BEFORE THE DEPARTMENT OF REVENUE

OF THE STATE OF MONTANA

 

In the matter of the amendment of ARM 42.11.301, 42.11.305, 42.11.306, 42.11.307, 42.11.309, and 42.11.310, and the repeal of ARM 42.11.308 relating to operating agency liquor stores

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NOTICE OF PUBLIC HEARING ON PROPOSED AMENDMENT AND REPEAL

 

TO:  All Concerned Persons

 

1.  On November 15, 2012, at 10:30 a.m., a public hearing will be held in the Fourth Floor East Conference Room of the Sam W. Mitchell Building, in Helena, Montana, to consider the amendment and repeal of the above-stated rules.

Individuals planning to attend the hearing shall enter the building through the east doors of the Sam W. Mitchell Building, 125 North Roberts, Helena, Montana, and check in at the third floor reception desk.

 

2.  The Department of Revenue will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing or need an alternative accessible format of this notice.  If you require an accommodation, contact the Department of Revenue no later than 5 p.m., November 5, 2012, to advise us of the nature of the accommodation that you need.  Please contact Cleo Anderson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-5828; fax (406) 444-4375; or e-mail canderson@mt.gov.

 

3.  The department complied with 16-2-303, MCA, and convened a negotiated rulemaking committee to draft the proposed amendments to the administrative rules related to the operation of agency liquor stores contained in this proposal notice.  The committee was comprised of agency liquor store owners and department staff.  Additional department staff assisted with the negotiated rulemaking process as business resources.

Introducing detailed explanations and examples into the department's existing administrative rules will add transparency to a complex process and create better understanding.  The department recognizes the hard work put into this process and would like to thank those involved.

The department believes current Montana laws concerning the commission structure for agency liquor stores are in need of a thorough review and study by the Legislature.  The current written law contains serious deficiencies and thus creates inequities for agency liquor store owners and state fiscal management.  Evolutions impacting state liquor stores were not predicted during the privatization legislation enacted in 1995.  Therefore, the department would encourage state legislators to review the law and work towards a viable solution for the future.

The proposed amendments to current administrative rules seek to increase the public's and agency liquor store owners' understanding and eliminate any potential confusion of the existing laws which affect the operation of agency liquor stores in Montana.

Clear and concise definitions are the foundation of the rules which help the public and agents understand the terminology being used.  Proposed new and amended definitions seek to enhance understanding of the rule content for agency liquor store owners and the public.

The department is proposing to clarify the number of agency liquor stores that may be located in a community.  Clarification is being added by using examples showing the population and the number of stores that may be allowed.

The proposed amendments will improve the transparency of the department's process regarding commission percentage discount rate reviews that occur every three years.  As amended, the rules will provide agency liquor store owners and the public with examples pertaining to the commission percentage discount rates received by agents.

Finally, the department is proposing to amend the rules to ensure the public is clearly informed on the process of selecting an agent and that the process is fair, consistent, and nonpartisan.

 

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

 

42.11.301  DEFINITIONS  As used in this subchapter, the following definitions apply:

(1)  "Adult" means a person 21 years of age or older.

(1)(2)  "Agency liquor store" means a liquor store operated by an agent.

(2)(3)  "Agent" means a person, partnership, or corporation or entity that markets liquor on a commission basis under an agency agreement with the department and provides all the resources, including personnel and store premises, needed to market liquor under the agreement.

(3)(4)  "Average commission percentage" means the simple average of the commission percentage of agents with similar gross sales volumes.  This percentage is calculated by adding the commission percentages of all agents with similar gross sales volumes and dividing by the number of agents with similar gross sales volumes.

(5)  "Base year" means the first year of the three-year commission rate review period as it applies in 16-2-101, MCA.  For example, the base year is 2010 for the commission rate review that will be conducted in 2013.

(6)  "Commission percentage discount rate" means a specific percentage discount rate granted to an agent operating an agency liquor store.  The percentage rate may be adjusted for the term of the franchise agreement.

(4)(7)  "Community boundary" means:

(a)  in the case of an incorporated city or town, the city or town limits; and

(b)  in other communities, the generally recognized and commonly accepted outer edge of the community the area identified by the United States Census Bureau as a community for census purposes.

(5)  "Gross sales volume" means an agency liquor store's purchases at posted price as defined in 16-1-106, MCA.

(8)  "Invoice date" means the date an agent receives their liquor order in the agency liquor store.

(6)(9)  "Minimum qualified petitioners" means the number of adults who reside in the community, which number equals 5 percent of the community population as determined in the most recently available census estimate for the community or 20 adults who reside in the community if 5 percent of the community population is less than 20.

