of any changes to the percentages on file with the department prior to providing the changed product to consumers.

~~(4) A domestic distillery licensee shall maintain records documenting its business operations including, but not limited to, the production, storage, and processing of liquor on the premises.~~

(4) In addition to all other requirements, a microdistillery that operates a sample room shall:

(a) refrain from providing alcoholic beverages to consumers for on-premises consumption until a sample room is approved by the department;

(b) prevent the consumption or possession of alcoholic beverages outside of an approved sample room and any approved patio/deck;

(c) prevent the consumption or possession of alcoholic beverages on the premises between 8 p.m. and 10 a.m. by removing all alcoholic beverages other than those purchased in original packaging for off-premises consumption from individuals' possession by 8 p.m.; and

(d) regardless of the liquor product's alcohol content, provide no more than a combined total of 2 ounces of liquor products approved for labeling or exempt from labeling for on-premises consumption to any individual during a business day.

(5) A domestic distillery may qualify as a microdistillery to sell liquor it produces at the microdistillery's sample room for on- or off-premises consumption if it distills 25,000 gallons or less of liquor annually at the microdistillery and meets the requirements in ARM 42.13.805.

(5) In addition to all other requirements, a microdistillery that conducts off-premises sales shall:

(a) not sell alcoholic beverages through a drive-up window;

(b) sell alcoholic beverages only in original packaging;

(c) sell alcoholic beverages only from a drink preparation area in an approved sample room or an approved off-premises sales area;

(d) sell no more than 1.75 liters of liquor product approved for labeling or exempt from labeling in one day to an individual;

(e) sell alcoholic beverages for off-premises consumption only between 8 a.m. and 2 a.m.; and

(f) deliver alcoholic beverages only to the department or an agency liquor store; the delivery of alcoholic beverages to consumers off-site is prohibited.

AUTH: 16-1-303, 16-1-424, MCA

IMP: 16-1-404, 16-3-301, 16-3-304, 16-3-305, 16-4-311, 16-4-312, 16-4-501, MCA

REASON: The department proposes amending ARM 42.13.802 to provide clear guidance to distillers on the conditions for operating in Montana. In addition to the proposed actions included in the general statement of reasonable necessity at the beginning of this notice, the department proposes including the following new provisions in this rule.

The current language in (1) is proposed to be stricken as the requirement to have a federal basic permit is already addressed in 16-4-311, MCA.

New (1)(b) proposes to prohibit a distillery from having any interest in real or personal property owned, occupied, or used by an alcoholic beverage retailer. This prohibition is consistent with federal-tied house regulations, as provided in the Code of Federal Regulations, Title 27, part 6.

New (1)(e) proposes to require alcoholic beverages to be shipped to the department in original packaging because unless the distillery meets the requirement of a microdistillery, the licensee's only method of distribution in the state is through the department.

New (1)(f) proposes to clarify what documents must be maintained to enable the department to verify the licensee is complying with the law.

New (3)(b) proposes to require product transferred into the sample room or off-premises sales area to be packaged in original packaging, which the department also proposes to define in this same notice. The product is required to be in original packaging to be consistent with federal alcoholic beverage laws and to adequately account for the alcoholic beverage taxes due to the state when the product is sold.

New (3)(c) proposes to prohibit a licensee from allowing patrons to consume alcoholic beverages on any contiguous property controlled by the licensee that is not part of the premises. The department proposes this requirement because the privileges that come with a license only apply to the premises approved by the department. If the licensee expands its premises without department approval, the licensee has exceeded its license privileges.

New (3)(e) proposes to require the licensee to prohibit underage and intoxicated persons from possessing alcoholic beverages on the premises to protect public safety.

New (3)(f) proposes to prohibit a licensee from allowing the on-premises consumption of alcoholic beverages that were purchased for off-premises consumption or that were brought onto the premises by the patron. This requirement helps ensure the licensee has control over the alcoholic beverages that are consumed on the premises to prevent overconsumption and consumption by underage persons.

New (4)(a) proposes to specify that alcoholic beverages may not be provided on the premises until a sample room has been approved by the department. This ensures all premises suitability requirements have been met to protect public health and safety.

New (4)(b) proposes to provide clarification on where alcoholic beverages may be consumed on the premises. To protect public safety, the consumption of alcoholic beverages is prohibited in certain areas, such as those areas dedicated to manufacturing or storage.

