Wisconsin Lawyer
Vol. 82, No. 5, May 2009
isconsin undeniably has a reputation for having more pubs, taverns, bars, and nightclubs than most other states. Making one’s living off the sale of intoxicating beverages to the public is risky financially and because of the ever-present threat of incurring criminal penalties for making even inadvertent mistakes that break the law, such as serving an underage person who looks legally old enough to drink. Someone who plans to open a liquor store, tavern, or nightclub should first seek the assistance of an attorney who is familiar with the process. Doing so may prevent complications fatal to a client’s plans that could result in catastrophic financial losses for the client. Operators of other types of businesses, such as art galleries and boutiques, who have served their browsing customers a glass of wine or beer at special events should be warned that those activities have recently come under public scrutiny, and the business owners risk incurring criminal or other penalties if they do not have appropriate licensure in place to serve intoxicating beverages to the general public. This article outlines the basic, general legal requirements, procedures, and precautions for serving intoxicating beverages in public places in Wisconsin.
Required Licensure
The sale of intoxicating beverages to the public in this state is governed by Wis. Stat. chapter 125. Additionally, every city, village, and town in the state has regulations of its own.1 In general, one needs a license to sell beer, wine, and intoxicating liquor to the public.2 Such a license is obtained from the municipality in which the business to sell intoxicating beverages will be located.3 If the business’s location is not within the limits of a city, town, or village, then the license is obtained from the county government.4 Federal law requirements include the purchase of a retail liquor dealer’s stamp and payment of a special occupational tax before beginning business.
Selling or giving away intoxicating beverages to the public without a required license is a misdemeanor punishable by up to nine months in jail, a fine of up to $10,000, or both.5 Churches serving sacramental wine at religious services have no reason to fear, however, provided they obtain a special buyer’s permit.6
And what about those art galleries and other businesses that offer browsing customers a glass of wine or a beer at special sales functions? At first glance, it would seem that arguably ambiguous language in the statute allows such businesses to offer their visitors a welcoming glass or two without any license as long as they are not doing so to “evade” the law.7 In the city of Milwaukee, public discourse has recently cropped up about art galleries giving away wine or beer to their visitors during public exhibitions; public scrutiny is becoming more intense because some Wisconsin retail stores have reportedly been hosting “drink and shop” nights, offering shoppers intoxicating beverages at special sales events.8 This practice is casting an unwelcome spotlight on art gallery owners’ long tradition of allowing their visitors free access to wine or beer during art openings. Galleries rarely, if ever, have legal sanctions imposed on them by local law enforcement, and that has long been taken for granted by both the business owners and their customers. The spokeswoman for Milwaukee’s Historic Third Ward Association said recently that “We had a discussion about alcohol with relation to Gallery Night with police[.] They said, ‘We know what’s going on, and we’re going to overlook it until there’s a problem.’ The city of Milwaukee has its own criteria for what galleries and other nonhospitality businesses can and can’t do when it comes to serving alcohol.”9
On the other hand, assistant city attorney Bruce Schrimpf, the Milwaukee Common Council’s long-standing legal counsel for liquor-licensing matters, has said that giving away intoxicating beverages to the public is the legal equivalent to selling them, and so a license is required: “Giving it away is the same as selling it. That’s a proposition of law that’s pretty clear…. If you are a bona fide art gallery, you can obtain a Class B or Class C wine license, and we cover that by saying we’ll view that as a form of recreational premises. If you are a bona fide party, it’s my understanding that the Milwaukee Police Department has a list of criteria for determining what is a private party.”10 It appears that the Criminal Investigation Section of the Wisconsin Department of Revenue (DOR) strongly agrees with Schrimpf’s position and, in fact, may be positioning itself to crack down on boutiques, art galleries, hair salons, bookstores, and the like for offering customers complimentary beer or wine without appropriate licensure.11
Types of Licenses