(7)(10)  "New state agency liquor store" means a state an agency liquor store that begins operation in a community that has not had a state an agency liquor store in operation for one or more years or is eligible for an additional agency liquor store.

(11)  "Public hearing" is a public meeting to solicit public comments and is not an administrative adjudication between opposing parties.

(12)  "Required documents" means, but is not limited to:

(a)  tax returns and schedules for the agency liquor store;

(b)  if combined with other operations, a separate income or profit and loss statement with allocated percentages of the labor operation;

(c)  a copy of one month's utility statement;

(d)  copies of rental or lease contracts or agreements;

(e)  copies of health insurance premium statements;

(f)  copies of liability insurance premiums; and

(g)  copies of quarterly federal forms 941.

(8)(13)  "Sales band" means a group of agents with similar gross sales volumes.

(14)  "Sales volume" means an agent's purchases from the department at posted price for the applicable calendar or fiscal year.

(15)  "Top 25 items" means the top 25 liquor items (SKUs) sold by agency liquor stores in the state of Montana, based on the highest quantity of cases sold in the previous calendar year.

(16)  "Volume of sales discount" means a percentage discount received by an agent, based on the total fiscal year purchases at posted price from the previous fiscal year, based on invoice date.

 

AUTH:  16-1-303, MCA

IMP:  16-2-101, MCA

 

REASONABLE NECESSITY:  The department is proposing to amend ARM 42.11.301 to include definitions of terms that are used in other rules contained in Chapter 11, and to enhance the definitions of existing terms for better clarity and understanding.

 

42.11.305  OPENING A NEW STATE AGENCY LIQUOR STORE  (1)  The number of state agency liquor stores that may be located in a community will vary with the population in a community.  The number of agency liquor stores that may be located in a community may vary as prescribed in 16-2-109, MCA.  For example, there may be no more than:

(a)  one agency liquor store if the population is 0 – 12,000;

(b)  two agency liquor stores if the population is 12,001 – 52,000;

(c)  three agency liquor stores if the population is 52,001 – 92,000;

(d)  four agency liquor stores if the population is 92,001 – 132,000; or

(e)  five agency liquor stores if the population is 132,001 – 172,000; and

(f)  one additional agency liquor store within increments of population of 40,000 inhabitants above 172,000.

(2)  A new state agency liquor store will be operated by an agent.

(3)  The department will may conduct a public hearing to open a new state agency liquor store in a community when all of the following conditions are met:

(a)  The department receives a petition signed by at least the minimum qualified petitioners to open a new state agency liquor store in the community.  The petition must clearly state that its purpose is to have the department open a new state agency liquor store in the community which will be operated by an agent under contract with the department.  The petition must show the printed name, mailing address, and signature of each person signing the petition.

(b)  The department receives a letter from a person willing to submit a proposal or bid to operate a new state agency liquor store in the community.  This person must control or expect to control a building in the community that could be used as the new state agency liquor store location.

(c)  The number of state agency liquor stores currently operating in the community does not exceed the limit in 16-2-109, MCA.

(d)  The nearest community with an operating state agency liquor store is more than 35 miles, as measured from the nearest community boundaries along the shortest route on a paved road between the two communities, unless the new agency liquor store is to be located in a community eligible for more than one agency liquor store pursuant to 16-2-109, MCA.

(e)  The department has not solicited for an agent in the community within the previous three years.

(f)  The petition identified in (3)(a) and the letter from a potential agent in (3)(b) must be received within six months of each other.

(4)  When all of the conditions in (3) are met, the department will may hold a public hearing in the community to receive comments from interested parties concerning the department's intention to advertise for proposals or bids for a new agency liquor store agent.  The procedures concerning the to determine if a public hearing will be held, and if so, the location of the public hearing are:

(a)  The the department will publish a notice to the public that will contain the following:

(i)  the date, time and place in the community where the public hearing will be conducted department's intent to open a new agency liquor store and the community it intends to open it in; and

(ii)  provide the name and address of the hearing officer appointed by the department to conduct the hearing. an outline of how the public can provide written protests; and

(b)  Notice notice of the public hearing department's intent will be advertised twice during a two-week period in the legal section of:

(i)  the nearest daily newspaper in general circulation for the affected area; and

(ii)  in the local community newspaper, if there is one.

(c)  The hearing will be conducted no less than 14 days but no more than 20 days following the last publication of the notice in the newspapers.

