Behind PA Assembly Lines: A Community Blog

Graduate student Teerah Goodrum provides updates on legislation in Pennsylvania's General Assembly

Privatizing PA's Spirits

Written by Teerah Goodrum, Community Blogger | Aug 19, 2013 10:54 PM

Many Pennsylvanians are interested in the proposed bill to privatize liquor stores in the state.  Since the 1950’s, the sale of wine and spirits have been controlled by the Pennsylvania State Liquor Board and State owned stores.  This allowed the Commonwealth to monitor the sale, manufacturing, and profit of wine and spirits without depending on a third party to report this information to the state.  This was also a source of revenue for the Commonwealth.  Although the sale of wine and spirits is limited to state stores, Pennsylvania has permitted the sale of malt and brewed beverages by distributors.  However, distributors were not permitted to sell wine or spirits and could only sell the packages and volumes for malts and brewed beverages authorized by the Liquor Board.  Other retail licenses for the sale of alcoholic beverages were given to establishments such as hotels, restaurants, and clubs but these licenses regulated the volume that could be sold which is significantly less than state stores and distributors.  These regulations will continue to stay in place including the Pennsylvania ran state stores.  However, the Commonwealth is opening up the market and considering allowing privately owned stores as well.  Pennsylvania residents have many questions about what privatizing liquor stores will mean for their communities, accessibility to adult beverages, and how it would produce revenue for the Commonwealth.  Through the analysis of House Bill 867, I will attempt to answer these questions and more.

The first step toward privatizing liquor stores is to disburse package store licenses.  These licenses will be required for all stores selling wine and spirits.  These licenses must be renewed every two years with a renewal filing fee of $1000.  This fee can be adjusted and transfer fees can equal up to 1% of the license fee paid.  The formula to determine the number of available licenses will be based on the number of current and valid distribution licenses.  They’ll take whatever the number is for valid distributor licenses plus two hundred more and this will equal the number of package store licenses available.  However, the number of package store licenses cannot exceed 1400 for the entire State.  Within the first 90 days of this bill being enacted, distributors with valid licenses will have the ability to apply for package store licenses.  Distributors will not be required to have package store licenses, but they will have the first opportunity to obtain them.  Distributors licensed to sell malt and brewed beverages must surrender their distributor’s license upon approval of a package store license.  Distributors that acquire package store licenses can continue selling malt and brewed beverages however, they must adhere to the limited volumes and packages authorized under the regulations for the new license.  Grocery stores and Supermarkets may receive an endorsement to sell malts and brewed beverages but may not gain authorization to sell wine and spirits.  After 90 days the remaining licenses will be assigned to counties across the Commonwealth and those licenses will be auctioned off.  Stipulations for assigning package store licenses to counties is as follows,

in assigning package store licenses, the department shall balance the factor of

historic sales of liquor, population density, and median household income with

the policy objective of assuring adequate and reasonable liquor distribution in all

areas of this Commonwealth

There are eligibility requirements to bid on the auctioned package store licenses.  For individuals that bid on the licenses, they must be American citizens and residents of Pennsylvania. If a group such as an LLC, corporation, association, limited partnership etc. chooses to place a bid in the auction, the group must be organized under the laws of the Commonwealth.  If the application is accepted and moves into the investigation process, all executive officers, directors, general or limited partners, and affiliates of the licensee will also be investigated to determine if the licensee is responsible and suitable.  Investigations will be conducted in conjunction with the State Police and the Office of Inspector General.  During post qualifications hearings there will be input hearings in six regions of the Commonwealth.  PA residents will have the opportunity to testify regarding selected bidders qualifications including the locations of proposed wine and spirit stores at these hearings.  The testimony given will be considered by the investigation.  If a bidder’s investigation is completed and they are found in good standing, they have paid all fees associated with the package store license process, and are approved by the State Liquor Board, they will be awarded a package store license.  If the licensee is not approved then they will have their application and bid fee returned to them.

A licensee may not hold directly or indirectly more than 40 package store licenses within the State of Pennsylvania.  A package store licensee may not hold more than 10% of the package store licenses in a county that has ten or more package store licenses and one package store license in a county that has less than ten package store licenses.  This means a package store licensee will not be able to have sole ownership of a large majority of package licenses in any county and limits the opportunity to monopolize the market throughout the Commonwealth.  Competition is what will keep the cost of wine and spirits reasonably priced between the privately owned stores.  Package store licensees may not hold wine and spirits wholesale licenses.  Having a wholesale license means sellers could purchase wine and spirits at a considerably lower price and have sales prices that are either lower than competitors or the same as competitors.  This would in either case increase the profit margin for the licensee but could lead to an unfair market that benefits the licensee possessing a wholesale license.  Package stores can sell wine and spirits, malts and brewed beverages and they may also sell related merchandise.  However, related merchandise may not exceed 30% of gross annual sales of the store.  The hours for private liquor stores will be 9am-11pm except Sundays.  Although the stores are supposed to be closed Sundays, for $1000, a permit can be purchased to sell on Sundays to unlicensed persons or holders of special occasion permits between the hours of 9am-9pm.  Privately owned liquor stores may not be within three hundred feet of an elementary school or a secondary school without approval from the Liquor Board.  If a municipality is dry, a liquor store cannot be placed in that municipality without a referendum approving it.  Liquor stores cannot be within two hundred feet of places that sell liquid gas.  These stores cannot be operated with an interior connection to another business or residence where the board has authorized a retail license authorizing the sale of malt or brewed beverages.  It is explicitly noted throughout the bill that these stores will not allow consumption of adult beverages on the premises.  Therefore, they are not allowing a loophole such as an interior connection to another Board authorized area where adult beverages are sold for on-premises consumption. 

The Commonwealth would like to use the privatization of liquor stores as new source of revenue.  There are various fees associated with this process.  The general application fee for a package store license is $5,000.  For bidders, they will have to pay a $10,000 bid fee in addition to the application fee and cannot put in a bid under $250,000.  This money will be deposited into the Public Education Legislative Initiative Fund. For sellers that would like to sell wines for consumption off premises, they will have to pay a onetime fee of $50,000.  For sellers intending to sell spirits for consumption off premises, they will also have to pay a onetime fee of $50,000.  This money will go into the State Store Fund.  Package Store licensees will be considered PA Liquor Stores for the purposes of collecting and remitting taxes.  A payment of 1% in annual gross receipts of sale must be given to the PA Liquor Board.  This money will be given to the Department of Drug and Alcohol for State rehabilitation and treatment programs. This bill attempts to cover many of the areas of concern Pennsylvanians may have.  Concerns such as where these stores can be located, the approval process, limitations, and ways it attempts to increase revenue.  I hope this is helpful to all of you inside and outside of the Commonwealth that are seeking more information on the subject. 

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