There are different classes of licenses for the sale of fermented, malt beverages (that is, beer),12 wine, and intoxicating liquors13 by retail stores, taverns, and nightclubs. Different licenses are issued to wholesalers,14 to brewers,15 and to out-of-state shippers.16
Fermented, Malt Beverages. A Class A license under this category permits the sale of intoxicating beverages like beer and malt liquor from a retail sales location, such as a grocery store or gas station, for consumption off the licensed premises.17
A Class B license permits the sale of fermented malt beverages for consumption either on or off the licensed premises.18 These are important licenses for businesses such as hotels, clubs, lodges, and bowling alleys. For example, hotels with a Class B license are authorized to serve fermented malt beverages in the room of a guest who has attained the legal drinking age, even though the room may not be located on the licensed premises.19
A temporary Class B license allows bona fide clubs to sell and serve fermented, malt beverages at special events or occasions such as picnics, meetings, festivals, and fairs. These clubs include county and local fair associations and agricultural societies, churches, lodges, veterans’ posts, and similar organizations and other types of social groups that have been in existence for at least six months. An example of this latter type of group is an Internet-based, social group without a physical street address that provided self-evident proof of the time of its founding, which city officials could readily see when visiting the group’s Web page. The designation of a group as bona fide is determined, and more-precisely defined, by the issuing municipality. This licensure also allows underage persons to be on the premises for the event.20 Local municipal ordinances may restrict the number of times per year that these types of licenses may be issued to any single organization.21
Intoxicating Liquor. A Class A intoxicating-liquor license authorizes the retail sale of intoxicating liquor for consumption off the premises where sold and in original packages and containers.22 This is the type of license a typical liquor store must have.
A Class B license authorizes the retail sale of intoxicating liquor for consumption on the premises where sold by the glass and not in the original package or container.23 Bars and nightclubs normally need this kind of license to operate; a municipality may, by way of municipal ordinance, combine Class B licenses for sales of both intoxicating liquor and fermented, malt beverages.24 In some areas, this license also permits wine to be sold in the original package or container in any quantity to be consumed off the premises where sold.25 In some areas, this kind of license permits the sale of intoxicating liquor that will be consumed by the glass only on the premises where sold and also authorizes the sale of intoxicating liquor in the original package or container, in multiple serving units not to exceed four liters at any one time, to be consumed off the premises where sold. Wine, however, may be sold in any quantity for consumption off the premises in the original package or otherwise.26 Local regulations must be checked to see what options are available to an applicant. A Class B license also authorizes the retail sale of intoxicating liquor for consumption on the premises where it may be sold by the glass, and wine in the original package or container to be consumed off-premises.27 An interesting note on this type of license is that a municipality may issue a Class B license authorizing retail sales of intoxicating liquor on a railroad car while the railroad car is standing in a specified location in the municipality.28
Wine Only. A Class C license authorizes the retail sale of wine by the glass or in an opened original container for consumption on the premises where sold, such as a restaurant in which wine may be ordered by the glass or bottle.29 A Class C license may be issued to a qualified person for a restaurant in which the sale of alcohol beverages accounts for less than 50 percent of gross receipts and that does not have a barroom, or for a restaurant in which the sale of alcohol beverages accounts for less than 50 percent of gross receipts and that has a barroom in which wine is the only intoxicating beverage sold. A Class C license cannot be issued to a foreign corporation, a foreign limited liability company, or a person acting as agent for or in the employ of another.30
The License Application Process
Jeffrey L. Murrell, Marquette 1995, operates a solo practice in Milwaukee, with an emphasis on litigation in criminal defense, family law, bankruptcy, creditor-debtor law, and state and municipal licensing matters. He is admitted to practice in Wisconsin, New York, and the U.S. District Courts for the Eastern and Western Districts of Wisconsin.
