The COVID-19 era has seen liquor sales help restaurants remain profitable. Many states banned indoor dining, but to-go liquor sales were permitted, allowing restaurateurs to continue selling one of their most profitable items in branded disposable cups.
Having liquor on the menu may sound like a lucrative business opportunity, but acquiring a liquor license is not easy. You will need to overcome many hurdles as a business owner to gain a liquor license.
Regulations, license fees, and requirements vary from state to state. Acquiring a liquor license can be an overwhelming and time-consuming exercise. Here is a guide that will walk you through the process of applying for a liquor license step-by-step.
Basics of “Liquor License”
- Each state has an “Alcohol Beverage Control (ABC)” agency that regulates alcohol sales and issues liquor licenses. Different states call ABC by different names. Michigan for example, has the Liquor Control Commission.
- Different states have different liquor laws. Some states have quota laws that restrict the number of liquor stores in a given area. Liquor licenses can be both time-consuming and expensive to obtain in such conditions.
- There are mainly two types of liquor licenses:
- “On-license” refers to a license for selling alcohol to be consumed on the premises. “Off-license” is a license to sell alcohol that will be consumed elsewhere.
As a restaurant or bar owner, you need to apply for a license that allows alcohol to be sold and consumed on the premises.
- Additionally, there are three types of licenses for bars and restaurants:
- A restaurant license restricts alcohol sales to a certain percentage of profits.
- A license for a bar or tavern that sells more alcohol than food.
- A beer and wine license allows establishments to sell beer or wine exclusively.
Here is a step-by-step guide on how to get a liquor license.
Understand your state’s alcohol laws
The first step is to understand the alcohol laws of the state you are planning to launch your business in. Each state has specific laws regarding the distribution, sale, and consumption of alcohol. A state’s ABC agency oversees its laws. County and town regulations may also differ from the general state regulations. Do your research in the following areas to better understand the alcohol laws of your state.
- Who can buy alcohol from you?
- What are the conditions under which a business may sell alcohol?
- Alcohol types you can sell.
- Types of containers in which alcohol can be served.
- Maximum quantity you can sell at one time.
- When and where can alcohol be served?
- Are businesses in your state allowed to manufacture, distribute, and sell alcohol (or any combination of these activities).
- How much does it cost to purchase alcohol in your state?
- Fees for liquor licenses in your state.
- Does your state fall under the quota system?
Some states have liquor license stipulations such as:
- Wholesale wine, beer, and liquor stores may not deal with or sell to establishments without a valid liquor license.
- Liquor discounts such as happy hours or 2-for-1 deals are not permitted.
- Unfinished bottles of wine cannot be taken home by customers.
- One drink per customer may be the quota.
- Insurance companies will not accept alcohol claims from establishments without a valid license.
- Be sure your area/location is not a dry county (areas that prohibit sale of alcohol).
Find out if you are located in a “Quota” state
There are many states in the United States that issue unlimited liquor licenses. Some states, however, have quotas for issuing liquor licenses. As on date, the following states are identified as “quota” states:
- New Jersey
- New Mexico
- South Dakota
- Some neighborhoods in Washington, D.C.
In states with quotas, the number of licenses available depends on the population of a specific locality. The number of new licenses that can be issued increases as the population in the area grows. Each state has its own quota. It is advisable to determine how stringent your state's ABC is when it comes to quotas. Quota regulations determine the cost and availability of a license.
Liquor licenses in quota states cost a few hundred dollars. A new license can cost up to $300,000 for restaurants and bars in quota states. Quota laws were enacted by politicians in response to concerns about excessive alcohol consumption. They believed that if liquor were unregulated, drinking, the perceived ills that accompany it would run rampant.
Establish the type of liquor license you need
Now that you're familiar with your state's liquor license laws and the quota status for your state, the next step is to identify what type of license you need to apply for. Your business might require an “on-license” or “off-license”, depending on the nature of operations (definition here). Liquor licenses available in the United States include:
- Arts License: Places like theatres and art galleries often host events where they want to serve food and alcohol. These establishments must apply for a liquor license known as an “arts license”. Most states limit the sales of alcohol to 15 days per year in these establishments.