(d)  The hearing officer will preside over the hearing and collect the information presented by all persons.  The hearing will be directed to the following:

(i)  whether the department should proceed with its intention to advertise for proposals or bids for a liquor store agent for the community;

(ii)  whether any limitations or restrictions on the location and operation of the agency should be considered; and

(iii)  whether any other issues directly related to the operation of the proposed store in the community or its possible effects on the community should be considered in the determination of whether to proceed with its intention to advertise for proposals or bids for a liquor store agent for the community.

(e)  Within one week following the public hearing, the hearing officer will submit a report to the department.  This report will provide the following:

(i)  identify all of the issues raised at the hearing;

(ii)  recommend whether proceeding with the advertisement for proposals or bids for a liquor store agent is in the best interest of the state, and the community; and

(iii)  recommend whether any limitations or restrictions on the location and operation of the agency should be considered.

(f)  One week following receipt of the hearing officer's report, the department will decide what action will be taken in response to the hearing officer's recommendations.

(5)  Notice of the department's decision will be mailed to all parties who signed the petition and gave a mailing address or who attended the public hearing and gave a mailing address If the department receives no written public protests from residents in the county or adjoining counties, the department may solicit to open a new agency liquor store in the proposed community without holding a public hearing.

(6)  If the decision is to proceed with the advertisement for request for proposals or invitation for bids for a liquor store agent, the process to select an agent will be conducted in accordance with ARM 42.11.310 department receives at least one written public protest from residents in the county or adjoining counties, the department shall schedule a public hearing to determine whether the protest presents sufficient cause to deny the request.

(7)  If the department receives a specified number of written public protests from residents in the county or adjoining counties, the public hearing will be held in the community in which the new agency liquor store is proposed.  The specified number of written public protests from residents shall equal:

(a)  a quantity greater than 25 percent of the number of all-beverage licenses determined for that quota area according to 16-4-201, MCA; and

(b)  no less than two.

(8)  If the provisions in (7) are not met, the hearing will be held in Helena.

(7)(9)  If no proposals or bids are received in response to a request for proposals or invitation for bids, or none of the proposals or bids received meet the minimum requirements specified in the request for proposals or the invitation for bids, the department will make no further solicitation for an agent in the community for three years.  If the conditions in (3) and (4) are met after the three-year period, the department will begin the process again.  However, if the department determines that the petition required in (3)(a) was not generated in good faith, the department may waive the three-year limitation.  If the need for a public hearing is determined, all qualified protesters will be notified of:

(a)  the date, time, and place where the public hearing will be conducted; and

(b)  the name and address of the hearing officer appointed by the department to conduct the hearing.

(10)  The hearing officer will preside over the hearing, which is not a contested case proceeding as defined in 2-4-102, MCA, and collect the information presented.  The hearing will address the following:

(a)  whether the department should proceed with its intention to advertise for proposals or bids for a new agency liquor store for the community;

(b)  whether any limitations or restrictions on the location and operation of the new agency liquor store should be considered; and

(c)  whether any other issues directly related to the operation of the proposed new agency liquor store in the community or its possible effects on the community should be considered in the department's determination of whether to proceed with its intention to advertise for proposals or bids for a new agency liquor store in the community.

(11)  Within six weeks following the public hearing, the hearing officer will submit a report to the department.  This report will:

(a)  identify all of the issues raised at the hearing;

(b)  recommend whether proceeding with the advertisement for proposals or bids for a new agency liquor store is in the best interest of the state and the community; and

(c)  recommend whether any limitations or restrictions on the location and operation of the new agency liquor store should be considered.

(12)  One week following receipt of the hearing officer's report, the department will decide what action will be taken in response to the hearing officer's recommendations.

(13)  Notice of the department's decision will be mailed to all parties who signed the petition, submitted a written protest, or attended the public hearing and provided a mailing address.

(14)  If the decision is to proceed with advertising for requests for proposals or invitations for bids for a new agency liquor store, the process to select an agent will be conducted in accordance with ARM 42.11.310.

(15)  If no proposals or bids are received in response to a request for proposals or invitation for bids, or none of the proposals or bids received meet the minimum requirements specified in the request for proposals or the invitation for bids, the department will make no further solicitation for a new agency liquor store in the community for three years.  If the conditions in (3) and (4) are met after the three-year period, the department will begin the solicitation process to open a new agency liquor store in the community.

 

AUTH:  16-1-303, MCA

IMP:  2-4-102, 16-2-101, 16-2-109, 16-4-201, MCA

 

REASONABLE NECESSITY:  The department is proposing to retitle and amend several sections of ARM 42.11.305 to remove the term "state" when referencing an agency liquor store, to enhance the public's understanding.  The term, when used, potentially creates confusion in that it can be perceived that these stores are operated by the state, when in fact, they are not.

