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PA Bulletin, Doc. No. 07-1279



[40 PA. CODE CHS. 1, 3, 5, 7, 11, 13 AND 17]

License Applications and Management Contracts

[37 Pa.B. 3418]
[Saturday, July 21, 2007]

   The Liquor Control Board (Board), under the authority of section 207(i) of the Liquor Code (47 P. S. § 2-207(i)), proposes to amend Chapters 1, 3, 5, 7, 11, 13 and 17 to read as set forth in Annex A.

Summary of the Proposed Rulemaking

   The proposed rulemaking adds two definitions, establishes regulations for management agreements, implements contractor responsibility requirements, amends procedures for wine and spirits tastings in stores and amends rules of hearing procedure. Obsolete regulations regarding cleaning draft beer systems are updated. Following are summaries of the proposed amendments:

   The proposed rulemaking defines the terms ''merchant'' and ''pecuniary interest.''

   The proposed rulemaking clarifies that the reputation of stockholders, directors, officers and members of corporate or other business entity licensees will be considered in assessing the reputation of the licensee.

   The proposed rulemaking revises procedures for receiving certificates of completion from applicants for license transfers. Revised procedures effective in November 2004 proved to be more difficult in practice.

   The proposed rulemaking establishes rules and procedures for approval of management agreements and sets a fee for review of agreements.

   The proposed rulemaking recognizes that licensees are using new technology to assure that malt or brewed beverage dispensing systems are clean.

   The proposed rulemaking codifies the Board's established practice that the purchase price for transfers of licenses that involve changes in ownership must be placed into escrow.

   A section is proposed to require tax clearance for all merchant licensees.

   The proposed rulemaking amends regulations on ''tasting events'' to clarify the amount of alcoholic beverages that may be given. It also allows sponsors of in-store tastings to import into this Commonwealth products to be tasted rather than making them buy the products from the Board. It also allows partially-consumed bottles being used for tasting to be stored at wine and spirits stores, rather than requiring that they be discarded.

   The proposed rulemaking amends hearing procedures related to issuance of subpoenas and the time for filing protests.

Affected Parties

   The proposed rulemaking will affect licensees and applicants for licenses issued by the Board. It will affect merchants that sell or propose to sell liquor and liquor accessories to the Board and anyone participating in a hearing before the Board.

Paperwork Requirements

   The proposed rulemaking will not significantly increase paperwork for the Board or most of the regulated community. Merchants that sell or propose to sell liquor and liquor accessories to the Board will have to present evidence that they do not have any outstanding or unresolved tax liabilities to the Commonwealth.

Fiscal Impact

   Implementing a requirement of tax clearance for merchant licensees will require the addition of two additional Technician 1 positions. Program changes will require about 37.5 hours of Application Developer 2 time in the Bureau of Management Information Systems. The first year cost increase is estimated to be $92,082.

   In an unlikely, but worst-case, scenario, if sponsors of in-store tastings universally choose not to purchase their products from the Board, as permitted by these regulations, the estimated loss of gross revenue would be around $200,000 annually.

Effective Date

   This proposed rulemaking will become effective upon final-form publication in the Pennsylvania Bulletin.

Public Comment/Contact Person

   Written comments, suggestions or objections will be accepted for 30 days after publication of the proposed rulemaking in the Pennsylvania Bulletin. Comments should be addressed to James F. Maher, Assistant Counsel, Office of Chief Counsel, Liquor Control Board, Room 401, Northwest Office Building, Harrisburg, PA 17124-0001.

Regulatory Review

   Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on May 17, 2007, the Board submitted a copy of this proposed rulemaking and a copy of a Regulatory Analysis Form to the Independent Regulatory Review Commission (IRRC) and to the Chairpersons of the House Liquor Control Committee and Senate Committee on Law and Justice. A copy of this material is available to the public upon request.

   Under section 5(g) of the Regulatory Review Act, IRRC may convey any comments, recommendations or objections to the proposed rulemaking within 30 days of the close of the public comment period. The comments, recommendations or objections must specify the regulatory review criteria which have not been met. The Regulatory Review Act specifies detailed procedures for review, prior to final publication of the rulemaking, by the Board, the General Assembly and the Governor of comments, recommendations or objections raised.


