in-20250827-IR-905240567RAA: 905 IAC 1-5.2-18

TITLE 905 ALCOHOL AND TOBACCO COMMISSION Readoption Analysis LSA Document #24-567

I. Statement Whether the Subject Matter Covered by the Rule Remains Carried out by the Agency

The Indiana alcohol and tobacco commission (“commission”) is still responsible for enforcing and overseeing the rules’ subject matter, and there has been no significant change in authority or jurisdiction since their last adoption or original implementation.

II. Continued Need for the Rule 

As set forth in IC 7.1-1-1-1, the primary responsibilities of the commission are: With these statutory duties in mind, the mission of the commission is to regulate the manufacturing, distribution, and sale of alcohol and tobacco in Indiana through permitting, education, and enforcement. In doing so, the commission aims to foster safe and healthy marketplaces for alcohol and tobacco products in Indiana while simultaneously meeting the needs of regulated entities and the communities they serve. The rules identified for readoption are needed to adequately enforce the laws of the State of Indiana pertaining to alcohol and tobacco, to ensure the integrity of the three-tier system of regulating alcohol and alcoholic beverages, and to maintain the accuracy of fines and penalties assessed by the commission. In this way, the rules proposed for readoption help the commission to better effectuate its statutory duties and mission. Additionally, some of the rules are required to comply with statutory mandates (e.g., Rule 14 governs the local board member removal process and was originally adopted because IC 7.1-2-4-21 explicitly requires the commission to establish procedures for the removal of an appointed member of a local board). Finally, these rules are necessary because IC 7.1-5-1-1 limits commercial purposes for dealing in, possessing, and selling alcoholic beverages to authorized behaviors only. In other words, if it doesn’t say you can, then you cannot engage in that activity. These rules grant privileges that cannot be allowed by policy. Each of the standards set forth in IC 4-22-2-19.5(a) is examined below: Rule Readoptions Enforcement 905 IAC 1-5.1 Trade Practices; Prohibited Activities Enforceable by industry process 905 IAC 1-5.2 Trade Practices; Permissible Activities (Excluding 905 IAC 1-5.2-18 – Special event equipment) Enforceable by industry process 905 IAC 1-9 Sanitation Enforceable by ISEP inspection 905 IAC 1-10 Retail Closing Hours Enforceable by ISEP inspection 905 IAC 1-12.1 Employee Permits Enforceable by industry process and by ISEP inspection 905 IAC 1-12.5 Server Permittees; Certification Enforceable by industry process 905 IAC 1-13 Clubs (Excluding 905 IAC 1-13-2 – Membership lists included in club permit applications) Enforceable by process of the Commission and by ISEP inspection 905 IAC 1-14 Local Board Member Removal Procedure Enforceable by process of the Commission 905 IAC 1-16.1 Dancing Enforceable by ISEP inspection 905 IAC 1-17 Transfers (Excluding 905 IAC 1-17-2 – Applicability of quota rule) Enforceable by process of the Commission 905 IAC 1-18 New Permits in a Residential District Enforceable by process of the Commission 905 IAC 1-21 Credit Sales by Spirituous and Vinous Wholesale