Section (1) is proposed to be amended to increase the public's understanding of the population requirements needed in order to open an agency liquor store in a community.  This section includes examples of the number of agency liquor stores that can exist based on population.  The amendment is proposed to reduce confusion that has existed on the part of the public and department.

Section (3) is proposed to be amended to only require a public hearing when the department receives written protests.  In addition, the amendment removes the language that the public hearing will be held in the community of the proposed location and allows the option of holding the public hearing in an alternative location when the interest is minimal.  If, as determined in new (7), there is minimal opposition to opening a new agency liquor store in a community, it is in the best interest, due to the size of the state and limited resources, to not conduct the hearing within the proposed community.

Sections (4) through (15) are proposed to be amended to increase the public's knowledge of the process for determining whether or not a new agency liquor store should be advertised for proposal or bid.  Several portions of the existing language were stricken and relocated within the rule to enhance readability.

As part of this, new (7) is being proposed to specifically address the requirements for the hearing to be held in the community of the proposed location.  To create consistency, the requirements will mirror those for other department liquor hearings.  If the department receives at least two protests from residents in excess of 25 percent of the number of all-beverage licenses determined for that particular community, the hearing will be held in the community.  The department believes this is a fair ratio of the population to determine if there is more than minimal opposition.

Also within these amended sections is new (10), which is being proposed to add clarification to enhance the public's knowledge that the hearing is not conducted under the Montana Administrative Procedure Act (MAPA).

 

42.11.306  COMMISSION PERCENTAGE DISCOUNT RATE REVIEW

(1)  The department shall review the commission percentage paid to discount rate received by agents that have operated under a continuous franchise agreement for at least three years pursuant to the requirements of 16-2-101, MCA.

(2)  Section 16-2-101, MCA, establishes the date to determine the commission percentage discount rates.  The original commission percentage discount rate was established on July 1, 1998, and either party may request a review every three years thereafter.  The department may examine agent stores with similar gross sales volumes to determine commission rate adjustments adjust the agent's commission percentage discount rate received during the remaining term of the agency franchise agreement, or at the next time the commission percentage discount rate is reviewed, to a commission percentage discount rate that is equal to the average commission percentage discount rate received by agents with similar sales volumes, if the agent's commission percentage discount rate is less than the average.

(3)  Except as otherwise provided, sales information from the two most recent calendar years based on invoice dates will be used when determining the sales volumes.

(4)  An agent's sales volumes can be distorted by closure of a business other than for holidays, weekends, inventory, or other temporary closures which occur in the ordinary course of business.  This distortion could potentially result in the agent being placed in a sales band which does not accurately reflect their sales volumes.  Such misplacement of an agent within a sales band would also affect the average commission percentage discount rate determination within the band.

(5)  The department may, if sufficient data exists, project an agent's sales volume from a period of less than the two most recent calendar years as a representation of the agent's two-year sales volumes.

(6)  Similar sales volumes will be established by using bands of seven agency liquor stores when available.  Each agency liquor store will be placed in its own band with the next three agency liquor stores with greater sales volumes and the next three agency liquor stores with lesser sales volumes.  When less than seven agency liquor stores are available, the following will apply:

(a)  The agency liquor store with the highest sales volume will be placed in a band with the next three agency liquor stores with lesser sales volumes.  The agency liquor store with the second highest sales volume will be placed in a band with the one agency liquor store with greater sales volume and the next three agency liquor stores with lesser sales volumes.  The agency liquor store with the third highest sales volume will be placed in a band with the two agency liquor stores with greater sales volumes and the next three agency liquor stores with lesser sales volumes.

(b)  The agency liquor store with the lowest sales volume will be placed in a band with the next three agency liquor stores with greater sales volumes.  The agency liquor store with the second lowest sales volume will be placed in a band with the one agency liquor store with lesser sales volume and the next three agency liquor stores with greater sales volumes.  The agency liquor store with the third lowest sales volume will be placed in a band with the two agency liquor stores with lesser sales volumes and the next three agency liquor stores with greater sales volumes.

(7)  The average commission percentage discount rate for each band will be established by adding the band's agency liquor stores' commission percentage discount rates together and dividing by the number of agency liquor stores in the band.  Each agency liquor store's current commission percentage discount rate will be used in the calculation unless the agency liquor store's current commission percentage discount rate reflects an adjustment through ARM 42.11.309 in any previous review period.  In that circumstance, and for the purpose of calculating the band average only, the lesser of the agency liquor store's current commission percentage discount rate or the agency liquor store's band average from the last review period will be used.