   Fiscal Note:  54-63. (1) State Store Fund; (2) Implementing Year 2006-07 is $92,000; (3) 1st Succeeding Year 2007-08 is $96,000; 2nd Succeeding Year 2008-09 is $98,000; 3rd Succeeding Year 2009-10 is $100,000; 4th Succeeding Year 2010-11 is $102,000; 5th Succeeding Year 2011-12 is $104,000; (4) 2005-06 Program--$322,377,000; 2004-05 Program--$297,495,000; 2003-04 Program--$285,788,000; (7) General Operations; (8) recommends adoption.

Annex A




§ 1.1.  Definitions.

   The following words and terms, when used in this part, have the following meanings, unless the context clearly indicates otherwise:

*      *      *      *      *

   Merchant--An importer, winery, limited winery brewery, distillery or vendor desiring to sell spirits or wine to the Board; or, any seller of products the Board is permitted to sell in its stores under section 305 of the Liquor Code (47 P. S. § 3-305).

   Pecuniary interest--The capability of a person to control the business of the licensee. There is a rebuttable presumption of a pecuniary interest when a person controls a substantial portion of the proceeds of the licensed business or when control is exercised by one or more of the following:

   (i)  Employing a majority of the employees of the licensee.

   (ii)  Independently making day-to-day decisions about the operation of the business.

   (iii)  Having final authority to decide how the licensed business is conducted.

§ 1.5.  Reputation: Use of criminal and citation history.

   (a)  When considering whether a person is reputable or the repute of a person under any section of the Liquor Code or this title, the Board may consider whether that person has been convicted of any crimes including misdemeanors and felonies, the person's history regarding licenses issued by the Board, including the citation history of the licenses, and any other factor the Board deems appropriate.

   (b)  When considering the reputation of a corporation, partnership, limited liability company or other business entity, the Board may consider the reputation of its stockholders, directors, officers, managers or members.



§ 3.8. Certificate of completion; [certificate of approval;] letter of authority.

   (a)  Upon Board approval of an application for new license, transfer of a license or extension of premises, the Board will issue a [certificate of approval] letter of operating authority to the applicant. [The Board will also issue a letter of authority which shall authorize the applicant to operate the licensed premises for no more than 30 days. If the application is for an extension of premises, the letter of authority shall be effective immediately. If the application is for a new license, the letter of authority shall be effective when the applicant acquires the right to occupy the premises. If the application is for the transfer of a license, the letter of authority shall be effective upon completion of the underlying financial transaction. Within 15 days of completion of transactions necessary to complete the process,] The letter of operating authority confers upon the applicant the immediate right to operate the licensed premises and the immediate responsibility as a licensee. The letter of operating authority may list conditions the applicant shall complete before a license is issued.

   (b)  Within the time specified by the Board in the letter of operating authority, the applicant shall submit a certificate of completion to the Board, indicating that the financial arrangements were completed as reported or modified. The certification [shall] must be on forms provided by the Board. [If the application is a transfer application, then the certificate of completion must be signed by the transferor and the transferee. Failure to submit a properly executed certificate of completion may void the approval.]

   [(b)] (c)  If the certificate of completion is not submitted or discloses modified arrangements, the Board may request additional information or documentation, as it deems necessary.

   [(c) If the certified modifications are such that the eligibility of the applicant or premises would not be affected, the Board will take no action against the applicant.]

   (d)  If the certificate of completion is not submitted, or additional information the Board has requested is not provided, or if the additional information indicates that the application does not conform to the Liquor Code or this title, the Board may rescind its approval, order divestiture of individuals or take other remedial action as it deems necessary.

   (Editor's Note:  The following subchapter is new. It has been printed in regular type to enhance readability.)



3.141.Management contracts.
3.143.Board approval and licensee responsibility.

§ 3.141.  Management contracts.

   (a)  A licensee may contract with another person to manage its licensed premises.

   (b)  Management contracts must reserve to the licensee the capability to direct its own business.

   (c)  Management contracts must be in writing, and a copy shall be maintained on the licensed premises where it shall be available for inspection by the Board.

   (d)  Management contracts may not give a pecuniary interest to a management company.

§ 3.142.  Reporting.

