Could siblings own beer-and-wine businesses on different tiers, and could one person work for both a wholesaler and retailer?

Plain-English summary

The South Carolina Department of Revenue addressed two different three-tier issues for beer and wine businesses.

First, a sister could own a wholesale business while her brother owned a retail business solely because sibling status was not itself prohibited under the beer-and-wine statutes. But the siblings had to remain genuinely separate: neither could act for, participate in, or hold an ownership or financial interest in the other's business. The Department could require stipulations and licensing conditions to confirm that separation.

Second, the brother could not work simultaneously for the wholesale business and serve as a manager of the retail business under the proposed facts. His flat salary and lack of commissions did not cure the problem because he still exercised control over retail business decisions.

Sibling ownership across tiers

South Carolina's three-tier system placed manufacturers, producers, and importers on Tier One, wholesalers on Tier Two, and retailers on Tier Three. The statutes generally prohibited a person on one tier, or someone acting directly or indirectly for that person, from having an ownership or financial interest in a business on another tier.

The beer-and-wine provisions did not expressly ban siblings from holding licenses on different tiers. The ruling contrasted the liquor-wholesaler statute, which expressly treated relatives within the third degree differently.

The proposed wholesale license therefore was not barred merely because the applicant's brother owned half of a retailer. Before licensing, however, the Department required assurance that:

• the brother had no interest or involvement in the sister's wholesaler beyond his retailer being a potential customer on ordinary terms; and
• the sister had no ownership, financial interest, or involvement in the brother's retailer.

Cross-tier employment and management

The brother planned to sell his 50% retail interest and then receive flat salaries from both the retailer and the sister's wholesaler. He would have no managerial responsibility at the wholesaler but would retain limited managerial responsibility at the retailer.

The Department rejected that arrangement. It read the three-tier provisions together with the license rules treating an employee with day-to-day management responsibility as a business principal. Control over business decisions was an ownership-or-financial-interest concern even without profit-based pay.

The ruling stated a narrow general condition for cross-tier service: the individual must have no control over business decisions, and compensation must be unrelated to business profits. The proposed retail management role failed the first condition.

Ownership changes and license surrender

The ruling also warned that selling the brother's 50% retail ownership interest likely triggered the rule requiring surrender of the existing license after a change in ownership, possession, or control. Section 61-2-140(B) treated a transfer of 25% or more of corporate stock as a change in ownership.

That issue was separate from whether the brother could later work for businesses on different tiers. A sale of the ownership interest did not automatically authorize the proposed dual employment.

What this means for licensees

Family-owned alcohol businesses

Family relationship alone may not decide a beer-and-wine licensing question, but shared money, ownership, management, decision-making, agency, or business involvement can create prohibited cross-tier interests.

Employees and consultants

A flat salary or consultant label is not enough. The person's actual authority over business decisions and any connection between compensation and profits matter.

Common questions

Q: Did the ruling allow siblings to share ownership across tiers?

A: No. It allowed separate businesses owned by siblings only because the relationship itself was not a statutory bar and the parties stipulated that no cross-tier interest or involvement existed.

Q: Could the brother manage the retailer while also working for the wholesaler?

A: No. His retail management authority meant he retained control over business decisions.

Q: Would removing commissions make dual employment permissible?

A: Not by itself. Compensation had to be unrelated to profits, and the individual also had to lack control over business decisions.

Q: Can another family rely on this PLR?

A: No. It binds the Department only for the requesting taxpayer and accurate facts presented.

Citations and references

• S.C. Code Ann. §§ 61-4-735(D) and 61-4-940(D) — wine and beer tier definitions and cross-tier restrictions
• S.C. Code Ann. § 61-2-100 — license applicant and principal disclosures
• S.C. Code Ann. § 61-2-140(B) — license surrender after specified ownership, possession, or control changes
• S.C. Code Ann. § 61-2-80 — Department authority to impose licensing conditions or restrictions
• S.C. Code Ann. § 61-6-1300(6) — liquor-wholesaler relative restriction contrasted by the ruling
• S.C. Code Ann. § 61-2-150 — successor-license relative provision discussed by the ruling