Permittees Enforceable by industry process 905 IAC 1-26 Permit Renewal; Letter of Extension Enforceable by process of the Commission 905 IAC 1-27 Permittee Qualifications and Public Nuisance Enforceable by process of the Commission and by ISEP inspection 905 IAC 1-30 Deposit of Retailer or Dealer Permit in Commission Escrow (Excluding 905 IAC 1-30-1 – Request to deposit retailer, dealer permit to commission) Enforceable by process of the Commission 905 IAC 1-31 Wholesale Pricing Practices Enforceable by industry process and by ISEP inspection 905 IAC 1-34 Temporary Bartender's Permit Enforceable by process of the Commission 905 IAC 1-35 Sports Arenas Enforceable by process of the Commission and ISEP inspection 905 IAC 1-36 Procedure after Local Board Investigation and Recommendation Enforceable by process of the Commission 905 IAC 1-37 Permit Violation Procedures Enforceable by process of the Commission 905 IAC 1-38 Prohibited Advertising Enforceable by industry practice and inspection by ISEP 905 IAC 1-39 Horse Track and Satellite Facility Permits (Excluding 905 IAC 1-39-2 – Rules governing) Enforceable by commission process and inspection by ISEP 905 IAC 1-40 Catering Halls and Supplemental Caterers' Permits Enforceable by Commission practice 905 IAC 1-41 Separation of Family Room from Barroom (Excluding 905 IAC 1-41-3 – Outside bars in waterfront restaurants, resort hotels, and hotel-type premises) Enforceable by Commission practice and ISEP inspection 905 IAC 1-43.1 Gaming Site Permit Enforceable by Commission practice and ISEP inspection 905 IAC 1-7.1 (Rule 7.1) is proposed to be repealed because alcohol permittees are no longer required to obtain federal tax stamps when conducting alcohol sales for on-premises or off-premises consumption. Instead, the federal government replaced tax stamps with a free mandatory registration for alcohol dealers and alcohol retailers which is available at www.ttb.gov/nrc/retail-beverage-alcohol-dealers. Due to this change in federal law, Rule 7.1 is null and void and no longer needed. 905 IAC 1-45 (Rule 45) is proposed for repeal because the keg label requirements in statute were recently repealed (see HB1275-2025). The primary reason the commission sought to repeal this authority, including Rule 45, is because the costs associated with enforcing the regulations (e.g., providing keg label booklets to permit holders, time spent by enforcement officers monitoring keg IDs, etc.) significantly outweigh any benefits of continuing the keg registration program. However, permit holders will still be required to maintain invoices, receipts, and other records pertaining to kegs sales to ensure they are still being tracked for enforcement and liability purposes. 905 IAC 1-39-2 will not be readopted because it is an unnecessary statement of authority that is duplicative of the broader authority of Title 7.1 of the Indiana Code and Title 905 of the Indiana Administrative Code. The sections in the table below will not be readopted because they are duplicated in statute. Rule Statute 905 IAC 1-5.2-18 IC 7.1-1-3-32.7(4) 905 IAC 1-13-2 IC 7.1-3-20-1(c) and IC 7.1-3-20-6(3) 905 IAC 1-15.2 IC 7.1-5-7-10 and IC 7.1-5-7-11 905 IAC 1-17-2 IC 7.1-3-22-8 905 IAC 1-30-1 IC 7.1-3-1.1-4 905 IAC 1-41-3 IC 7.-3-20-27