   (a)  Licensees or applicants for licenses that have management contracts shall file the following:

   (1)  The identity of all persons who are parties to the management contract, on forms supplied by the Board.

   (2)  Tax certification and clearance statements for the person providing management services under section 477(g) of the Liquor Code (47 P. S. § 4-477(g)) on forms supplied by the Departments of Revenue and Labor and Industry.

   (b)  Licensees or applicants for licenses that enter into, modify or terminate management contracts shall, within 30 days, file a written notice with the Board that this has occurred. The changes shall be reported on forms which will be furnished upon request by the Board.

   (c)  Licensees filing notice of the establishment or modification of a management contract shall pay a fee of $350. No fee is payable when a licensee gives notice to the Board that a management contract has been terminated.

§ 3.143.  Board approval and licensee responsibility.

   (a)  The Board may refuse the involvement of a person providing management services. The Board's refusal may be based upon the following:

   (1)  The creation by the management contract of a pecuniary interest in the license.

   (2)  Facts upon which the Board could refuse a person's involvement in the license.

   (b)  The licensee's use of a management company will not affect the licensee's responsibility for violations of the Liquor Code or this title.




§ 5.23.  Appointment of managers.

*      *      *      *      *

   (i)  If approved by the Board, management contracts may permit the manager for the licensed premises to be employed by the management company; however, a licensee shall have unfettered discretion in all aspects of management of the licensed business, including the employment of the manager and sales of food, alcoholic and nonalcoholic beverages. A licensee's discretion includes control of the manager's hiring, firing, discipline, salary and duties. The manager is an agent of the licensee.



§ 5.51.  Cleaning of [coils, tap rods and connections] malt or brewed beverage dispensing systems.

   (a)  [Coils, tap rods and connections, used in drawing malt or brewed beverages in licensed establishments, shall be thoroughly cleaned at least once every 7 days at the sole expense of the licensee dispensing the beverages on draft. The cleaning of coils, tap rods and connections by one licensee for another licensee is prohibited.] A licensee that uses a malt or brewed beverage dispensing system in its licensed premises shall clean the system at its sole expense. One licensee may not clean a malt or brewed beverage dispensing system for another licensee.

   (b)  [The following methods of cleaning coils, tap rods and connections have been approved by the Board:

   (1)  Live steam.

   (2)  Hot water and soda solution, followed by thorough rinsing with hot water.

   (3)  Another method which thoroughly cleans the coils, tap rods and connections, and leaves them in a sanitary condition.]

   The method of cleaning must leave the entire malt or brewed beverage dispensing system in a clean and sanitary condition. The cleaning method used must include cleaning the entire system with a chemical cleaning solution or other cleaning method approved by the Board. The following alternative cleaning methods have Board approval:

   (1)  Live steam.

   (2)  Hot water and soda solution, followed by thorough rinsing with hot water.

   (c)  The frequency of cleaning for the malt or brewed beverage dispensing system shall be as follows:

   (1)  Once every 7 days for the valves, joints, faucets, couplers, hose fittings, washers, o-rings, empty beer detectors (known as ''FOBs'') and draft foam control units.

   (2)  Once every 7 days for the dispensing lines, except if the licensee has an operating ultrasonic, electromagnetic or other system that retards the growth of yeast and bacteria in the dispensing the lines. If such a system is installed and operating, licensee shall follow the cleaning frequency and cleaning method guidelines of the system's manufacturer.

   (3)  The Board may approve different cleaning frequencies.

§ 5.52.  Certificate or record required.

   (a)  [Coils, tap rods and connections] The malt or brewed beverage dispensing system may be cleaned for the licensee by a person, other than another licensee, thoroughly equipped to do so by a method enumerated in § 5.51 (relating to cleaning of [coils, tap rods and connections] malt or brewed beverage dispensing systems). The licensee [should] shall obtain from the cleaner a certificate showing the date cleaned, the name of the person by whom cleaned and the method utilized. The certificate shall be kept on file at the licensed premises at all times for inspection by the Board.

   (b)  [Coils, tap rods and connections] The malt or brewed beverage dispensing system may be cleaned by the licensee [himself by a method enumerated in § 5.51]. The licensee shall maintain and keep a record of the date of each cleaning and the method utilized. This record shall also be kept on file at all times for inspection by the Board.