New (4)(c) proposes to clarify that only those alcoholic beverages that were provided for on-premises consumption must be removed by the time specified. Those alcoholic beverages purchased for off-premises consumption are not required to be removed by the licensee, because after hours possession of alcoholic beverages that were purchased for off-premises consumption does not violate statute.

New (4)(d) proposes to clarify that, regardless of alcohol content, the distillery is only allowed to provide up to 2 ounces of liquor per person per day. This requirement is consistent with 16-4-312, MCA, and is necessary to prevent licensees from allowing additional ounces to be provided to patrons to account for differing levels of products' alcohol content.

New (5)(b) proposes to clarify how alcoholic beverages shall be packaged for off-premises consumption. The department proposes to define original packaging as a sealed container in which manufacturers package products for retail sale, such as bottles, cans, kegs, and growlers. Utilizing this defined term in this conditions rule prohibits such things as a manufacturer delivering product by such means as pipes or hoses.

New (5)(c) proposes to provide clarification on where alcoholic beverages may be sold from on the premises for off-premises consumption. To protect public safety, the sale of alcoholic beverages is prohibited in certain areas, such as those areas dedicated to manufacturing or storage.

New (5)(f) proposes to prohibit the delivery of alcoholic beverages to consumers to be consistent with statutory requirements. A distillery may only deliver alcoholic beverages to the state liquor warehouse pursuant to 16-3-101, MCA, or to an agency liquor store pursuant to 16-4-311, MCA.

The department also proposes including references to additional statutes that this rule implements and updating the rule title to reflect the content of the rule as amended.

6. The rules proposed to be transferred and amended provide as follows, new matter underlined, deleted matter interlined:

42.12.134 (42.13.1102) ~~CONDITIONS AND QUALIFICATIONS SPECIFIC FOR AN~~ ALL-BEVERAGES LICENSE - CONDITIONS FOR OPERATING (1) In addition to ~~the~~ all other alcoholic beverage licensing requirements ~~in ARM 42.12.122~~, an all-beverages licensee shall:

(a) ~~shall offer beer, wine, and distilled spirits by the drink~~ only purchase and possess on the premises liquor and fortified wine from an agency liquor store, beer from a beer wholesaler or brewery, and table wine from a table wine distributor or winery;

(b) ~~may sell alcoholic beverages for off-premises consumption only in original packaging, individual servings, or refillable beer growlers; and~~ store alcoholic beverages only on the premises;

(d) prevent the self-service of alcoholic beverages on the premises, except in an off-premises sales area;

(e) prevent the sale of alcoholic beverages for on-premises or off-premises consumption between 2 a.m. and 8 a.m.;

(f) prevent the consumption or possession of alcoholic beverages on the premises between ~~the hours of~~ 2 a.m. and 8 a.m., by removing all alcoholic beverages other than those purchased in original packaging or growlers for off-premises consumption from individuals' possession by 2 a.m.;

(g) prevent the consumption or possession of alcoholic beverages on the premises by persons who are under 21 years of age or actually, apparently, or obviously intoxicated;

(h) prevent the on-premises consumption of alcoholic beverages not sold or provided at the premises and those sold in original packaging or growlers for off-premises consumption; and

(i) prevent the consumption of alcoholic beverages on any property in which the licensee has possessory interest and that is contiguous or used in connection with the licensee's business, including any patio, deck, sitting area, smoking area, playground, or parking lot that is not part of the premises.

(2) An all-beverages licensee may sell alcoholic beverages for off-premises consumption only as follows:

(a) alcoholic beverages must be sold in original packaging or individual servings, except that the retailer may fill and sell growlers with beer and table wine;

(b) the sale of alcoholic beverages must occur on the premises; the delivery of alcoholic beverages to the consumer off-site is prohibited;

(d) the sale of alcoholic beverages within the off-premises sales area must equal at least 95 percent of the gross revenue of all sales in that area.

AUTH: 16-1-303, MCA

IMP: 16-3-301, 16-3-303, 16-3-304, 16-3-305, 16-3-311, 16-4-405, 16-6-303, MCA

REASON: The department proposes transferring and amending ARM 42.12.134 to provide additional guidance to alcoholic beverage licensees on the conditions required for operating in Montana. In addition to the proposed actions included in the general statement of reasonable necessity at the beginning of this notice, the department proposes including the following new provisions in this rule.

Newly numbered (1)(f) proposes to clarify that only those alcoholic beverages that were provided for on-premises consumption must be removed by the time specified. Those alcoholic beverages purchased for off-premises consumption are not required to be removed by the licensee, because after hours possession of alcoholic beverages that were purchased for off-premises consumption does not violate statute.

