PART 3. TEXAS ALCOHOLIC BEVERAGE COMMISSION
CHAPTER 41. AUDITING
SUBCHAPTER B. RECORDKEEPING & REPORTS
The Texas Alcoholic Beverage Commission (TABC) adopts amendments to 16 TAC §41.12, relating to Compliance Reporting by License and Permit Holders. The amendments are adopted without changes to the proposed text as published in the October 11, 2024, issue of the Texas Register (49 TexReg 8270). The amended rule will not be republished.
REASONED JUSTIFICATION. The amendments increase the amount of time licensees and permittees are allotted to complete and submit compliance reports to TABC and provides additional relief to businesses who fail to timely submit a report.
The current rule requires TABC-licensed businesses with a premises in Texas to complete a compliance self-assessment, known as a compliance report, each year. The report is due within 90 days from the date the agency notifies a licensee or permittee to complete the report. If a compliance report is not submitted within the 90-day period, TABC may issue a written warning for the failure and the business has 30 days to complete the report before TABC may initiate an administrative enforcement case. The proposed amendments to §41.12: (1) clarify that the rule applies to those permittees and licensees with a premises; (2) increase the time allotted to submit a compliance report from 90 days to 180 days; and (3) extend the time for initiating an administrative enforcement case by removing the 30-day grace period to complete an unsubmitted report and not initiating an administrative case until a subsequent report is due and not submitted for a second time.
SUMMARY OF COMMENTS. TABC did not receive any comments on the proposed amendments.
STATUTORY AUTHORITY. TABC adopts the amendments pursuant to TABC's rulemaking authority under Texas Alcoholic Beverage Code §§5.31 and 5.361. Section 5.31 authorizes TABC to prescribe and publish rules necessary to carry out the provisions of the Alcoholic Beverage Code. Section 5.361(a-1) states that TABC "by rule shall develop a plan for inspecting permittees and licensees using a risk-based approach that prioritizes public safety," and further states that "the inspection plan may provide for a virtual inspection of the permittee or licensee that may include a review of the permittee's or licensee's records..."
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on November 15, 2024.
TRD-202405545
Matthew Cherry
Senior Counsel
Texas Alcoholic Beverage Commission
Effective date: December 5, 2024
Proposal publication date: October 11, 2024
For further information, please call: (512) 206-3491
The Texas Alcoholic Beverage Commission (TABC) adopts new Subchapter G, relating to Operating Agreements Between Permit and License Holders, and new rule 16 TAC §41.65, relating to Contract Distilling Arrangements and Distillery Alternating Proprietorships. The rule is adopted with changes to the proposed text as published in the October 11, 2024, issue of the Texas Register (49 TexReg 8272). The rule will be republished.
REASONED JUSTIFICATION. The proposed rule is necessary to implement legislation. Senate Bill 60 (88th Regular Session) authorized holders of a distiller's and rectifier's permit and a nonresident seller's permit to enter into operating agreements for activities related to the production of distilled spirits. The bill required TABC to adopt implementing rules. The proposed rule implements SB 60 by providing a framework for permittees who engage in contract distilling arrangements and distillery alternating proprietorships as authorized in Alcoholic Beverage Code §§14.10 and 37.011.
Section 41.65(a) provides a citation to the provisions in the Alcoholic Beverage Code that this rule implements. Section 41.65(b) defines the two types of operating agreements for the production of distilled spirits that are authorized by Alcoholic Beverage Code §§14.10 and 37.011, while §41.65(c) provides a definition for the term "affiliate" as used in §§14.10(a)(6) and 37.011(a). Although the term "affiliate" appears elsewhere in the Alcoholic Beverage Code, the proposed definition applies solely to the use of the word in the context of contract distilling arrangements and distillery alternating proprietorships.
Section 41.65(d) sets forth and clarifies who must be a party to arrangements under Alcoholic Beverage Code §37.011(a), which governs arrangements between certain Nonresident Seller's Permit holders and Distiller's and Rectifier's Permit holders. To be a valid arrangement under this proposed provision, the nonresident seller must either own an out-of-state distillery or have an affiliate that itself owns an out-of-state distillery and has a Distiller's and Rectifier's Permit.
Section 41.65(e) implements Alcoholic Beverage Code §§14.10(d) and 37.011(c) by clarifying that the distiller who provides services on behalf of another distiller may neither consider the product to be owned by the distiller providing the services nor sell the product at their premises.
As explained below, §41.65(f) has been changed from the proposed text to clarify that product manufactured by another distiller under a contract distilling arrangement may be brought back to the product owner's premises and sold directly to consumers in conformity with the requirements under Alcoholic Beverage Code §14.05, provided that the product owner actually manufactures, bottles, packages, or labels its own distilled spirits at that premises. In conformity with the statutory requirements outlined in §41.65(e), the changes to the proposed text still prohibit a distiller who has product manufactured by another distiller under a contract distilling arrangement who does not also manufacture, bottle, package, or label its own distilled spirits from selling the product produced under the contract distilling arrangement directly to consumers at its premises. For additional clarity, this provision's reference to manufacturing refers to the actual distillation and rectification of distilled spirits and does not include the ancillary processes necessary to create a marketable product such as bottling, packaging, and labeling distilled spirits.