§ 5.53.  Pressure maintenance.

   [Where an airline pump is used for pressure, the intake shall be from outside the building and an air filter or satisfactory air cleansing device shall be provided. The use of carbon dioxide is recommended in lieu of air, as this is conducive to the maintenance of normal flavor in that it is much less susceptible than air to the growth of organisms and chemical changes which may impair flavor.] If a compressed gas or other pressurizing system is used in the malt or brewed beverage dispensing system, it shall be designed to preserve the normal flavor of the malt or brewed beverage and not introduce contaminants into the system.

§ 5.54.  Responsibility for condition of equipment.

   The licensee has the sole responsibility of maintaining equipment used in dispensing malt or brewed beverages on draft in a clean and sanitary condition. The mere fact that records of licensees [indicating] indicate that [coils, tap rods and connections have] the malt or brewed beverage dispensing system has been cleaned [are] is no defense to [disciplinary] enforcement action under the law and the provisions of this subchapter if the [coils, tap rods or connections are] malt or brewed beverage dispensing system is at any time found to be in an [insanitary] unsanitary condition.



§ 7.2.  Transfers of ownership.

   [Where] When an application is filed for transfer of a license from one person to another [at the same address], a bill of sale of the business or fixtures shall be executed by the licensee and shall be exhibited to the Board or its representative. The purchase price of the business, either in the form of cash or legal obligation as security for the purchase price, shall be placed in escrow with an attorney or financial institution, to be paid to the original licensee upon the approval of the transfer by the Board. The actual transfer of ownership of the business may not pass until approval of the transfer of license has been given. The transferee shall exhibit a deed or lease for the premises, or bill of sale, or both, as the case may be. The license may not change hands until the license transfer has been approved by the Board and the original licensee may continue the operation of the business and may sell liquor or malt or brewed beverages until formal approval of the transfer is given. If the original licensee does not continue operation of the business under the license, [no] liquor or malt or brewed beverages may not be sold and the license shall be surrendered to the Board until the transfer is approved.



§ 11.143.  Merchant tax responsibility.

   (a)  A merchant not already licensed by the Board shall provide to the Board, upon forms approved by the Departments of Revenue and Labor and Industry, the following:

   (1)  The merchant's Personal Income Tax identification number.

   (2)  The merchant's Sales Tax number.

   (3)  The merchant's Corporation Tax number.

   (4)  The merchant's employer Withholding Tax number.

   (5)  The merchant's Unemployment Compensation account number.

   (b)  A merchant, at the time of annual renewal and issuance of its license or permit shall, by the filing of an application, waive any confidentiality with respect to tax information regarding the merchant in the possession of the Department of Revenue, the Office of Attorney General or the Department of Labor and Industry, regardless of the source of that information and shall consent to the providing of that information to the Board by the Department of Revenue, the Office of Attorney General or the Department of Labor and Industry.

   (c)  Upon receipt of an application for the grant, renewal or validation of a merchant's license or permit, the Board will review the tax status of the applicant. The Board will request tax information regarding the applicant from the Department of Revenue, the Office of Attorney General and the Department of Labor and Industry and the information will be provided.

   (d)  The Board will not approve an application for the grant, renewal or validation of a merchant's license or permit issued under this section when the applicant has failed to do one or more of the following:

   (1)  Provide any of the information required under subsection (a).

   (2)  File required tax reports.

   (3)  Pay taxes not subject to a timely administrative or judicial appeal or subject to an authorized deferred payment plan.

   (e)  Upon the required submission of the annual fee or upon renewal, validation or issuance of a merchant's license or permit, if the Department of Revenue or the Department of Labor and Industry notifies the Board of noncompliance with the provisions in this section, the Board will not renew, issue or validate the merchant's license or permit. An appeal of the Board's action will not act as a supersedeas.


Subchapter A.  ADVERTISING


§ 13.43.  Interior display.

   (a)  A licensee may [not] install or permit to be installed electrically operated signs or devices, lithographs, framed pictures, cardboard displays, statuettes, plaques, placards, streamers or similar items advertising brand names and intended for interior display on the licensed premises.

*      *      *      *      *


§ 13.51.  General prohibition.