New (1)(g) proposes to require that the licensee prohibit the consumption or possession of alcoholic beverages on the premises by persons under the legal drinking age and persons who are actually, apparently, or obviously intoxicated, to protect public safety.

New (1)(h) proposes to prohibit a licensee from allowing the on-premises consumption of alcoholic beverages that were purchased for off-premises consumption or that were brought onto the premises by the patron. This requirement helps ensure the licensee has control over the alcoholic beverages that are consumed on the premises to prevent overconsumption and consumption by underage persons.

New (1)(i) proposes to prohibit a licensee from allowing patrons to consume alcoholic beverages on any contiguous property controlled by the licensee that is not part of the premises. The department proposes this requirement because the privileges that come with a license only apply to the premises approved by the department. If the licensee expands its premises without department approval, the licensee has exceeded its license privileges and has violated the conditions of its license.

New (2)(a) proposes to provide the ability for a licensee to sell wine growlers for off-premises consumption. This practice is proposed to mirror what already exists for beer products.

New (2)(b) proposes to prohibit the off-premises delivery of alcoholic beverages to a consumer. The licensee's ability to sell alcoholic beverages only extends to the premises or what is allowed under a catering endorsement. The off-premises delivery of alcoholic beverages exceeds those allowable privileges.

New (2)(c) proposes to provide clarification on where alcoholic beverages may be sold from on the premises for off-premises consumption. To protect public safety, the sale of alcoholic beverages is prohibited in certain areas, such as those areas dedicated to storage.

New (2)(d) proposes to require that 95 percent of the gross revenue in an off-premises sales area be derived from the sale of alcoholic beverages. This is to ensure that the all-beverage license is not used as an off-premises license. Off-premises licenses are appropriate where a licensee wants to sell more than alcoholic beverages for off-premises consumption.

The department also proposes updating the implementing statutes for the rule, updating the rule title to more clearly identify the rule content, and transferring the rule to ARM Title 42, chapter 13 as part of the overall reorganization of the rules in chapters 12 and 13 as set forth in the general statement of reasonable necessity at the beginning of this notice.

42.12.135 (42.13.1103) ~~CONDITIONS AND QUALIFICATIONS SPECIFIC~~ ~~FOR A~~ RESTAURANT BEER AND WINE LICENSE - CONDITIONS FOR OPERATING (1) In addition to ~~the~~ all other alcoholic beverage licensing requirements ~~in ARM 42.12.122~~, a restaurant beer and wine licensee shall:

(a) ~~shall operate at premises clearly recognizable as a restaurant, as defined in ARM 42.12.401; and~~ only purchase and possess on the premises fortified wine from an agency liquor store, beer from a beer wholesaler or brewery, and table wine from a table wine distributor or winery;

(b) store alcoholic beverages only on the premises;

(d) serve beer and wine only to patrons who order food;

(e) state alcoholic beverage sales on the food bill;

(f) obtain at least 65 percent of its annual gross income from the sale of food, excluding the sale of nonalcoholic beverages;

(g) prevent the self-service of alcoholic beverages on the premises;

(h) prevent the sale of alcoholic beverages between 11 p.m. and 11 a.m.;

(i) prevent the consumption or possession of alcoholic beverages on the premises between 11 p.m. and 11 a.m. by removing all alcoholic beverages from individuals' possession by 11 p.m.;

(j) prevent the consumption or possession of alcoholic beverages on the premises by persons who are under 21 years of age or actually, apparently, or obviously intoxicated;

(k) prevent the consumption of alcoholic beverages that were not purchased at the premises; and

~~(b)~~(l) ~~must not provide alcoholic beverages to any person~~ prohibit the sale of beer and wine for off-premises consumption.

(2) The term restaurant, as defined in ARM 42.12.401, does not include a coffee or beverage shop, bakery, kiosk, or a fast-food restaurant that, excluding any carry-out business, serves a majority of its food and drink in disposable containers not reused in the same restaurant. The disposable containers provision of the preceding sentence does not apply to a restaurant beer and wine license in use at a particular location by the same licensee In addition to the requirements in (1), any restaurant for which a restaurant beer and wine license was not in effect as of April 9, 2009., shall:

(a) serve an evening dinner meal at least four days a week for at least two hours a day between 5 p.m. and 11 p.m.; and

(b) sell the majority of its food and drinks, excluding any carry-out business, in nondisposable containers.