- Beer and Wine License: Small eating joints or cafés often do not wish to have a full-blown bar. They may only want to serve beer and wine. Such owners can apply for a “beer and wine license”.
- Brewpub License: Microbreweries and homemade wines have gained immense popularity over the last decade. A brewpub license is necessary for establishments that plan to make their own beer or wine. Nevertheless, some states may issue alternating premises licenses instead of a brewpub license. An establishment with this license can make alcohol at certain times and serve it at other times.
- Club License: This license is for social clubs. A private social club can serve alcohol to its members if it has this license. In some states, clubs can only serve beer and wine. Some states allow clubs to serve liquor as well. We will explore this in more detail in the state-by-state regulations.
- Delivery License: This license allows an establishment to deliver sealed containers of alcohol to customers, whether a shop or a restaurant.
- Eating Place License: This license allows takeaways/carryout food outlets such as delis to sell small amounts of take-out beer. The amount of alcohol that can be sold per customer is limited with these licenses.
- Hotel License: A hotel license is issued to hotels with bars and restaurants that serve alcohol.
- Restaurant License/All-Liquor License: This license allows a restaurant to serve any type of alcohol. You should apply for this license if you plan to have a full-service bar. In some states, only 40% of the establishment's overall earnings can be derived from the sale of alcohol.
- Retail License: Retail establishments such as grocery stores, convenience stores, and liquor stores that sell alcohol must obtain a retail license. Should these establishments plan to offer home delivery services they should also apply for a delivery license.
- Tavern License: A food business obtains a tavern license if alcohol accounts for at least 50% of its sales.
There is no “no-one-size-fits-all” solution when it comes to getting a liquor license or issuing a liquor license. Every business or establishment has its own requirements and each state has its own specific regulations.
Preparation of documentation to apply for a liquor license
You have now researched the local laws and regulations for obtaining a liquor license in your area. You are now ready to submit your application for a liquor license. Contact your local ABC agency for a list of documents you will need to submit in order to apply for a license. Getting all your documentation right is extremely important. Since regulations differ from state to state, you may also want to ask your ABC agency these questions:
- Which liquor license(s) are available in your state and which is best suited to your business?
- How much does a license cost?
- Are there any licenses available in your county or town if you live in a quota state? If there are no more licenses left, check to see if any establishments in the area are selling their licenses.
Documentation is the single most important component of liquor license applications. State requirements vary but the following documents are required in all states. The following are the sources from which to obtain these documents::
- Employer ID number from the Internal Revenue Services (IRS) department.
- A permit from the local zoning commission.
- Business license from the local government.
- Visit your state's website to obtain a sales tax permit.
- Tax permit for alcohol can be obtained from the business taxation office within your state
- The state health commission must issue a food handler's permit.
- Permits from the local zoning commission for construction and signage.
- Health permit approved by the state health commission.
- Licenses for copyright music should be obtained from online licensing companies (if an establishment plans to play copyright music).
- Photos of the establishment’s building exterior.
- The interior floor plan of the building.
- A tentative menu of food.
- Obtain a copy of the building's title.
- Certificate of code compliance.
- Incorporation certificate.
- Constitution of the company.
- Partnership agreement (if applicable).
- Details such as your business experience and age.
Besides these documents you will need to provide the following information:
- Determine whether you will sell alcohol on or off the premises.
- Percentage of total income you expect to earn from the sale of alcohol.
- List the type(s) of alcohol you will serve.
- There may be some states that require servers and bartenders to complete training courses before your license is issued.
Filling out the application for a liquor license
Once you have all the documents in place, you should fill out the application form to apply for a liquor license. Visit the website of your state government, print the application form(s), fill it out and mail it or submit it in person. Along with the application, you will need to pay a non-refundable processing fee. Fees vary from state to state. Some states require a fingerprint and/or a background check.
Obtaining a liquor license may seem like a difficult and expensive process. A thorough understanding of the laws and regulations, as well as a well-prepared application file, make the process much more straightforward. A wine, beer, and liquor menu will help you increase profits. Liquor licenses are a smart choice whether you own a restaurant, a bottle shop, or a grocery store.