(a)  Example 1:  An agency liquor store has a current commission percentage discount rate of 9.75 percent and it does not reflect an adjustment through ARM 42.11.309 in any previous review period.  The rate used for the banding calculation will be 9.75 percent.  The band's average for the current review period is calculated to be 9.35 percent.  In this example, this agency liquor store's commission percentage discount rate going forward will continue to be 9.75 percent because it is higher than the band average.

(b)  Example 2:  An agency liquor store has a current commission percentage discount rate of 9.75 percent and it does reflect an adjustment through ARM 42.11.309 in a previous review period.  This agency liquor store's band average from the last review period is 9.25 percent.  The rate used for the banding calculation will be the lesser of the agency liquor store's current commission percentage discount rate or the agency liquor store's band average from the last review period.  In this example, 9.25 percent will be used for banding calculation purposes.  The band's average for the current review period is calculated to be 9.35 percent.  In this example, this agency liquor store's commission percentage discount rate going forward will continue to be 9.75 percent, because it is higher than the band average.

(c)  Example 3:  An agency liquor store has a current commission percentage discount rate of 9.75 percent and it does reflect an adjustment through ARM 42.11.309 in a previous review period.  This agency liquor store's band average from the last review period is 9.25 percent.  The rate used for the banding calculation will be the lesser of the agency liquor store's current commission percentage discount rate or the agency liquor store's band average from the last review period.  In this example, 9.25 percent will be used for banding calculation purposes.  The band's average for the current review period is calculated to be 9.80 percent.  In this example, this agency liquor store's rate would change from 9.75 percent to 9.80 percent, and their commission percentage discount rate would no longer reflect the adjustment through ARM 42.11.309, because the average of the band it is in is more than the adjusted amount.

(8)  The new effective commission percentage discount rate for each agent will be the higher of their band average or their current rate.  If the agent qualifies for an adjustment, the adjustment will be effective July 1 following the review period.

(9)  The sales bands with the new average commission percentage discount rates for each band will be sent to the agency liquor stores on or before March 1 following the review period.

(10)  Public copies of the sales bands may be obtained by contacting:

 

Department of Revenue

Liquor Control Division

Liquor Distribution Bureau

P.O. Box 1712

Helena, MT 59624-1712

 

AUTH:  16-1-303, MCA

IMP:  16-2-101, MCA

 

REASONABLE NECESSITY:  The department proposes to retitle ARM 42.11.306, from Commission Percentage Review, to Commission Percentage Discount Rate Review, to reflect the actual terminology used to describe the action.  Sections from ARM 42.11.307, 42.11.308, and 42.11.309 have been combined and added to this section to increase continuity and decrease confusion.  The new title and sections are consistent with the process described in this amended rule.

Section (1) is proposed to be amended to use language that increases public awareness and better reflects the process because, as currently written, the rule is vague.  New language identifies that only those under a continuous franchise agreement for three years will be considered for a review.

Section (2) is proposed to be amended to enhance the public's understanding of the commission percentage discount rate review process by adding language to help identify when the review process will occur, and by relocating language from ARM 42.11.307 to this section because it is part of the review process and will add continuity.

The department proposes to add new (3) to relocate language from ARM 42.11.307 into this rule in order to add clarification by including a reference to the invoice date.  This reference will reduce confusion and increase agents' understanding of the commission percentage review.

The department proposes to add new (4) and (5) to more appropriately place relevant language from ARM 42.11.308, which the department is proposing to repeal, within this rule for clarity.

Section (6) is proposed new language to make the review process clear and understandable to the agents.  The rules proposed in this section are a step-by-step guide on how an agency liquor store will be grouped with other agency liquor stores that have similar sales.  Subsections (a) and (b) describe in detail the steps that will be taken to group agency liquor stores together.

Section (7) is proposed new language to make the commission discount rate review process clear and understandable to agents.  The rules proposed in this section describe the commission percentage discount rate used to calculate an agency liquor store's band average.  Examples are included to help agents understand the process.

The department proposes to add new (8) to relocate relevant portions of language being stricken in proposed amendments to ARM 42.11.309 and to add continuity to the review process covered in this rule.  The proposed language defines what commission percentage discount rate will be given to an agency liquor store and when it will be effective.

