ALCOHOLIC BEVERAGE LICENSING & REGULATION COMMITTEE MINUTES

The first meeting of the 2002 interim of the Legislature's Alcoholic Beverage Licensing and Regulation Committee was called to order by Chair Senator Eric Bogue at 10:00 a.m. on Friday, June 7, 2002, in LCR 1 & 2 of the State Capitol, Pierre, South Dakota.

A quorum was determined with the following members answering the roll call: Senators Kenneth Albers, Jerry Apa, Eric Bogue, Elmer Diedtrich, and Drue Vitter, and Representatives Gene Abdallah, Michael Derby, Dale Hargens, Jean Hunhoff, Clarence Kooistra, Lou Sebert, and David Sigdestad. Representatives Barry Jensen and Kay Davis were unable to attend. Representative Frank Kloucek asked to be relieved of his committee assignment.

Staff members present were Fred Baatz, Senior Research Analyst, and Phyllis Petersen, Senior Legislative Secretary.

A list of guests present during all or part of the meeting is on file with the master minutes.

(NOTE: For the sake of continuity, the following minutes are not necessarily in chronological order. Also, all referenced documents are on file with the master minutes.)

Mr. Paul Kinsman, Director of Property and Special Taxes with the Department of Revenue, explained the state's role in the licensing procedure for alcoholic beverages. The department regulates and licenses wholesalers, and cities and counties issue retail licenses. Mr. Kinsman went on to explain the "three-tier system" which consists of manufacturers and distillers, wholesalers, and retailers. Manufacturers and distillers may sell only to other manufacturers and distillers and to wholesalers. Wholesalers may sell to other wholesalers and to retailers. Retailers may buy alcoholic beverages only from wholesalers and may not sell below the wholesale price. Wholesalers pay an occupational tax as well as a wholesale tax. All retail sales of alcoholic beverages are subject to the state sales and use tax. He said the three-tier system is an efficient way to regulate and tax alcoholic beverage sales and that a significant portion of the state's sales tax comes from the sale of alcoholic beverages. In response to a question of enforcement of rules and regulations, Mr. Kinsman said the Revenue Department has four agents who work on investigations and that the department can revoke or suspend alcoholic beverage licenses for violations. Mr. Kinsman will provide the committee with a list of states that use the 3-tier system and descriptions of other systems that are in place in other states.

Ms. Yvonne Taylor, Executive Director of the Municipal League, explained the municipalities' role in licensing. The maximum number of on-sale licenses a city or county may issue is based on census figures. Consideration is given to the suitability of the applicant, type, and location of the business. Alcoholic beverage licenses are valid for one year with renewals subject to approval by the city. The license fees generally stay in the unit of government that issues the license. The license is the property of the purchaser, but the city must approve a transfer. Cities may own liquor licenses, but electors in the city must approve such ownership. City-owned liquor stores usually are run with an operating agreement but the city retains ownership of the license. She stated that the Municipal League supports local control on number of licenses that may be issued by a city.

Mr. Dick Howard, Executive Director of the Association of County Commissioners, said that counties may issue on- and off-sale alcoholic beverage licenses outside the city limits. The process is the same as that followed by cities. The county may also issue a special event license but law enforcement in rural areas is considered before issuing these special event licenses. He said that a large part of law enforcement and court related expenses are caused by persons using alcohol. Counties no longer receive a portion of the taxes collected from the sale of alcoholic beverages. The Association of County Commissioners proposed legislation during past sessions to allocate a portion of the alcoholic beverage tax to counties, but the legislation failed.

Mr. Clint Harris, Acting Director of the South Dakota Lottery, said that in order for an establishment to have video lottery, they must have a retail license to sell alcoholic beverages that are consumed on the premises. If an owner has an alcoholic beverage violation and the license is suspended, the video lottery machines are disabled until the license is reinstated.

Ms. Yvonne Taylor stated that each community should be able to decide the number of licenses needed in a locality based on the local economy. A cap on number of licenses is halting economic development in some communities. She said one solution to this may be to allow communities to opt out of caps or to establish the maximum number of licenses. The Municipal League introduced legislation two years ago to allow local control of licenses; it failed in the House.

Mr. Tim Dougherty, South Dakota Liquor Retailers, supports limits on the number of on-sale licenses that may be issued. Eliminating the formula will lower the value of on-sale licenses and cause economic hardship to some.

The committee will focus on:

• The number of on-sale licenses that may be issued and what other states do in regard to the maximum number of licenses.
• The minimum qualifications to obtain a convention facility on-sale license.
• Changes in the definitions and references and reorganization of chapter 35-4.
• Further definition of local operating agreements.
• Inviting a representative from the farm winery industry to give an update on recent court cases that affect direct shipment and interstate commerce.

The next meeting will be held August 7, 2002, in LCR 1 & 2 beginning at 10:00 a.m.

The meeting adjourned at 2:35 p.m.