Subject

Beer and Wine Business Ownership and Employment – Three-Tier Laws

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR13-5.pdf

Original ruling text

State of South Carolina

Department of Revenue
300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P. O. Box 12265, Columbia, South Carolina 29211
Website Address: http://www.sctax.org

SC PRIVATE LETTER RULING #13-5
SUBJECT:

Beer and Wine Business Ownership and Employment – Three-Tier Laws
(ABL)

REFERENCES:

S.C. Code Ann. Section 61-2-100 (2009)
S.C. Code Ann. Section 61-2-150 (2009)
S.C. Code Ann. Section 61-4-735(D) (2009)
S.C. Code Ann. Section 61-4-940(D) (2009)
S.C. Code Ann. Section 61-6-150 (2009)
S.C. Code Ann. Section 61-6-1300 (2009)
1 S.C. Regs. 7-301.1 (Supp. 2012)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (2000)
S. C. Code Ann. Section 1-23-10(4) (2005)
SC Revenue Procedure #09-3

SCOPE:

A Private Letter Ruling is an advisory opinion issued to a specific
taxpayer by the Department to apply principles of law to a specific set of
facts or a particular tax situation. It is the Department’s opinion limited to
the specific facts set forth, and is binding on agency personnel only with
respect to the person to whom it was issued and only until superseded or
modified by a change in statute, regulation, court decision, or another
Departmental advisory opinion, providing the representations made in the
request reflect an accurate statement of the material facts and the
transaction was carried out as proposed.

Questions:

1. Is it permissible for a sister to operate a beer and wine business at the wholesale level, while
   her brother operates a beer and wine business at the retail level, where the siblings stipulate that
   the brother will have no interest or involvement in any way at the wholesale level except that his
   retail business would be a potential customer like all other retailers in the area?

1

2. Is it permissible for a person to be employed simultaneously by a wholesale beer and wine
business and by a retail beer and wine business, each owned by third parties unrelated to each
other, where the employed person is paid a flat salary with no commission, where he has limited
managerial responsibilities at the retail business and none at the wholesale business, and where
he has no other financial connection, direct or indirect, to either business?

Conclusions:

1. The three-tier laws applicable to beer and wine do not prohibit one sibling from owning a Tier
   Two wholesale beer and wine business at the same time another sibling owns a Tier Three retail
   beer and wine business solely because of the familial relationship. However, the three-tier laws
   do prohibit cross-tier financial or ownership interests generally, and the Department is authorized
   to establish conditions or restrictions it deems necessary to assure the absence of this type of
   interest before it issues or renews a license.
   Note: The siblings have stipulated that the brother will have no interest or involvement in the
   sister’s proposed wholesale business. A further stipulation that the sister neither has nor will
   have any ownership or financial interest in the brother’s business, nor will she be involved in any
   way in the brother’s business, must be provided before licensure.
2. The provisions of Title 61 of the South Carolina Code prohibit the cross-tier employment
   arrangement described in Question 2 because the arrangement does not remove the employee
   from control over business decisions. In general, an individual who is an employee of a beer or
   wine business on one tier may not simultaneously serve a business on another tier in any
   capacity, whether as an employee or consultant or otherwise, unless the individual has no control
   over business decisions and the individual’s compensation is unrelated to the profits of the
   business.

Facts:
Facts Relevant to Question 1. Sister wishes to open a wholesale beer and wine business in South
Carolina after establishing in-state residence. Her brother lives in South Carolina and is a 50%
owner of a retail beer and wine business. Sister and Brother stipulate that Brother will have
absolutely no interest or involvement in any way in the wholesale business except that his retail
business would be a potential customer like all other retailers in the area.
Facts Relevant to Question 2. Once Sister’s wholesale business is established, Brother intends to
sell his interest in the retail business. Brother anticipates that he will be employed simultaneously
by Sister’s wholesale beer and wine business and by the retail beer and wine business he
previously owned. Both businesses will pay him a flat salary with no commission. Brother will
have limited managerial responsibilities at the retail business and none at the wholesale business.
Brother will have no other financial connection, direct or indirect, to either business.