The department proposes to add new (9) to relocate relevant portions of language being stricken in proposed amendments to ARM 42.11.307, and to add continuity to the review process covered in this rule.  The proposed language also gives a concrete date of when the agents will be mailed the sales bands information.

The department proposes to add new (10) to relocate relevant portions of language being stricken in proposed amendments to ARM 42.11.307.  This proposed language identifies how and where an agent can obtain sales band information.

 

42.11.307  DETERMINATION OF SIMILAR GROSS SALES VOLUMES VOLUME OF SALES DISCOUNT RATE REVIEW  (1)  An agent's commission percentage may be adjusted to the average commission percentage of agents with similar gross sales volumes as prescribed in  The department shall review the volume of sales discount rate received by agents that have operated under a continuous franchise agreement for at least three years pursuant to the requirement of 16-2-101, MCA.  Under 16-2-101, MCA, on July 1 of each year:

(a)  agency liquor stores, with a sales volume of $560,000 or more based on their invoice dates in the previous fiscal year, will receive a volume of sales discount rate of 0.875 percent; and

(b)  agency liquor stores, with a sales volume of less than $560,000 based on their invoice dates in the previous fiscal year, will receive a volume of sales discount rate of 1.5 percent.

(2)  Except as otherwise provided, sales information from the two most recent calendar years will be used when determining the gross sales volumes The department shall use an inflation factor to adjust the previous year's base to determine the new dollar volume of sales cutoff based on the top 25 liquor items (SKUs) with the highest quantity of cases sold in the previous calendar year.  The posted price, excluding any temporary price reductions offered by the vendor, for the top 25 liquor items will be taken on January 1 and December 1 of the previous calendar year to determine the difference in the posted price for each item.  This difference will be used to calculate a percentage increase or decrease for each item.  The average percentages will be considered the inflation factor.  This inflation factor may be positive or negative.  This percentage is then multiplied by the previous year's volume of sales base.

(3)  The department will apply standard statistical measures to establish the sales bands.  The agents will be divided into six sales bands.  The sales bands will be proportioned using a standard bell curve.  Copies of the volume of sales worksheet will be available by April 1 of each year.  Copies may be obtained by contacting:

 

Department of Revenue

Liquor Control Division

Liquor Distribution Bureau

P.O. Box 1712

Helena, MT 59624-1712

 

(4)  The proposed sales bands with corresponding proposed average commission rates for each band will be made available to the public for comment 60 days prior to the commencement of the review period.

(5)  Copies of the sales bands with corresponding proposed average commission rates for each band may be obtained by contacting the Department of Revenue, Liquor Distribution, P.O. 1712, Helena, MT 59624-1712.

 

AUTH:  16-1-303, MCA

IMP:  16-2-101, MCA

 

REASONABLE NECESSITY:  The department is proposing to retitle ARM 42.11.307, from Determination of Similar Gross Sales Volumes, to Volume of Sales Discount Rate Review, to better reflect the content of the rule.  Language relative to commission percentage discount rate averaging that the department proposes to strike from ARM 42.11.306, is also being incorporated into this rule for better clarity and flow.

Section (1) is proposed to be amended to increase agents' understanding of the necessary requirements to be considered eligible for a volume of sales discount review.  The department proposes the addition of new (a) and (b) to add clarity by referencing the volume of sales discount rates to be received, based on the store's volume of sales, as provided for in statute.  The proposed new rule language supports amendments to 16-2-101, MCA, as enacted by the 2009 Legislature.

Section (2) is proposed to be amended to enhance the agents' knowledge of how the cutoff amount in the volume of sales is adjusted based on an inflation factor by describing the calculation process used.

Section (3) is proposed to be amended to enhance agents' knowledge of the time frame for which the volume of sales information will be available and to create an easy reference point of the department's address for agents to request the information.

 

42.11.309  COMMISSION ADJUSTMENT AGENT REQUESTED COMMISSION PERCENTAGE DISCOUNT RATE REVIEW  (1)  An agent's commission percentage who has been open for business on a regular and continuous basis for the three most recent calendar years may be increased to average petition the department for an increase to their commission percentage discount rate within the sales band if that agent's commission percentage is less than the average in that sales band by sending a completed application and required documentation to the department by May 1, 2013, and by May 1 of every succeeding three years thereafter.  Upon review of the application, including any additional information requested, such as the agency liquor store's financial records and supporting documentation, the department may increase the agent's commission percentage discount rate.

