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Coveted Utah alcohol licenses soon can be bought and sold

Published April 28, 2014 1:54 pm

Alcohol • Utah law, taking effect July 1, will allow the holder of a state license to sell it to a qualified buyer.
This is an archived article that was published on sltrib.com in 2014, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

While running a bar might not make you rich, being the owner of a state liquor license could be worth some cash.

Beginning July 1, a new state law will allow the holder of a state alcohol license to sell it to a qualified buyer, something that has previously been prohibited.

It's "free enterprise," said Sen. John Valentine, R-Orem, who helped sponsor the alcohol license "transfer" law in 2012.

While Utah liquor licenses have technically had no monetary value, "there's always been these sort of underground transfers," he said. Business owners worked behind the scenes to purchase bars, taverns or restaurants to get the alcohol license, skirting the state application process and, in some cases, leaving unpaid creditors in the balance.

"My whole thesis was to bring it above ground so it's out in the open," Valentine said. "It will allow for public hearings and will make sure all those things are aboveboard."

There was significant opposition to the transfer law when it was proposed, namely from the restaurant and hospitality industry. Those groups worried about companies with large pocketbooks buying licenses and holding on to them to drive up the value.

Valentine said provisions were added to the law to help ease those concerns, including a requirement to begin business within 30 days. But with emotions high, lawmakers postponed the effective date to July 1, 2013. As that date neared, lawmakers moved the effective date back another 12 months.

In 2014, a year when the Legislature left Utah's liquor laws relatively untouched, Valentine — who more than any other lawmaker has shaped Utah alcohol policy in recent years — said he saw no reason to postpone the issue again, setting the sale of liquor licenses into motion.

Buying and selling • So what is a state alcohol license worth?

It all depends on supply and demand, said Melva Sine, leader of the Utah Restaurant Association, which was one of the groups that opposed passage of the transfer law. Alcohol licenses for restaurants and beer-only taverns are relatively easy to get through the Utah Department of Alcoholic Beverage Control application process and probably won't fetch a high price, she said.

But club licenses, which are limited in Utah, might garner a nice wad of cash for a bar owner.

"Where there is a market, those are going to be heavily valued," said Sine, who wouldn't speculate on a price. "No one knows that because we've never done it. We'll have to wait and see what this does to the marketplace."

There are more than 12 businesses waiting for a club license, which allows customers to drink wine, beer or spirits without also ordering food. And businesses with club licences are not required to have a bar enclosure dubbed a Zion Curtain to keep drinks out of view of minors.

Each month there is usually only one license — but sometimes zero — available, so most applicants wait at least a year to get approval.

Park City businessman Steve Demarest is currently ninth on the list and hopes to secure a club license by November so he can open Fletcher's, an upscale lounge with dining at 562 Main St. If a club license isn't available, he might have to settle for a full-service restaurant license, which would require a Zion Curtain.

"It would be worth it for me to pay a premium and have piece of mind that I wouldn't have to go the restaurant license route," Demarest said. And his price for peace of mind?

"I've thought about it and I think $30,000 would be my threshold," he said. "Any more than that and it makes more sense to stick it out and wait."

But that would depend on finding someone in Summit County willing to sell a license — or not being outbid by a company with a bigger checkbook.

Next steps • The state liquor commission, which is charged with granting all alcohol license transfers, is expected to discuss the new law at its monthly meeting, on Tuesday, said spokeswoman Vickie Ashby.

UDABC staffers also have planned a session in mid-May to determine how to handle the specifics of the law, including the applications process, operational requirements, fees and notification of creditors.

Ashby said buyers will have to "go through the application process and meet all the statutes" before getting the liquor commission approval.

That is especially true if the buyer plans to move the license to a new location. In those cases, according to the law, the UDABC will have to ensure — among other things — that the transfer stays within the same county, that the new location is the correct distance from churches and schools and that the new owners are not delinquent in taxes or payments to creditors and lien holders.

Other questions • Dave Morris, owner of Salt Lake City's Piper Down and president of Utah Hospitality Association, said the new law "raises tons of interesting questions."

There are tax issues, he said. "If I paid $300 for my liquor license and if I sell it for more, do I have to pay capital gains?"

It also could create a whole new business of alcohol license brokers, who would connect buyers and sellers, similar to a real estate agent.

Morris said the law "definitely satisfies a need" because of the current club-license shortage.

"But it's an artificial shortage," he said. Lawmakers, he noted,could simply adjust the population requirement — or eliminate the Zion Curtain — and the list would dwindle quickly.

But until then, the free market will determine the price.

"You can try to sell it for $60,000 and if no one takes it, you'll have to lower your price," Morris said. "But if the Winter Olympics come back, you can bet licenses will go up to the $200,000 range." Morris also believes there will be "crazy entrepreneurs" who will try to find a loophole in the law. "They will be sneaky and resort to backdoor politics" to get a license, he said.

"But if there's holes in this thing," he said, "I guess we'll find out." —

Buying and selling alcohol licenses

Beginning July 1, a new state law allows those who hold a state alcohol license to sell it to a qualified buyer. Here are some of the restrictions:

• Alcohol licenses can be sold to another person whether it is for the same location or a different premise. However, the license must remain in the same county as issued.

• The buyer must meet a list of qualifying factors to hold the license and must have satisfied all tax debts.

• The buyer must begin operations within 30 days or forfeit the license.

• There is a transfer application fee of $300.

• The seller must notify all creditors that the license is being transferred; unpaid creditors can file claims.

• All transfers are subject to approval of the state liquor commission.