AUTH: 16-1-303, MCA

IMP: 16-3-301, 16-3-305, 16-3-311, 16-4-405, 16-4-420, MCA

REASON: The department proposes transferring and amending ARM 42.12.135 to provide clear guidance to restaurant beer and wine licensees on the conditions for operating in Montana. In addition to the proposed actions included in the general statement of reasonable necessity at the beginning of this notice, the department proposes including the following new provisions in this rule.

As amended, (1)(a) proposes to allow licensees to purchase fortified wine from an agency liquor store. There is nothing in the Montana Alcoholic Beverage Code that limits a restaurant beer and wine licensee to selling "table wine" rather than "wine." Therefore, the department proposes to use the definition of wine in 16-1-106, MCA, which provides that wine can contain up to 24 percent alcohol by volume. Based on this percentage, the licensee is able to purchase and sell table wine and fortified wine. Fortified wine is proposed to be defined as being wine containing more than 16 percent but not more than 24 percent alcohol by volume.

New (1)(f) proposes to exclude nonalcoholic beverages for purposes of meeting the 65 percent annual gross income requirement from food. Food is not commonly understood to include liquids; therefore, nonalcoholic beverages shall not be included in the calculation.

New (1)(j) proposes to require that the licensee prohibit the consumption or possession of alcoholic beverages on the premises by persons under the legal drinking age and persons who are actually, apparently, or obviously intoxicated, to protect public safety.

New (1)(k) proposes to prohibit a licensee from allowing the consumption of alcoholic beverages that were brought onto the premises by the patron. This requirement helps ensure the licensee has control over the alcoholic beverages that are consumed on the premises to prevent overconsumption and consumption by underage persons.

42.12.136 (42.13.1104) ~~CONDITIONS AND QUALIFICATIONS SPECIFIC FOR A BEER LICENSE AND A BEER LICENSE WITH WINE AMENDMENT FOR~~ ON-PREMISES CONSUMPTION BEER LICENSE - CONDITIONS FOR OPERATING (1) In addition to ~~the~~ all other alcoholic beverage licensing requirements ~~in ARM 42.12.122~~, an on-premises consumption beer licensee shall:

(a) ~~must meet the standards for premises operated as either a restaurant or a prepared food business when operated in conjunction with a wine amendment~~ only purchase and possess on the premises beer from a beer wholesaler or brewery;

(b) store alcoholic beverages only on the premises;

~~(b)~~(c) ~~shall~~ offer beer ~~and/or wine by the drink~~ for on-premises consumption;

~~(c) may sell alcoholic beverages for off-premises consumption only in original packaging, individual servings, or refillable beer growlers; and~~

(d) prevent the self-service of alcoholic beverages on the premises, except in an off-premises sales area;

(e) prevent the sale of alcoholic beverages for on-premises or off-premises consumption between 2 a.m. and 8 a.m.;

~~(d)~~(f) ~~shall prohibit on-premises~~ prevent the consumption or possession of alcoholic beverages on the premises between ~~the hours of~~ 2 a.m. and 8 a.m., by removing all alcoholic beverages other than those purchased in original packaging or growlers for off-premises consumption from individuals' possession by 2 a.m.;

(g) prevent the consumption or possession of alcoholic beverages on the premises by persons who are under 21 years of age or actually, apparently, or obviously intoxicated;

(h) prevent the on-premises consumption of alcoholic beverages not sold or provided at the premises and those sold in original packaging or growlers for off-premises consumption; and

(2) In addition to the requirements in (1), an on-premises consumption beer licensee with a wine amendment shall:

(a) only purchase and possess on the premises fortified wine from an agency liquor store and table wine from a table wine distributor or winery;

(b) offer wine for on-premises consumption; and

(3) An on-premises consumption beer licensee and an on-premises consumption beer licensee with a wine amendment may sell alcoholic beverages for off-premises consumption only as follows:

(a) alcoholic beverages must be sold in original packaging or individual servings, except that the retailer may fill and sell growlers with beer and table wine;

(b) the sale of alcoholic beverages must occur on the premises; the delivery of alcoholic beverages to the consumer off-site is prohibited;

(d) the sale of alcoholic beverages within the off-premises sales area must equal at least 95 percent of the gross revenue of all sales in that area.