(2)  An agent's commission percentage may be increased to a percentage greater than the The average commission percentage within the sales band discount rate received under ARM 42.11.306 will apply, if it is established to the satisfaction of the department that the following criteria are met:

(a)  the agent has experienced increased expenses an increase in the average two-year allowable costs compared to the base year in operating the business for the two most recent calendar years including,.  Allowable costs include but are not limited to:

(i)  increased labor costs; commensurate with statutory wage and benefits provided for state employees.  Labor costs include but are not limited to:

(A)  wages;

(B)  employer portion of Social Security and Medicare;

(C)  unemployment insurance;

(D)  workers compensation insurance; and

(E)  retirement plans;

(ii)  rental, or lease, or real estate costs commensurate with retail standards for rent or lease costs that have been established using local/market area retail space rent data provided to the department for property assessment by local business entities.  If this data is not available for a specific community, then rent for retail space in similar market areas will be used.  If market conditions in a local area experience a dramatic change, the agent may provide current rental listings and/or current rental lease agreements from the immediate market area.  The department will review this new data provided by the agent to determine an allowable increase to rental or lease costs;

(iii)  utilities for the designated agency liquor store premises only;

(iv)  health, comprehensive general liability, property, and liquor liability insurance premiums; and

(v)  increased utilization of the case lot discount.;

(vi)  phone services;

(vii)  city/county services;

(viii)  regulatory fees; and

(ix)  taxes and governmentally mandated fees.

(b)  the agent has incurred the allowable cost continuously through the three calendar years of the review period.  Agent's allowable costs can be distorted by changes which occur in the ordinary course of business.  This distortion could potentially result in allowable costs which do not accurately reflect their costs.  If extenuating or unique circumstances occur in the ordinary course of business, the department may, if sufficient data exists, estimate the allowable cost for the base year;

(b)(c)  the agent considered all reasonable mitigation measures; and

(c)(d)  the average commission percentage would be insufficient to yield net income agent's average two-year net income is not commensurate with the net income experienced in the two most recent calendar years base year.  Net income, as it applies to this rule, equals the agent's gross sales of liquor, less liquor cost of goods sold, less allowed costs.  Liquor cost of goods sold equals the beginning inventory of liquor, plus the liquor purchases at cost by invoice date, less the ending inventory of liquor.

(3)  If the agent meets all the requirements in (1) and (2), the department will determine the lesser of:

(a)  the base year net income less the average two-year net income; or

(b)  the average two-year allowable costs less the base year allowable costs.

(3)(4)  All agency liquor stores that qualify under (2) above are eligible for a review.  The agency store shall file an application and the required documentation by May 1 of each period.  In order to qualify for the review, the agency store must open its books to the department A percentage is then calculated by dividing the lesser dollar amount in (3) by the agent's average two-year gross sales reported.

(5)  The agent's commission percentage discount rate received according to ARM 42.11.306, is then subtracted from the percentage in (4).  If the difference is:

(a)  greater than zero, the difference is added to the agent's commission percentage discount rate according to ARM 42.11.306; or

(b)  less than zero, the agent does not receive a commission percentage discount rate adjustment under this rule.

(4)(6)  If the agency store agent qualifies for an adjustment, the adjustment will be effective on July 1, or retroactive to July 1, of the year of application following the review period for each period except for the first review period, which is retroactive to January 1, 1999.

 

AUTH:  16-1-303, MCA

IMP:  16-2-101, MCA

 

REASONABLE NECESSITY:  The department proposes to retitle ARM 42.11.309 from Commission Adjustment, to Agent Requested Commission Percentage Discount Rate Review, for clarity.

Section (1) is proposed to be amended to enhance the agents' knowledge of the commission requirements relative to who can petition for a commission review, when the review takes place, and what is needed for the review process.

Section (2) is proposed to be amended to match the process used by the department and eliminate outdated language that may be confusing to agents.

Proposed amendments to (a) are to enhance the agents' understanding of allowable cost documentation required and provide transparency and clarity to the review process.

Proposed amendments to (a)(i) are to increase the agents' understanding of the acceptable labor costs to eliminate confusion.

Proposed amendments to (a)(ii) are to increase the agents' understanding of how the department will establish rental, lease, or real estate costs for the purpose of the commission percentage discount rate review and provide transparency to the review process.

Proposed amendments to (a)(iii) through (ix) are to enhance the agents' understanding of the documents requested by the department and to help eliminate confusion within an existing complex process.

The proposed addition of new (b) is to address situations where an agent may have experienced extenuating or unique circumstances that are not reflected across a three-year period.  This will allow for the department to estimate costs if data doesn't exist.

Proposed amendments to (d) are to define net income as it applies to this rule and increase the agents' understanding of how the department determines net income.