Take very special care and pay attention to detail when filling out the forms supplied for the license application. Questions regarding the applicant’s history, especially those having to do with an applicant’s criminal background, must be answered truthfully, accurately, and with caution. Overlooking questions regarding past traffic tickets or other civil forfeitures or answering them mistakenly can instantly put the entire application in jeopardy if the licensing officials learn of even innocent mistakes. Such mistakes have been construed as fraudulent and interpreted as reflecting poorly on the applicant’s character and fitness for the desired license. Certain conditions are required to obtain a license, such as not having an arrest or conviction record, not having participated in certain acts of employment discrimination, and not being a habitual criminal offender.31 The issuing municipality’s police department normally investigates an applicant’s background to ensure these conditions are met. The applicant must have residency in the state for at least 90 days and must have attained the legal drinking age, obtained a state seller’s permit, and completed responsible-beverage-server training.32
If the applicant is a corporation or partnership, the company must appoint an agent and vest in that agent full authority to occupy and operate the licensed premises.33 The agent, along with all the principal corporate officers or partners, must satisfy the license requirements.34 The agent may be replaced during the license term, but any successor agent also must satisfy all the requirements.35
Persons seeking to acquire an existing, licensed premise and owners who would like to sell their licensed businesses often presume that the existing liquor license can simply be conveyed with the business sale. A common and very costly mistake that some prospective buyers of existing, licensed businesses make is to enter into a long-term lease agreement or sign an agreement to purchase the building before acquiring the necessary licenses. Although an issued license is transferable to another location within the same municipality,36 it may only be transferred to another person for the remainder of the licensing year if the original applicant dies, becomes bankrupt, or makes an assignment for the benefit of creditors.37 A license also may be transferred to an applicant’s spouse, under certain conditions.38
A license may not, however, be sold or transferred to a new owner who buys the business; a buyer must go through the same process that the original applicant did to get a license to operate the business. Applicants should be cautioned that municipal-council licensing committee members have been known to deny an applicant a license after the applicant has already contractually committed to acquiring a business property. Licensing committees dislike having to do that, and they frequently admonish applicants and their attorneys from entering into such agreements before they go through the licensing process. The economic fallout can be a disaster, not only for the applicant who is stuck with a building in which he or she may not operate the intended business and for which he or she cannot pay the rent or mortgage but also for the seller, the landlord, or the mortgagee and the neighborhood in general if the building sits empty and unproductive. A prospective purchaser of a tavern, liquor store, or nightclub is cautioned to insert appropriate license-oriented contingency clauses in the contract before signing on the dotted line.
Certain businesses and locations are exempt from the licensing requirements. Breweries and hospitals are not required to obtain liquor licenses, and licenses are not required for the sale of intoxicating beverages on moving trains and planes, or in public parks when sold by officers or employees of a county or municipality.39 Other exemptions apply to sales by ceramic bottle collectors; duly-licensed, raffle-prize offerings; and auction sales of sealed bottles of intoxicants, to cite a few examples.40 Moreover, consumption in the home of home-brewed or fermented wine and malt beverages and the manufacture of unadulterated apple cider are free from licensing requirements.41
License fees are determined by the issuing municipality and are usually capped by state statute.42 For existing, licensed premises, the cost can vary from as little as $50 to well over $1,000, depending on the desired amenities. Typically, an issuing municipality adds charges for things such as maintaining jukeboxes, pool tables, cigarette machines, and other items on the premises. Additionally, separate licenses or fees are required for providing entertainment such as live disc jockeys or musical performances or for accommodating patrons’ dancing to recorded or live music. Because of efforts to establish quotas and restrict the number of licensed premises in any given area, the fee for opening a brand-new, licensed location (with certain exceptions) is prescribed by state statute; the fee currently is $10,000.43
New applicants often are surprised to learn that they are required to declare with specificity the type of live or recorded music they intend to provide in their establishments. The standard state application form may be supplemented by the issuing municipality with additional questionnaires or forms requiring selection from music genres such as rock and roll, hard rock, metal, disco, country-western/polka, hip hop, and rap. Normally, no other questions are asked about proposed music choices, such as whether the applicant has obtained or plans to obtain copyright permission for playing music in the premises for patrons. Questions about the music type raise concerns about a municipal government’s motives and objectives in screening applicants’ proposed selections. For example, in 2008, a downtown-Milwaukee-area alderman, in the middle of a licensing hearing, threatened to withdraw his support for a license renewal application for a bar in a trendy section of his district after he noticed that hip hop and rap were selected on the application. Because the withdrawal of support would have put the renewal application at serious risk of being denied, the applicant immediately withdrew those music selections on the advice of counsel. This was not the first time city officials have warned that a client’s application might be denied because of such music selections. It seems that vetting an applicant about music choices alone, without further inquiry about other legally relevant issues regarding intended customer-music selection, allows licensing authorities to attempt to limit or exclude particular classes of patrons from a given neighborhood.
