Tighten Alcohol License Rules

Title of bill

An act to amend the alcoholic beverage control law, in relation to licensing restrictions for manufacturers and wholesalers of alcoholic beverages and retail licensees

Purpose or general idea of bill

To limit the application of New York's tied-house provisions to New York licensees.

Summary of specific provisions

This bill would amend § 101(a) and § 106(13) of the Alcoholic Beverage Control Law to limit the application of the New York's "tied-house" provisions to retailers and wholesalers and manufacturers licensed by the New York State Liquor Authority.

Justification

New York's Alcoholic Beverage Control Law prohibits a distributor (wholesaler) or manufacturer from holding an interest, directly or indi- rectly, in a licensed retailer of alcoholic beverage, such as a restau- rant. Likewise, a retailer may not hold an interest, directly or indi- rectly in a distributor or manufacturer. These are known as the "tied-house" laws.

The original intent of these post-prohibition statutes was to ensure that manufacturers and/or wholesalers of alcoholic beverages were not positioned to exert undue influence over retail establishments. In other words, tied-house laws barred vertical integration in the liquor business. Today, in most jurisdictions, the danger to be avoided is spelled out more specifically by prohibiting "undue influence" and/or "inducements" between the manufacturer and wholesaler tiers and the retail tier of the "three-tiered" system in order to trigger a tied- house issue. New York, on the other hand, has among the most restrictive tied-house laws in the country, consisting of an interpretation that any relationship, however remote or deminimis, between a wholesaler and retailer is prohibited. Unlike the federal tied-house statute and those of many other states, New York does not require any indicia of the evil to be avoided in order to restrict a business relationship between a manufacturer or wholesaler and a retail establishment -- even when there is no undue influence remotely present. But what really separates New York from the rest of the country is a Court of Appeals ruling that supported the State Liquor Authority's interpretation that New York's tied-house laws could be applied extraterritorially.

While originally aimed at promoting competition, in today's highly complex corporate world, current law and its strict interpretation in New York creates unintended consequences particularly in light of the incredibly complex corporate structures that have come to dominate the business landscape. For example, a global corporation may technically "own" five subsidiary corporations. Company A may own a winery in France while Company D may own a hotel containing a restaurant in New York. Under New York Law, the liquor license for the restaurant would be prohibited - and it could be subject to financial penalties. Or consider another corporation where Subsidiary 1 operates a wholesale business in New York City and Subsidiary 2 owns a restaurant in Miami, Florida. In this case, the State Liquor Authority could, consistent with New York Law, revoke the wholesale license of the New York wholesaler and fine Subsidiary 2. And to what end?

Continued reliance on a statute enacted for circumstances that existed in 1933 is no longer tenable and is placing New York-based businesses at an unnecessary disadvantage. Unfortunately, three recent administrative rulings of the State Liquor Authority have confirmed New York's adher- ence to a statutory construction that preceded World War II.

This measure would go a long way toward bringing New York into the 21st Century by statutorily eliminating the extra-territorial reach of New York's strict-construction tied-house laws.

Prior legislative history

New bill

Fiscal implications

None

Effective date

This act shall take effect immediately.