Section (3) is proposed to be amended to increase the agents' understanding of the review process and provide continuity in the rules as proposed.

Section (4) is proposed to be amended to eliminate language that has been moved to other sections and add language that helps the agents' understanding of how the commission percentage discount rate is calculated.  This will provide transparency to the process used by the department.

The department proposes to add new (5) to help agents understand the methods used to calculate the commission percentage discount rate and provide transparency to the process and help eliminate confusion.

The department proposes to amend newly numbered (6) by striking old language that is no longer relevant and adding new language to provide for reviews that take longer than the effective due date, in an effort to help eliminate confusion.

 

42.11.310  SELECTION OF AGENT  (1)  The agent for an agency liquor store will be selected according to competitive procedures under the Montana Procurement Act, 18-4-121 through 18-4-407, MCA.

(2)  For The United States Census Bureau's last decennial final census count will be used to establish population statistics used in the selection of agency liquor stores in communities with less than a population of 3,000 population according to the Federal Bureau of the Census' last decennial final census count or less.  However, in the interim between censuses, the department will use the most recent population estimates published by the United States Census Bureau.  The following will apply for that selection:

(a)  an agent will be selected according to procedures for competitive sealed proposals as defined in ARM 2.5.602; and

(b)  the agent's commission percentage discount rate will be initially established at 10 percent of adjusted gross sales.

(3)  For The United States Census Bureau's last decennial final census count will be used to establish population statistics used in the selection of agency liquor stores in communities with a population of 3,000 or more according to the Federal Bureau of the Census' last decennial final census population count.  However, in the interim between censuses, the department will use the most recent population estimates published by the United States Census Bureau.  The following will apply for that selection:

(a)  an agent will be selected according to procedures for competitive sealed bids as defined in ARM 2.5.601; and

(b)  the agent's commission percentage discount rate will be initially set at the percentage bid by the lowest responsible and responsive bidder.

 

AUTH:  16-1-303, MCA

IMP:  16-2-101, 16-2-109, 16-2-407, 18-4-303, 18-4-304, MCA

 

REASONABLE NECESSITY:  The department is proposing to amend ARM 42.11.310 to enhance the public's knowledge that the process in which an agent is selected to operate an agency liquor store is determined by the community's population.  As amended, the rule will clarify that the department will use the United States Census Bureau's most recent population estimates for years in between censuses.  The department is proposing additional amendments to the language in (2), to make it consistent with the current language in (3).

 

5.  The department proposes to repeal the following rule:

 

42.11.308  QUALIFICATIONS FOR COMMISSION RATE REVIEW  which can be found on page 42-1145 of the Administrative Rules of Montana.

 

AUTH:  16-1-303, MCA

IMP:  16-2-101, MCA

 

REASONABLE NECESSITY:  The department is proposing to repeal ARM 42.11.308 and move relevant language to ARM 42.11.306.  This repeal and relocation of the language will consolidate the commission percentage discount rate review process into a single location to enhance the agents' understanding of the review process.

 

6.  Concerned persons may submit their data, views, or arguments, either orally or in writing, at the hearing.  Written data, views, or arguments may also be submitted to: Cleo Anderson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-5828; fax (406) 444-4375; or e-mail canderson@mt.gov and must be received no later than November 26, 2012.

 

7.  Cleo Anderson, Department of Revenue, Director's Office, has been designated to preside over and conduct the hearing.

 

8.  An electronic copy of this notice is available on the department's web site at www.revenue.mt.gov.  Select the "Legal Resources" link in the left hand column, and click on the "Rules" link within to view the options under the "Current Rule Actions – Published Notices" heading.  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.

 

9.  The Department of Revenue maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency.  Persons who wish to have their name added to the list shall make a written request, which includes the name and e-mail or mailing address of the person to receive notices and specifies that the person wishes to receive notice regarding particular subject matter or matters.  Notices will be sent by e-mail unless a mailing preference is noted in the request.  Such written request may be mailed or delivered to the person in 6 above or faxed to the office at (406) 444-4375, or may be made by completing a request form at any rules hearing held by the Department of Revenue.

 

10.  The bill sponsor contact requirements of 2-4-302, MCA, apply and have been fulfilled.  The primary bill sponsor of House Bill 656, L. 2009, Representative Wayne C. Stahl, was notified by regular mail on August 14, 2012.

 

 

/s/ Cleo Anderson                            /s/ Dan R. Bucks

CLEO ANDERSON                        DAN R. BUCKS

Rule Reviewer                                 Director of Revenue

 

Certified to the Secretary of State on October 15, 2012