2

Discussion:
The Three-Tier System in General. Within its borders South Carolina regulates commerce in
beer and wine by means of a three-tier licensing system. On Tier One are the manufacturers,
producers and importers of beer and wine. On Tier Two are the wholesalers. On Tier Three are
the retailers. 1
The three-tier statutes in Chapter 4, Title 61 of the South Carolina Code restrict cross-tier
interests. The statutes provide that a person in the beer or wine business “on one tier, or a person
acting directly or indirectly on his behalf, may not have ownership or financial interest in [a beer
or wine] business operation on another tier.” 2 The object is to maintain the integrity of the beer
and wine industry by spreading control among many. 3
Question 1. Although several cross-tier relationships are expressly allowed in the three-tier
statutes that regulate beer and wine businesses, familial relationships by blood or marriage are
neither expressly allowed nor expressly barred. 4 Instead, the language of the three-tier statutes
requires a two-pronged inquiry.
1

S.C. Code Ann. §§61-4-735(D) and 61-4-940(D). Code Section 61-4-735(D) concerns wine
businesses and provides in part:
A producer, winery, vintner, and importer of wine are declared to be in business on one
tier, a wholesaler on another tier, and a retailer on another tier. For the purpose of this
section, a manufacturer or producer of wine is declared to be a tier one business, a
wholesaler or an importer owned solely by a wholesaler is declared to be a tier two
business, and a retailer is declared to be a tier three business. Except [in the case of retail
sales at certain wineries] as provided in Sections 61-4-720 and 61-4-730, a person or
entity in the wine business on one tier or a person acting directly or indirectly on his
behalf may not have ownership or financial interest in a wine business operation on
another tier.
Similarly, Code Section 61-4-940(D), which concerns beer businesses, provides in part:
A manufacturer, brewer, and importer of beer are declared to be in business on one tier, a
wholesaler on another tier, and a retailer on another tier. A person or an entity in the beer
business on one tier, or a person acting directly or indirectly on his behalf, may not have
ownership or financial interest in the beer business operation on another tier.

2

S.C. Code Ann. §§61-4-735(D) and 61-4-940(D).

3

See generally J OHN D. GEATHERS AND J USTIN R. WERNER, THE REGULATION OF ALCOHOLIC
BEVERAGES IN SOUTH C AROLINA 240-243 (2007).

3

The first prong concerns whether either of the siblings qualifies as a person “acting directly or
indirectly on [behalf of a person in the beer or wine business on another tier].” The second prong
concerns whether there is a common “ownership or financial interest” in businesses on different
tiers.
With respect to the first prong, Brother currently owns a beer and wine retail business. Sister will
be prohibited from owning a beer and wine wholesale business if either is deemed to be acting
directly or indirectly on the other’s behalf. However, for purposes of the first question, the
Siblings have stipulated that Brother will have no involvement in Sister’s proposed wholesale
business. Thus, based on the facts as stated by the parties, and provided that Sister likewise will
not be acting directly or indirectly on behalf of Brother, there is no basis for prohibiting issuance
of a beer and wine wholesaler’s license to Sister under the first prong.
4

The following cross-tier situations are expressly allowed:

1. Ownership, in whole or in part, by a manufacturer or importer of beer or wine
   of a business that holds an on-premises retail beer and wine permit provided that:
   (a) All beverages to be handled or sold by the retail dealer must be purchased
   from licensed wholesalers and purchased on the same terms and conditions as
   do other retail dealers.
   (b) Sales of any product produced or distributed by the manufacturer or
   importer must not exceed ten percent of the annual gross sales of beer or wine
   by the retail permit holder.
2. Interest held on July 1, 1980 (beer), or July 1, 1993 (wine), by the holder of a
   wholesale permit in a business operated by the holder of a retail permit at
   premises other than where the wholesale business is operated.
3. Ownership of less than one percent of the stock in a corporation with a class of
   voting shares registered with the Securities and Exchange Commission or other
   federal agency under Section 12 of the Securities and Exchange Act of 1934, as
   amended (beer or wine).
4. A consulting agreement under which the consultant has no control over
   business decisions and whose compensation is unrelated to the profits of the
   business (beer or wine).
5. Winery sales at retail as provided in Code Sections 61-4-720 and 61-4-730.