III. Analysis of fees, fines, and civil penalties under IC 4-22-2-19.6

None of the twenty-six (25) rules for readoption contain fines or civil penalties, and only three (3) rules for readoption contain fees which were previously approved by the state budget committee in April 2024. A summary of such fees is included below:

IV. Cost-Benefit, Economic Impact, Fiscal Impact or Regulatory Burden Statement

As described above, the rule readoptions will not result in any additional burdens or costs to regulated parties, nor will they result in any changes to existing agency operations. In fact, because the rules provide necessary guidance and information to the public and regulated entities, they are likely to result in significant time and cost savings on a variety of administrative and enforcement matters if readopted. Similarly, the repeal of Rule 45 concerning beer keg labels will result in cost savings to both the commission and regulated entities because regulated parties will no longer be required to obtain booklets of keg labels directly from the commission, who is responsible for providing them to regulated entities for enforcement purposes. Currently, the commission obtains the keg label booklets directly from a vendor and requires that permit holders obtain the keg labels booklets from the commission for $5.75 per booklet if mailed or $3.75 per booklet if picked up from ATC offices. The commission spends more money acquiring and distributing keg books than it receives from their sale. Eliminating the keg label requirements in Rule 45 will also eliminate resource outlays related to the procurement and distribution of keg books by agency staff. The number of parties impacted by the rules has likely changed since they were last adopted or originally implemented. However, the total number of parties impacted largely depends on the specific rule examined and which regulated entities the rule applies to. The estimated number of regulated entities (as of February 24, 2025) that will be impacted by the rule readoptions and rule repeals are contained in the tables below: Rule Readoptions  Estimated # of Impacted Parties  905 IAC 1-5.1 Trade Practices; Prohibited Activities All facility permit holders (16,000) 905 IAC 1-5.2 Trade Practices; Permissible Activities (Excluding 905 IAC 1-5.2-18 – Special event equipment) All facility permit holders (16,000) 905 IAC 1-9 Sanitation All facility permit holders (16,000) 905 IAC 1-10 Retail Closing Hours 8,580 retailers 905 IAC 1-12.1 Employee Permits 142,313 employees 5,605 restricted employees 905 IAC 1-12.5 Server Permittees; Certification 49 trainers 905 IAC 1-13 Clubs (Excluding 905 IAC 1-13-2 – Membership lists included in club permit applications) 684 fraternal clubs 97 social clubs 905 IAC 1-14 Local Board Member Removal Procedure 294 appointed local board members (not including 17 vacancies) 905 IAC 1-16.1 Dancing Unknown 905 IAC 1-17 Transfers (Excluding 905 IAC 1-17-2 – Applicability of quota rule) 8,580 retailers 1,062 package stores 905 IAC 1-18 New Permits in a Residential District 8,580 retailers 813 wine and liquor dealers 905 IAC 1-21 Credit Sales by Spirituous and Vinous Wholesale Permittees 98 wholesalers 905 IAC 1-26 Permit Renewal; Letter of Extension All facility permit holders (16,000) 905 IAC 1-27 Permittee Qualifications and Public Nuisance 8,580 retailers 4,373 dealers 905 IAC 1-30 Deposit of Retailer or Dealer Permit in Commission Escrow (Excluding 905 IAC 1-30-1 – Request to deposit retailer, dealer permit to commission) 8,580 retailers 4,373 dealers 905 IAC 1-31 Wholesale Pricing Practices 122 wholesalers 905 IAC 1-34 Temporary Bartender's Permit Unknown 905 IAC 1-35 Sports Arenas Unknown 905 IAC 1-36 Procedure after Local Board Investigation and Recommendation 8,580 retailers 4,373 dealers 905 IAC 1-37 Permit Violation Procedures All permit holders (employee + facility) 905 IAC 1-38 Prohibited Advertising 798 primary sources 122 wholesalers 3,662 salesmen 905 IAC 1-39 Horse Track and Satellite Facility Permits (Excluding 905 IAC 1-39-2 – Rules governing) 2 horse track facilities 3 horse track satellite facilities 905 IAC 1-40 Catering Halls and Supplemental Caterers' Permits 205 catering halls 1,365 supplemental caterers 905 IAC 1-41 Separation of Family Room from Barroom (Excluding 905 IAC 1-41-3 – Outside bars in waterfront restaurants, resort hotels, and hotel-type premises) 8,580 retailers 905 IAC 1-43.1 Gaming Site Permit 13 gaming sites Rule Repeals  Number of Impacted Parties  905 IAC 1-5.2-18 Special event equipment All facility permit holders (16,000) 905 IAC 1-7.1 Federal Tax Stamps 8,580 retailers 4,373 dealers 905 IAC 1-13-2 Membership lists included in club permit applications 684 fraternal clubs 97 social clubs 905 IAC 1-15.2 Minors 8,580 retailers 905 IAC 1-17-2 Applicability of quota rule 8,580 retailers 4,373 dealers 905 IAC 1-30-1 Request to deposit retailer, dealer permit to commission 8,580 retailers 4.373 dealers 905 IAC 1-39-2 Rules governing 2 horse track facilities 3 horse track satellite facilities 905 IAC 1-41-3 Outside bars in waterfront restaurants, resort hotels, and hotel-type premises 8,580 retailers 905 IAC 1-45 Tracking Beer Kegs 204 small brewers 1,062 package liquor stores In summary, the rules to be readopted and rules to be repealed will both result in cost savings to the commission and regulated parties, are needed to effectuate the agency’s statutory duties, and are intended to provide clarity to regulated parties regarding existing laws.

V. Alternative Methods of Achieving the Purpose of the Rule

No alternative methods to the existing rules have been identified. Although the commission could use non-rule policies to effectuate the intent or purpose behind the existing rules, this would also mean that the agency could not issue warnings or citations to permit holders for certain violations and its revenue would dramatically decrease. Enforcing rules is critical to the commission’s statutory purpose of raising revenue because it is a self-funded agency which relies on dedicated funding streams and does not receive any appropriations from the general fund. IC 7.1-5-1-1 limits commercial purposes for the sale, distribution, possession, etc. of alcoholic beverages only to those activities that are specifically authorized.  To the extent that these rules grant privileges, the Commission would not be able to grant these privileges by agency policy due to the limitations of IC 7.1-5-1-1.