AUTH: 16-1-303, MCA

IMP: 16-3-301, 16-3-303, 16-3-304, 16-3-305, 16-3-311, 16-3-411, 16-4-104, 16-4-105, 16-4-405, MCA

REASON: The department proposes transferring and amending ARM 42.12.136 to provide clear guidance to on-premises beer licensees and on-premises beer licensees with a wine amendment on the conditions for operating in Montana. In addition to the proposed actions included in the general statement of reasonable necessity at the beginning of this notice, the department proposes including the following new provisions in this rule.

Newly numbered (1)(f) proposes to clarify that only those alcoholic beverages that were provided for on-premises consumption must be removed by the time specified. Those alcoholic beverages purchased for off-premises consumption are not required to be removed by the licensee. Possessing alcoholic beverages between the hours of 2 a.m. and 8 a.m. that were purchased for off-premises consumption does not violate statute.

New (2)(a) proposes to allow licensees to purchase fortified wine from an agency liquor store. There is nothing in the Montana Alcoholic Beverage Code that limits an on-premises consumption beer licensee with a wine amendment to selling "table wine" rather than "wine." Therefore, the department proposes to use the definition of wine in 16-1-106, MCA, which provides that wine can contain up to 24 percent alcohol by volume. Based on this percentage, the licensee is able to purchase and sell table wine and fortified wine. Fortified wine is proposed to be defined as being wine containing more than 16 percent but not more than 24 percent alcohol by volume.

New (3)(a) proposes to provide the ability for a licensee to sell wine growlers for off-premises consumption. This practice is proposed to mirror what already exists for beer products.

New (3)(b) proposes to prohibit the off-premises delivery of alcoholic beverages to a consumer. The licensee's ability to sell alcoholic beverages only extends to the premises or what is allowed under a catering endorsement. The off-premises delivery of alcoholic beverages exceeds those allowable privileges.

New (3)(d) proposes to require that 95 percent of the gross revenue in an off-premises sales area be derived from the sale of alcoholic beverages. This is to ensure that the all-beverage license is not used as an off-premises premises license. Off-premises licenses are appropriate where a licensee wants to sell more than alcoholic beverages for off-premises consumption.

42.12.137 (42.13.1105) ~~CONDITIONS AND QUALIFICATIONS SPECIFIC FOR AN~~ OFF-PREMISES CONSUMPTION BEER ~~LICENSE AND/OR~~ AND TABLE WINE LICENSE - CONDITIONS FOR OPERATING (1) In addition to ~~the provisions stated in ARM 42.12.122, which pertain to every type of~~ all other alcoholic beverage licensing requirements, ~~license, with regard to a license for~~ an off-premises consumption beer and table wine licensee~~, a party applying for either a new license, transfer of ownership of an existing license, transfer of location of an existing license, or approval of an alteration to a premises must~~ shall:

(a) ~~operate at a premises recognized as a bona fide grocery store as described in ARM 42.12.126, a drugstore licensed as a pharmacy, or a stand-alone beer and/or table wine business~~ only purchase and possess on the premises beer from a beer wholesaler or brewery and table wine from a table wine distributor or winery;

(b) store beer and/or table wine only on the premises;

~~(b)~~(c) sell beer and/or table wine for off-premises consumption only in their original packages; ~~and~~

(c) be physically separated from any business under separate ownership from the licensed area by permanent walls. This includes a separate on-premises alcohol beverage business. The walls must be floor-to-ceiling and shall not be moved without department approval of alterations to the premises pursuant to ARM 42.13.106. The premises can have inside access to each business conducted in the building through a doorway no larger than six feet wide with a door that can be closed and locked when not in use.

(d) operate as a stand-alone beer and/or table wine business, grocery store, or drugstore licensed as a pharmacy;

(e) prevent the sale of alcoholic beverages between 2 a.m. and 8 a.m.; and

~~(2) All beer and wine inventory must be stored on-site in an area identified on the floor plan.~~

(3) Beer and/or wine purchased from the off-premises licensee may not be consumed anywhere on property owned or leased by the licensee that is part of, adjacent to, or used in connection with the licensed off-premises business. By example this includes a

(f) prevent the consumption of alcoholic beverages on the premises and any property in which the licensee has possessory interest and that is contiguous or used in connection with the licensee's business, including any patio, deck, sitting area, ~~designated~~ smoking ~~areas~~ area, ~~sports or play area~~ playground, or parking ~~lots,~~ lot ~~and any other area that is adjacent to the licensed premises and is under the control of the licensee~~ that is not part of the premises.