S.C. Code Ann. §§61-4-735(D) and 61-4-940(D).
4

Under the second prong, the determination will turn on an identity of ownership or financial
interest in business on more than one tier. “Ownership or financial interest,” in the most direct
sense, means possession of stock, equity in the capital, or any interest in the profits of the
licensed business. The Siblings have stipulated that Brother will have no interest in Sister’s
proposed wholesale business. A further stipulation will be required that Sister neither has nor
will have any ownership or financial interest in Brother’s business.
A question then arises whether “ownership or financial interest” in beer and wine wholesale or
retail businesses includes certain interests by relationship. An obvious example of this type of
interest is the interest of the spouse of the owner in fact. The relationship between spouses is
such that an interest held in the name of one spouse only is presumed to benefit the other spouse
even without a legally enforceable right of possession—in other words, a financial interest even
in the absence of an ownership interest.
Of course, a spousal relationship is not at issue here. Rather, this question involves a second
degree blood relationship. 5 If the licenses in question were liquor licenses instead of beer and
wine, Sister would be barred from obtaining a wholesaler’s license because she would be
deemed to have an interest in Brother’s retail business by virtue of the blood relationship. 6
However, no such prohibition has been expressed for beer and wine licenses. 7 In the absence of
an express legislative directive, the Department will not prohibit siblings from holding cross-tier
beer and wine licenses based solely on the familial relationship.
5

As explained in SC Rev. Ruling #98-1, siblings are related in the second degree.

6

Code Section 61-6-1300(6) provides that no liquor wholesaler may
directly or indirectly, individually or as a member of a partnership or an association, as a
member or stockholder of a corporation, or as a relative to a person by blood or
marriage within the third degree, have an interest in a business, store, or establishment
dealing in alcoholic liquors except the store or place of business covered by his
wholesaler's license. [Emphasis added.]

This provision is one of several statutes that effectively impose a three-tier system on the liquor
industry. J OHN D. GEATHERS AND J USTIN R. WERNER, THE REGULATION OF ALCOHOLIC
BEVERAGES IN SOUTH C AROLINA 240-243 (2007).
7

Under Code Section 61-2-150, there is sufficient identity of interests arising from a relationship
by blood within the third degree or marriage to hold a successor beer, wine or liquor license
holder liable for the fines incurred by the previous license holder doing business in the same
location. Significantly, however, Code Section 61-2-150 does not bar the relative outright from
holding the subsequent license.

5

In conclusion, the three-tier laws applicable to beer and wine do not prohibit one sibling from
owning a Tier Two wholesale beer or wine business at the same time another sibling owns a Tier
Three retail beer or wine business solely because of the familial relationship. However, the threetier laws do prohibit cross-tier financial or ownership interests generally, and the Department is
authorized to establish conditions or restrictions it deems necessary to assure the absence of this
type of interest before it issues or renews a license. 8
Question 2. This question concerns Brother’s intention to sell his 50% ownership interest in the
retail beer and wine business and assume the status of an employee of the retail business with
“limited” managerial responsibilities for a flat salary, with no other financial connection to the
retail business. He will also be employed by Sister’s wholesale business.
The question here is whether an individual can be employed by businesses on different tiers
simultaneously. The answer turns on the nature of the employment.
As a threshold matter, it should be noted that the proposed 50% change in ownership in the retail
beer and wine business will likely come within the provisions of Code Section 61-2-140(B),
requiring surrender of the license:
Licenses and permits are the property of the department and are not
transferable. Licenses and permits must be surrendered immediately to
the department upon the termination of a business, upon a change of
ownership, possession, or control of a corporation or business entity,
or upon a change in the character of the property, facilities, or nature of
the business activity for which a license or permit has been issued. The
transfer of twenty-five percent or more of corporate stock is considered a
change in ownership. [Emphasis added.]
Further, a business applying for an alcoholic beverage license, whether initially or in the biennial
renewal process, must disclose its principals for purposes of determining that the requirements
for age, good moral character and tax compliance are satisfied. 9 “Principal” is defined in such a
way as to include owners and other individuals entitled to exercise control over business
decisions for a business or entity. 10 Thus, the General Assembly has deemed control as well as
8

S.C. Code Ann. §61-2-80.