   (a)  Except as provided in [subsections (b), (c)] this section and in § 13.52 (relating to advertising novelties), [no] an in-State or out-of-State manufacturer, licensee or group of licensees, their servants, agents or [employes] employees, may not directly or indirectly, in person, individually or through a trade organization, contribute to or accept from another licensee or group of licensees of a different class, their servants, agents or [employes] employees or a trade organization of licensees of a different class, anything of value by means of advertisements, contributions, purchase, sale of tickets, donations or by any device, for any purpose.

*      *      *      *      *

   (e)  The sponsorship of a tasting upon a licensed premises will not be considered giving or accepting a thing of value.



§ 13.201.  Definitions.

   The following words and terms, when used in this subchapter, have the following meanings, unless the context clearly indicates otherwise:

*      *      *      *      *

   Sponsor--A sponsor of a tasting event may be any licensed [broker, holder of a limited winery or winery license, or a manufacturer of liquor] vendor, importer, distributor, importing distributor or manufacturer or its agent or employee who is 21 years of age or older.

   Standard size alcoholic beverage--A standard size alcoholic beverage is 12 fluid ounces of a malt or brewed beverage, 4 fluid ounces of wine (including fortified wine) or 1 1/2 fluid ounces of [liquor] spirits.

*      *      *      *      *


§ 13.211.  Tasting events.

   (a)  Tastings may be conducted by [licensed brokers, distributors, importing distributors and manufacturers or their agents] sponsors upon licensed or unlicensed premises.

   (b)  [Licensed brokers, distributors, importing distributors and manufacturers or their agents] Sponsors conducting a tasting event shall adhere to the following requirements:

*      *      *      *      *

   (3)  [No more than one standard size alcoholic beverage of each product shall be provided to each tasting participant.] Products offered may not exceed a standard size alcoholic beverage for that product. For example, if wine is offered, each glass of each wine offered to a participant may not exceed 4 ounces in volume. A tasting event comparing a brand of Chardonnay from California to a brand of Chardonnay from France would allow the participant to receive one 4-ounce glass of each Chardonnay.


§ 13.223.  Procurement of wine or spirits, or both.

   (a)  Wine or spirits used during the in-store tasting events [must] shall be procured by the sponsor in accordance with the sampling process as specified in § 13.81 (relating to samples of liquor) [or], by [legal] purchase from the Board or the sponsor may provide and transport the wine and spirits from its own stock.

*      *      *      *      *

§ 13.228.  Disposal and storage of [unused alcohol] partially-used liquor and empty containers.

   (a)  At the conclusion of the in-store tasting event, sponsors shall either discard unused portions of opened liquor containers at the State Liquor Store or may reseal the partially-consumed liquor containers. The resealed partially-used containers shall be placed in storage at the store for use at a subsequent store tasting or may be removed from the premises. Partially-consumed liquor containers may not be placed in storage at a store for more than 15 days. After 15 days, partially-used containers of liquor may be discarded by the Board.

*      *      *      *      *

   (c)  [Unused product, bottles or] Resealed partially-used containers may not be furnished to employees of the Board or other persons and may only be used for a subsequent in-store tasting.


Subchapter A.  GENERAL

§ 17.5.  Subpoenas.

   (a)  Issuance. [Issuance] Except for subpoenas issued upon the Board's own motion, issuance of subpoenas [shall] will be as follows:

*      *      *      *      *

§ 17.7.  Exhibits.

*      *      *      *      *

   (b)  Documents that the Board, a party, petitioner or intervener expects to offer as exhibits may be presented to the Board's hearing examiner and all other parties of record in advance of a hearing. These documents are not evidence unless admitted into the record by the hearing examiner at the hearing. Presentation of documents to the other parties before a hearing is encouraged.

   (c)  Subsection (a) supersedes 1 Pa. Code § 33.15 (relating to number of copies).


§ 17.13.  Protests/intervention procedure.

*      *      *      *      *

   (b)  Time. A protest or petition to intervene shall be filed with the Board within 30 days of the posting of notice of application as required by Chapter 3 Subchapter B (relating to notice posting). The Board may accept an untimely filed protest or petition to intervene, but only upon good cause shown.

*      *      *      *      *

[Pa.B. Doc. No. 07-1279. Filed for public inspection July 20, 2007, 9:00 a.m.]

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