(2) In addition to the requirements in (1), an off-premises consumption beer and/or table wine licensee that operates in a grocery store shall maintain groceries with a retail value of at least $3,000 at all times. The inventory must include at least three different types of items in each of the following categories: meats, vegetables, fruits, baked goods, dairy, and household supplies. For example, three different types of items in the dairy category would be cheese, milk, and butter, but skim milk, chocolate milk, and whole milk would not be considered as three different types of items in the dairy category.

AUTH: 16-1-303, MCA

IMP: 16-3-301, 16-3-304, 16-3-305, 16-4-115, 16-4-402, 16-4-405, MCA

REASON: The department proposes transferring and amending ARM 42.12.137 to provide clear guidance to off-premises consumption licensees on the conditions for operating in Montana. In addition to the proposed actions included in the general statement of reasonable necessity at the beginning of this notice, the department proposes including the following new provisions in this rule.

Newly numbered (1)(c) proposes to clarify that table wine may be sold rather than wine for off-premises consumption. Off-premises consumption licensees are authorized to sell beer, table wine, or both under 16-4-115, MCA.

42.12.138 (42.13.1202) ~~CONDITIONS AND QUALIFICATIONS SPECIFIC~~ ~~FOR A~~ BEER WHOLESALER AND~~/OR~~ TABLE WINE DISTRIBUTOR ~~LICENSE AND SUBWAREHOUSES~~ - CONDITIONS FOR OPERATING (1) In addition to ~~the provisions stated in ARM 42.12.122, which pertain to every type of~~ all other alcoholic beverage ~~license~~ licensing requirements, ~~with regard to~~ a beer wholesaler, and table wine distributor, and/or a subwarehouse license, a party applying for either a new license, transfer of ownership of an existing alcoholic beverages license, transfer of location of an existing license, or approval of an alteration to a premises must shall:

(a) maintain a fixed place of business, sufficient capital, and the facilities, storehouse, receiving house, or warehouse for the receiving ~~of, storage~~, storing, and handling~~, and moving~~ of beer, table wine, and sacramental wine in large quantities for distribution and sale ~~in original packages to other licensed wholesalers and distributors or licensed retailers~~;

(b) receive ~~have sufficient space for the storage and distribution of~~ beer, ~~and/or~~ table wine, ~~in large quantities;~~ and sacramental wine from an importer, brewery, winery, wholesaler, or distributor only if:

(i) the importer, brewery, winery, wholesaler, or distributor is licensed by or registered with the department;

(ii) all product labels have been approved by the department;

(iii) an agreement of distributorship agreement is in place between the manufacturer or importer and the wholesaler or distributor; and

(iv) an accommodation agreement is in place between the importer and manufacturer when the product is received from an importer;

(c) store beer, table wine, and sacramental wine only on the premises ~~must be physically separated by permanent walls from any other business located in the same building~~ of its principal place of business or the premises of its licensed subwarehouse;

(d) deliver alcoholic beverages using its own employees, trucks, and equipment;

(e) sell beer, table wine, and sacramental wine only in its original packaging;

(f) sell and deliver beer, table wine, and sacramental wine under its Montana license only to other licensed wholesalers or distributors, licensed alcoholic beverage retailers, catered events of a licensed alcoholic beverage retailer, agency liquor stores, and special events for a special permit holder. This does not in any way prohibit the licensee from operating in compliance with other state or federal law;

(g) prevent the consumption of alcoholic beverages on the premises of its principal place of business and the premises of any licensed subwarehouse;

(h) not possess any interest in real or personal property owned, occupied, or used by an alcoholic beverage retailer in the conduct of the retailer's business; and

(i) electronically file all required alcoholic beverage tax returns and pay any taxes owed as provided in law.

(2) A beer wholesaler and/or table wine distributor shall only sell product under a bona fide sale. It shall not sell product on consignment, under conditional sale, with the privilege of return, or in a sale involving acquisition of other products.

(3) A beer wholesaler and/or table wine distributor shall only exchange or accept product returned from an alcoholic beverage retailer, wholesaler, or distributor for ordinary and usual commercial reasons, such as defective product, a delivery error, and discontinued product or business. It shall not accept product returned based upon the product being overstocked, slow moving, or seasonal.