Section 41.65(g) clarifies that when a distiller or nonresident seller who engages in the activities authorized in Alcoholic Beverage Code §§14.10(a) or 37.011(a), including manufacturing, bottling, or labeling product, on another distiller's ("host distiller") premises pursuant to a distillery alternating proprietorship, the product may not be sold to ultimate consumers on the host distiller's premises under §14.05.
Section 41.65(h) is the inverse of subsection (f) for purposes of selling distilled spirits to a consumer under Alcoholic Beverage Code §14.05. Under subsection (h), a distiller who manufactures (i.e. distills or rectifies) its own distilled spirits and has the product bottled, packaged, and/or labeled by someone else under a contract distilling arrangement may sell the product to consumers at the distiller's premises in accordance with §14.05.
Section 41.65(i) requires a written agreement to be submitted to TABC before permittees may engage in a contract distilling arrangement or alternating distillery proprietorship. Additionally, the subsection outlines certain provisions that must appear in the agreement so the agency may ensure that there is a strict separation between the businesses and operations of the involved permit holders as required by Alcoholic Beverage Code §§14.10(e) and 37.011(d).
Section 41.65(j) requires nonresident sellers who engage in authorized activities under the rule through an affiliate to submit an affidavit that describes the affiliate's qualifications under §41.65(c) of the proposed rule. This will provide the agency the ability to ensure that the nonresident seller meets the qualifications in Alcoholic Beverage Code §37.011(a).
Lastly, §41.65(k) authorizes transportation of distilled spirits between premises under a contract distilling arrangement or alternating distillery proprietorship before the product has been registered with TABC. Currently, 16 TAC §45.26 prohibits removing distilled spirits from a permitted premises unless the product has first been registered with TABC. This exception to the registration requirement is necessary in these arrangements to allow the product to be submitted to the Alcohol and Tobacco Tax and Trade Bureau for a Certificate of Label Approval, which is a prerequisite for registration with TABC under Alcoholic Beverage Code §101.671.
SUMMARY OF COMMENTS. TABC received a comment from the Texas Distilled Spirits Association requesting changes to proposed §41.65(f).
COMMENT: As proposed, §41.65(f) clarified that product manufactured by another distiller under a contract distilling arrangement may not be brought back to the product owner's premises and sold directly to consumers in conformity with the requirements under Alcoholic Beverage Code §14.05. The commenter claims that by prohibiting a distiller from selling its product that is manufactured at a separate facility under a contract distilling arrangement at the distiller's tasting room, the rule could unnecessarily limit the distiller's business opportunities and cause confusion for consumers visiting the tasting room expecting to purchase a particular product. The commenter requests that the rule be amended to allow for such sales.
AGENCY RESPONSE: The agency agrees with the comment and amends §41.65(f) accordingly. As adopted, the rule will allow a distiller to sell its product that is produced at a separate location under a contract distilling arrangement at the distiller's permitted premises, provided that the distiller actually manufactures, bottles, packages, or labels its own distilled spirits at that premises.
STATUTORY AUTHORITY. TABC adopts this rule pursuant to the agency's rulemaking authority under Texas Alcoholic Beverage Code §§5.31, 14.10, and 37.011. Section 5.31 authorizes TABC to prescribe and publish rules necessary to carry out the provisions of the Alcoholic Beverage Code. Sections 14.10 and 37.011 both direct the agency to "adopt rules regulating the shared use of the permitted premises under this section to ensure administrative accountability of each permit holder and a strict separation between the businesses and operations of the permit holders."
§41.65.Contract Distilling Arrangements and Distillery Alternating Proprietorships.
(a) This section implements Alcoholic Beverage Code §§14.10 and 37.011.
(b) Alcoholic Beverage Code §§14.10 and 37.011 authorize contract distilling arrangements and distillery alternating proprietorships.
(1) "Contract distilling arrangement" means an arrangement in which two distilleries contract for one distillery to engage in the activities authorized in Alcoholic Beverage Code §§14.10(a) or 37.011(a) on behalf of the other distillery.
(2) "Distillery alternating proprietorship" means an arrangement in which two or more parties take turns using the physical premises of a distillery as permitted under the Alcoholic Beverage Code.
(c) As used in this section and Alcoholic Beverage Code §§14.10 and 37.011, "affiliate" means a person who controls, is controlled by, or is under common control with the holder of a Nonresident Seller's Permit, including a subsidiary, parent, or sibling entity of the nonresident seller.
(d) The parties to an agreement under Alcoholic Beverage Code §37.011 shall consist of the holder of a Distiller's and Rectifier's Permit and the holder of a Nonresident Seller's Permit. The nonresident seller must either:
(1) own a distillery outside Texas; or
(2) have an affiliate who owns a distillery outside Texas who also holds a Distiller's and Rectifier's Permit.