General License Application Summary
1) The applicant must reside in Wisconsin for at least 90 days. That means the applicant must have a physical address in the state for three continuous months before applying. Out-of-state business ventures, such as restaurant chains selling intoxicating beverages with meals, that seek to open locations in this state may employ in-state agents to meet the residency requirement.
2) The applicant must obtain a seller’s permit from the DOR before filing for licensure. The DOR may be reached by telephone at (608) 266-2776. The applicant needs a federal retail liquor dealer’s stamp. Details about the dealer’s stamp may be obtained by calling (800) 937-8864. The applicant also must pay a special occupational tax before beginning business. For more information, contact the Federal Bureau of Alcohol, Tobacco and Firearms at (800) 937-8864.
3) The applicant must contact the clerk of the municipality where the business is to be located. In most municipalities, the clerk’s office is in the city, town, or village hall. If the business will be located outside city limits, the county clerk should be contacted instead. The municipal or county clerk provides and processes the application forms for the license and takes the application fees.
4) The applicant or corporate agent, all employees who will serve alcohol, and the principal corporate officers must complete a responsible-beverage-server training course approved by the municipality or county. The municipal or county clerk can provide information on registering for the required training when the application forms are obtained.
5) Notice of the license application must be issued; this requirement typically can be fulfilled by publication in a major area newspaper for three consecutive days. Usually, the municipal or county clerk arranges for publication or posting of the notice, but if the clerk does not assume this duty, the applicant must do so and should ask the clerk how to proceed.
6) If this is the applicant’s first liquor-license application, the applicant, agent, or main corporate officers usually will have to attend a public hearing. The clerk will schedule a hearing before the municipal council to review the license application. The hearing is held at least 15 days after the application is filed. At the hearing, members of the city, town, or village council or county board will evaluate the applicant, the applicant’s background, and the applicant’s reasons for applying for a liquor license. They will decide whether to approve the application and issue the license. Although most hearings are short and rather perfunctory, they sometimes can become very legally complicated and time-consuming. This ordinarily simple process may evolve into something bordering on formal legal litigation, requiring the attorney to use standard trial tactics and strategies. Once a license has been granted, the licensee usually does not have to go through the hearing process again for annual license renewals, unless the licensed establishment accumulates an unfavorable police incident report, has sustained neighborhood objections or complaints regarding the conduct of its business, or otherwise develops a bad reputation.
7) The applicant should investigate the neighborhood of the licensed premises to ascertain any potential objections to the presence of the licensed business. It may be advantageous to present a professional business plan to area leaders and coordinate with the local alderperson and any neighborhood associations to garner support, and quell possible opposition, during the licensing process.
Maintaining an Issued License
Once granted, a license can be easily lost.44 For example, if a licensee is caught letting another person use the license, it will be revoked.45 A licensee must strictly adhere to state-imposed hours of operation.46 Incidents that result in the police being called (even if by an establishment’s own employees), neighborhood complaints, or even a single underage drinking violation can complicate the license renewal process and even result in license revocation. Knowing the neighborhood’s tolerance level is a licensee’s best defense against losing a license to serve intoxicating beverages and thereby losing his or her livelihood. Knowing the history of a licensed business that a prospective purchaser is interested in acquiring can help avoid wasting time, money, and energy on what might very well turn out to be an already lost cause. It will be very hard to renew an existing license if patrons fight each other with baseball bats in the business’s parking lot or are shot to death on the sidewalk in front of the business after its doors are shut and locked after closing time, even if the owner had no knowledge of the incidents.
Conclusion
Opening a liquor store, tavern, or nightclub offers many risks and rewards for entrepreneurs in Wisconsin. Being informed about the liquor licensing process and receiving professional guidance from knowledgeable legal counsel before, during, and after the license-application process can greatly improve an applicant’s chances for long-term success in his or her business venture. Getting an attorney’s guidance also can help avoid legal penalties for business operators who engage in the possibly illegal custom of offering customers intoxicating beverages during special sales events with no license.
Endnotes
Wisconsin Lawyer