AUTH: 16-1-303, MCA

IMP: 16-3-212, 16-3-231, 16-3-232, 16-3-242, 16-3-301, 16-3-404, 16-3-406, 16-4-103, 16-4-106, 16-4-108, 16-4-402, 16-4-415, MCA

REASON: The department proposes transferring and amending ARM 42.12.138 to provide clear guidance to beer wholesalers and table wine distributors on the conditions for operating in Montana. In addition to the proposed actions included in the general statement of reasonable necessity at the beginning of this notice, the department proposes including the following new provisions in this rule.

New (1)(b)(ii) proposes to require all product labels to be approved by the department prior to receipt by the wholesaler or distributor. This will help ensure the licensee does not begin to distribute products that have not gone through the department's review process by request of the manufacturer.

New (1)(h) proposes to prohibit a beer wholesaler and table wine distributor from having any interest in real or personal property owned, occupied, or used by an alcoholic beverage retailer. This prohibition is consistent with federal tied-house regulations, as provided in the Code of Federal Regulations, Title 27, part 6.

New (1)(i) proposes to require the licensee to electronically file any alcoholic beverage tax returns and pay the applicable tax owned. The department is requiring this to promote the use of the department's safe and efficient online system, which is already used by the majority of distributors and wholesalers. This will enable the department to more efficiently receive and process these returns and payments.

The department also proposes amending the rule to include references to additional statutes that this rule implements and to update the rule title to reflect the content of the rule as amended.

The department further proposes transferring the rule, as amended, to ARM Title 42, chapter 13 as part of the overall reorganization of the rules in chapters 12 and 13 as set forth in the general statement of reasonable necessity at the beginning of this notice.

7. The department proposes to repeal the following rules:

42.12.122 SUITABILITY OF LICENSED PREMISES

AUTH: 16-1-303, MCA

IMP: 16-3-311, 16-4-402, 16-4-405, MCA

REASON: The department proposes repealing ARM 42.12.122 and incorporating the contents of the rule into New Rules I through V, by license type, as part of the reorganization of rules in ARM Title 42, chapters 12 and 13 as set forth in the general statement of reasonable necessity at the beginning of this notice.

Currently, ARM 42.12.122 contains suitability requirements for sheds, warehouses, or any other temporary or permanent enclosures that are used for storing alcoholic beverages. The department is not incorporating this specific language into New Rules I through V because those rules sufficiently address where alcoholic beverages may be stored.

42.12.126 OFF-PREMISES SALE OF BEER OR TABLE WINE

AUTH: 16-1-303, MCA

IMP: 16-4-115, MCA

REASON: The department proposes repealing ARM 42.12.126 and incorporating the relevant content into proposed New Rule III or newly numbered ARM 42.13.1105, the licensee suitability and conditional requirement rules as part of the reorganization of rules in ARM Title 42, chapters 12 and 13 as set forth in the general statement of reasonable necessity at the beginning of this notice.

42.12.139 CONDITIONS AND QUALIFICATIONS SPECIFIC FOR A MANUFACTURER OF BEER, WINE, OR DISTILLED SPIRITS LICENSE

AUTH: 16-1-303, MCA

IMP: 16-3-213, 16-3-214, 16-3-411, 16-4-102, 16-4-311, 16-4-312, 16-4-402, MCA

REASON: The department proposes repealing ARM 42.12.139 and relocating the relevant content into ARM 42.13.405 for winery licenses, 42.13.601 for brewery licenses, and 42.13.802 for distillery licenses to house the condition requirements for operating the different license types together in ARM Title 42, chapter 13 as part of the reorganization of rules in ARM Title 42, chapters 12 and 13 as set forth in the general statement of reasonable necessity at the beginning of this notice.

42.12.213 DEFINITIONS

AUTH: 16-1-303, MCA

IMP: 16-4-401, 16-4-402, 16-4-404, 16-4-801, MCA

REASON: The department proposes repealing ARM 42.12.213 because the rule contains a single definition that the department proposes amending into ARM 42.12.106, where the majority of the definitions used in ARM Title 42, chapter 12 are located, as part of the reorganization of rules in ARM Title 42, chapters 12 and 13 as set forth in the general statement of reasonable necessity at the beginning of this notice.

42.12.312 LIQUOR MANUFACTURER'S LICENSE

AUTH: 16-1-303, MCA

IMP: 16-1-201, 16-4-312, 16-4-501, MCA

REASON: The department proposes repealing ARM 42.12.312 because the content of the rule, moral character of the applicant, is sufficiently covered in statute and therefore unnecessary to provide in rule.