VI. Complaints and Comments

To date, one complaint has been received by the commission from the public concerning the rules since their last adoption and/or original implementation. Specifically, the commission received one known comment regarding the public nuisance rules set forth in 905 IAC 1-27-2 and 905 IAC 1-27-3, but these rules have not been challenged or overturned in any court cases or proceedings. The Commission received one comment in favor of these rule readoptions from the representative of Wine and Spirits Wholesalers of Indiana.

VII. Difficulties Encountered 

The agency has not encountered any significant difficulties in administering or enforcing the existing rules. Similarly, most regulated parties have not had problems complying with the rules. To the extent that a regulated party struggles to comply with any of the rules, the commission’s primary goal is to educate regulated parties about the relevant violation (whether set by statute or rule) and explain why it is needed to ensure compliance going forward.

VIII. Changes in Technology, Economic Conditions, or Other Factors 

The rules subject to readoption have not been substantively impacted by technological changes since the last review period. Although technological advancements may generally impact implementation of and/or compliance with certain rules, such as prohibited and permissible trade practices (Rule 5.1 and Rule 5.2, respectively), prohibited advertising (Rule 38), and wholesale pricing practices (Rule 31). Any potential impact due to technological changes would be minimal and, if necessary, could be addressed through future rulemaking actions.

IX. Other State or Federal Requirements

Following the repeal of Prohibition and the ratification of the 21st Amendment to the U.S. Constitution, states were granted broad powers to regulate the sale, manufacture, importation and transportation of alcohol within their borders. While some states initially decided to continue their own prohibition against the production, distribution, and sale of alcoholic beverages within their borders, other states decided to leave the issue to local jurisdictions, including counties and cities, a practice often referred to as “local option”. Similarly, states were also able to restrict the importation of "intoxicating liquors" into their borders under the provisions of the 21st Amendment which exempted liquor from the constitutional rule reserving the regulation of interstate commerce to the federal government, allowing states that wished to continue prohibition to do so. In effect, due to the broad powers afforded by the 21st Amendment, states can set their own policies regarding alcohol, reflecting their own unique needs and standards. Similarly, states can delegate this authority to local entities like counties or municipalities. As a result, the 21st Amendment has resulted in diverse alcohol policies across the United States, varying in areas like age restrictions, sale hours, and types of establishments allowed to sell alcohol. In response to the 21st Amendment, Indiana—like every other U.S. state—established a three-tier system to regulate the manufacture, distribution, and sale of alcohol. Under the three-tier system, manufacturers (first tier) sell alcohol products to wholesalers (second tier), who may only sell to retailers (third tier), who sell directly to consumers for both on-premises or off-premises consumption. There are typically separate permits for beer, wine, and liquor at each level of the three-tier system as well. Although every state has adopted some form of the three-tier system for alcohol, a distinguishing factor among the states is who is directly responsible for alcohol distribution and sales. In a control state, the government controls the sale and distribution of alcoholic beverages, often through state-run stores or agencies. In contrast, in an open or non-control state, private parties are licensed to handle alcohol distribution and sales in accordance with state and local laws. While most U.S. states are non-control states (including Indiana, Illinois, and Kentucky), there are seventeen (17) states that have adopted some form of the control state model (including Idaho, Michigan, Ohio, and South Dakota). As such, for purposes of this analysis, it is critical when analyzing each comparison state to first note whether it is a control state or non-control state because this will determine the frequency and content of its alcohol regulations. Please refer to the outline in Exhibit A.1 and table in Exhibit A.2 for an overview of the rules to be readopted as well as similar legal authority in the comparison states for purposes of this analysis.

XI. Integration into Indiana Code

Recent attempts to codify existing administrative rules have been unsuccessful despite their age. Most recently, legislators sought to codify existing rule language pertaining to public nuisances contained in 905 IAC 1-27, but the bill died upon passage by the Senate (see SB260-2025). Due to the frequently varying interests of regulated parties and their extensive lobbying efforts, the commission believes that further attempts to codify existing rules may prove futile. Notice of Public Comment Period for Rule Readoption: 20250827-IR-905240567RNA Notice of Determination Received: August 14, 2025