(e) Pursuant to Alcoholic Beverage Code §§14.10(d) and 37.011(c), a distiller ("Distiller A") who manufactures, bottles, packages, or labels distilled spirits on behalf of another distiller ("Distiller B") or nonresident seller under a contract distilling arrangement may not consider the distilled spirits as being owned by Distiller A or sell those products on Distiller A's premises.
(f) A distiller who has its product(s) manufactured at a separate location under a contract distilling arrangement may not sell the product(s) directly to ultimate consumers under Alcoholic Beverage Code §14.05 unless the distiller manufactures, bottles, packages, or labels its own distilled spirits at its permitted premises.
(g) A distiller ("tenant distiller") or nonresident seller who engages in the activities authorized in Alcoholic Beverage Code §§14.10(a) or 37.011(a) on another distiller's ("host distiller") premises pursuant to a distillery alternating proprietorship may not sell the product to ultimate consumers on the host distiller's premises.
(h) A distiller who manufactures its own product, regardless of whether the product is bottled, packaged, or labeled at a separate location under a contract distilling arrangement, may sell the product for consumption on or off the premises at which the manufacturing occurs in accordance with Alcoholic Beverage Code §14.05.
(i) Prior to engaging in the privileges authorized in this section and Alcoholic Beverage Code §§14.10 and 37.011, an agreement signed by each party to a contract distilling arrangement or distillery alternating proprietorship must be submitted to TABC by the permit holder who owns the ultimate product. The agreement must contain provisions specifying the nature, duration, and extent of the activities authorized under the agreement and provisions delineating a separation between each permit holder's business and operations. The agency's acceptance of the agreement does not constitute approval of the entirety of the agreement's terms and is merely an acknowledgement that an agreement containing the required provisions has been submitted.
(j) A nonresident seller who enters into a contract distilling arrangement or alternating distillery proprietorship through an affiliate must submit to TABC an affidavit describing the affiliate's qualifications under subsection (c) of this section.
(k) Notwithstanding §45.26, distilled spirits manufactured, bottled, packaged, or labeled pursuant to a contract distilling arrangement or distillery alternating proprietorship may be removed from, and transported between, distillery premises as necessary to accomplish the agreement's terms.
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on November 15, 2024.
TRD-202405544
Matthew Cherry
Senior Counsel
Texas Alcoholic Beverage Commission
Effective date: December 5, 2024
Proposal publication date: October 11, 2024
For further information, please call: (512) 206-3491
The Texas Alcoholic Beverage Commission (TABC) adopts amendments to 16 TAC §45.2, relating to Definitions. TABC also adopts new rules 16 TAC §45.28, relating to Standards of Fill for Distilled Spirits, and 16 TAC §45.29, relating to Standards of Fill for Wine. The amendments and new rules are adopted without changes to the proposed text as published in the October 11, 2024, issue of the Texas Register (49 TexReg 8274). The amended rule and new rules will not be republished.
REASONED JUSTIFICATION. The amendments are necessary to update TABC's rules to align with the Texas Alcoholic Beverage Code and federal regulations.
The proposed amendment to §45.2 updates the definition of "distilled spirits" to match the definition found in Alcoholic Beverage Code §1.04(3). The proposed new §45.28 and §45.29 adopt the container sizes and standards of fill for distilled spirits and wine authorized in the Alcoholic Beverage Code and established by the federal Alcohol and Tobacco Tax and Trade Bureau (TTB). These changes will ensure that the definition of "distilled spirits" in the agency's rules align with the definition in the Alcoholic Beverage Code, and that all container sizes eligible for a Certificate of Label Approval issued by the TTB, that are not otherwise prohibited in the Alcoholic Beverage Code, may legally be sold in Texas.
SUMMARY OF COMMENTS. TABC did not receive any comments on the proposed amendments or new rules.
SUBCHAPTER A. GENERAL PROVISIONS
STATUTORY AUTHORITY. TABC adopts the amendments pursuant to TABC's rulemaking authority under Texas Alcoholic Beverage Code §5.31. Section 5.31 authorizes TABC to prescribe and publish rules necessary to carry out the provisions of the Alcoholic Beverage Code.
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on November 15, 2024.
TRD-202405542
Matthew Cherry
Senior Counsel
Texas Alcoholic Beverage Commission
Effective date: December 5, 2024
Proposal publication date: October 11, 2024
For further information, please call: (512) 206-3491
STATUTORY AUTHORITY. TABC adopts the new rules pursuant to TABC's rulemaking authority under Texas Alcoholic Beverage Code §§5.31 and 5.39. Section 5.31 authorizes TABC to prescribe and publish rules necessary to carry out the provisions of the Alcoholic Beverage Code. Section 5.39 directs TABC to "adopt rules to standardize the size of containers in which liquor may be sold in the state."
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on November 15, 2024.
TRD-202405543
Matthew Cherry
Senior Counsel
Texas Alcoholic Beverage Commission
Effective date: December 5, 2024
Proposal publication date: October 11, 2024
For further information, please call: (512) 206-3491