42.12.314 RESTAURANT BEER AND WINE SERVICE OPERATIONS

AUTH: 16-1-303, MCA

IMP: 16-4-420, MCA

REASON: The department proposes repealing ARM 42.12.314 and amending the relevant content into newly numbered ARM 42.13.1103, so that the similar content can be maintained together in one rule rather than multiple rules as part of the reorganization of rules in ARM Title 42, chapters 12 and 13 as set forth in the general statement of reasonable necessity at the beginning of this notice.

42.13.301 STORAGE OF ALCOHOLIC BEVERAGES

AUTH: 16-1-303, MCA

IMP: 16-1-302, 16-3-201, 16-3-301, 16-6-301, 16-6-303, MCA

REASON: The department proposes repealing ARM 42.13.301 and amending the relevant content into ARM 42.13.405, 42.13.601, 42.13.802, and newly numbered ARM 42.13.1102 through 42.13.1105 and ARM 42.13.1202, the licensee condition requirement rules, as part of the reorganization of rules in ARM Title 42, chapters 12 and 13 as set forth in the general statement of reasonable necessity at the beginning of this notice.

42.13.304 STORAGE RESULTING IN TREATMENT AS BEER WHOLESALER OR TABLE WINE DISTRIBUTOR

AUTH: 16-1-303, MCA

IMP: 16-3-230, 16-4-103, 16-6-104, MCA

REASON: The department proposes repealing ARM 42.13.304 because some of the content is either readily available in statute or is a better fit elsewhere in rule and therefore being incorporated into proposed New Rule IV and/or newly numbered ARM 42.13.1202 as part of the reorganization of rules in ARM Title 42, chapters 12 and 13 as set forth in the general statement of reasonable necessity at the beginning of this notice.

42.13.305 EXCHANGE OR RETURN OF BEER OR TABLE WINE PRODUCT

AUTH: 16-1-303, MCA

IMP: 16-3-201, MCA

REASON: The department proposes repealing ARM 42.13.305 and amending the relevant content into newly numbered ARM 42.13.1202, as part of the reorganization of rules in ARM Title 42, chapters 12 and 13 as set forth in the general statement of reasonable necessity at the beginning of this notice.

42.13.602 DEFINITIONS

AUTH: 16-1-303, MCA

IMP: 16-1-401, 16-1-404, 16-3-214, MCA

REASON: The department proposes repealing ARM 42.13.602 and placing the single definition from this rule into ARM 42.13.111, as proposed to be amended in this same rulemaking notice, to keep all definitions of terms used in chapter 13 within a single rule.

42.13.805 MICRODISTILLERY SAMPLE ROOMS

AUTH: 16-1-303, MCA

IMP: 16-4-310, 16-4-312, MCA

REASON: The department proposes repealing ARM 42.13.805 and placing the relevant content into New Rule V and ARM 42.13.802, for the different license types, as part of the reorganization of rules in ARM Title 42, chapters 12 and 13 as set forth in the general statement of reasonable necessity at the beginning of this notice.

8. 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: Laurie Logan, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-7905; fax (406) 444-3696; or e-mail lalogan@mt.gov and must be received no later than January 9, 2017.

9. Laurie Logan, Department of Revenue, Director's Office, has been designated to preside over and conduct this hearing.

10. 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 that includes the name and e-mail or mailing address of the person to receive notices and specifies that the person wishes to receive notice regarding a particular subject matter or matters. Notices will be sent by e-mail unless a mailing preference is noted in the request. A written request may be mailed or delivered to the person in 8 above or faxed to the office at (406) 444-3696, or may be made by completing a request form at any rules hearing held by the Department of Revenue.

11. An electronic copy of this notice is available on the department's web site at revenue.mt.gov/rules. The department strives to make the electronic copy of this notice 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. While the department also strives to keep its web site accessible at all times, in some instances it may be temporarily unavailable due to system maintenance or technical problems.

12. The bill sponsor contact requirements of 2-4-302, MCA, do not apply.

13. With regard to the requirements of 2-4-111, MCA, the department has determined that the adoption, amendment, transfer and amendment, and repeal of the above-referenced rules could directly impact some small businesses. The department's small business impact (SBI) analysis and determination memo, titled "SBI determination 967," is available online at revenue.mt.gov/rules or upon request from the person in 8.

/s/ Laurie Logan /s/ Mike Kadas

Laurie Logan Mike Kadas

Rule Reviewer Director of Revenue

Certified to the Secretary of State November 14, 2016.