9

S.C. Code Ann. §61-2-100.

10

S.C. Code Ann. §61-2-100(H)(2). Among these individuals is “an employee who has day-today management responsibilities for the business or entity.” S.C. Code §61-2-100(H)(2)(h).
“Day-to-day” is defined as “[o]ccurring on a routine or daily basis.” The American Heritage
College Dictionary 362 (4th ed. 2002). In other words, “principal” includes an employee whose
6

ownership to be factors in the effective regulation of the alcoholic beverage industry. Even
though not an owner, Brother as a manager will be deemed a principal of the retail beer and wine
business for purposes of any license application submitted after he takes up employment.
Turning to the question at hand concerning cross-tier employment, there is no question that if
Brother were an owner-principal of the retail beer and wine business, he would be barred from
any situation that put him in the position of acting on behalf of the owner of the wholesale
business, including employment at the wholesale business. 11 The three-tier statutes in Chapter 4,
Title 61 of the South Carolina Code provide that a person in the beer or wine business “on one
tier, or a person acting directly or indirectly on his behalf, may not have ownership or financial
interest in [a beer or wine] business operation on another tier.” 12 The phrase “ownership or
financial interest” is not formally defined, but the following provides guidance:
For purposes of this subsection, ownership or financial interest does not
include the ownership of less than one percent of the stock in a
corporation with a class of voting shares registered with the Securities and
Exchange Commission or other federal agency under Section 12 of the
Securities and Exchange Act of 1934, as amended, or a consulting
agreement under which the consultant has no control over business
decisions and whose compensation is unrelated to the profits the
business.13
Thus, “no of control over business decisions” is a precondition for the consulting agreement
exception to the prohibition against cross-tier activity. This would not be necessary unless the
General Assembly considered control over business decisions to be an ownership or financial
interest, coequal with the right to share in the profits of the business.
Whether Brother, as an employee of the wholesale business, may be simultaneously employed in
a management capacity in a retail business is resolved by reading the foregoing three-tier
provisions together with general license provisions, as follows:

management responsibilities are routine, part of the employee’s job description, as opposed to an
ad hoc assignment to act temporarily in the regular manager’s stead.
11

The Department maintains its longstanding position that an employee of a beer or wine
business on one tier may not have an ownership or financial interest in a business on another tier,
unless a statutory exception applies.
12

S.C. Code Ann. §§61-4-735(D) and 61-4-940(D).

13

S.C. Code Ann. §§61-4-735(D) and 61-4-940(D)(emphasis added).

7





In general, any business seeking a license to sell alcoholic beverages in South Carolina
must disclose on a biennial basis all owners and other individuals who may exercise
control over business decisions, control being a factor in regulating the alcoholic
beverage industry. 14
The phrase “ownership or financial interest” in the three-tier provisions 15 includes the
notion of control over business decisions as well as a right to share in the profits of the
business.

In view of these provisions, it is the Department’s position that, in the absence of an express
statutory exception, an individual who is an employee of a beer or wine business on one tier may
not simultaneously serve a business on another tier in any capacity, whether as an employee or
consultant or otherwise, unless the individual has no control over business decisions and the
individual’s compensation is unrelated to the profits of the business. Because the cross-tier
employment arrangement described in Question 2 does not remove Brother from control over
business decisions, it would violate the three-tier statutes.
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/William M. Blume, Jr.
Williams M. Blume, Jr., Director
December 10
, 2013
Columbia, South Carolina

14

S.C. Code Ann. §61-2-100. Control is also a factor (though at a different level than
managerial business decisions) in the context of business entities and the prohibition against
license transfer: In the case of a business entity licensed to sell alcoholic beverages, if there is a
change in ownership, possession or control of the entity, the entity’s license must be surrendered.
S.C. Code Ann. §61-2-140(B).
15

S.C. Code Ann. §§61-4-735(D) and 61-4-940(D).

8