The Attorney General of Texas
January 9, 1980
MARK WHITE
Attorney General
Honorable Ram L. Longoria Opinion No. m-12 5
Special Senate Committee on Gasohd
P. 0. Box 12068 Re: Issuance of industrial alcohol
Austin, Texas 78711 manufacturer’s permits and
distillerjs permits
Dear Senator Longoria:
You have asked several questions relative to the local industrial
alcohol manufacturer’s permit (“Gasohol” Permit) and the distiller’s permit.
The provisions in Chapter 47 (“Gasohd” Permit) and Chapter 14 (Distiller’s
Permit) of the Alcoholic Beverage Code, V.T.C.S., can only be interpreted in
light of a specific fact situation.
We are informed that an out-of-state corporation proposes to acquire
and own 100% of certain Texas realty and improvements located thereon,
including a high performance still capable of producing alcohol equivalent to
the degree of 190 proof or above that level; and the out-of-state corporation
proposes to grant a leasehold interest in such realty and improvements to a
Texas corporation, which could in turn apply, qualify for, and receive both a
“Gasohol” Permit and simultaneously for the same premises, a Distiller’s
Permit. The out-of-state corporation would incidentally own a minimum of
49% of the authorized and issued shares of the stock of the Texas
corporation. The Texas corporation would then enter into a proposed
management contract with the out-of-state corporation authorizing the
latter to conduct, operate, and control the realty and related improvements
thereby distilling alcohol under authority of the “Gasohol” Permit, and
transferring the same product to the authority of the Distiller’s Permit for
transport from the Texas premises to the premises of a corporate affiliate
of the out-of-state corporation for the purposes of producing alcoholic
beverages to be made available for wholesale throughout the United States
of America. Furthermore, the corporate affiliate of the out-of-state
corporation is itself an out-ofstate corporation and the holder of a
nonresident seller’s permit in Texas. (Chapter 37, Texas Alcoholic Beverage
Code). This corporate affiliate does not actually manufacture alcohol.
The first two questions relate only to Chapter 47 (Gasohol Permit) of
the Alcohdic Beverage Code. The first question assumes that a company
holds a gasohol permit and asks “can an out of state corporation own
property andlesse to a Texas entity?”
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Honorable Raul L. Longoria - Page Two (MW-1251
The new provisions in Chapter 47 contain no requirement or qualification with
regard to property ownership. Thus, there is no prohibition against an out-of-state
company’s obtaining a gasohd permit. There is no general provision in the Code which
requires that a permittee own the property which will constitute the licensed premises
under the permit.
Your second question is
How can it be determined if alcohd, which has not been denatured,
is unfit for human consumption?
We note initially that it has been suggested that alcohol of an extremely high proof
can be considered to be unfit for human consumption. Federal courts have had an
opportunity to consider this contention. In Alksne v. United States, 39 F.2d 62 (lst Cir.
19301, the court noted that:
Alcohd scientifically may be classified as a poison, but that does
not interfere with its bei% an intoxicating liquor. It is the basic
element of all intcwicanta Indeed it is its poisonous effects which
renders it intoxicating, as that word itself implies. It is common
knowledge, and the act so declares, that alcohd, whisky, rum, etc.,
are intoxicating. To be intoxicating, however, they must be used as
a beverage. The act itself, therefore, assumes that these liquors
are fit for beverage purposes; and the courts have frequently held
that it is not necessary to allege or prove that alcohol, whisky, gin,
etc., are either intoxicating or fit for beverage purposes. Strada v.
United States (C.C.A.) 281 F. 143; Hen&erg v. United States
(C.C.A.) 288 F. 370; Weinstein v. United States (C.C.A.) 11 F.(2d)
505, 509; United States v. McGuire (D.C.) 300 F. 98,100. That only
the most hardened toper would use 95 per cent proof alcohol
without dilution, or that in terms of science it is classified as a
poison, does not render it unfit for beverage purposes within the
meaning of the Prohibition Act.
. . . [IIt is the common understanang, and was the intent of
Congress so to declare, that alcohol, whisky, rum, etc., are all
intoxicating liquors, and therefore are to be considered fit for
beverage purposes within the meaning of the act, unless rendered
unfit by the addition of some other ingredient for that purpose. If
it should be held that pure alcohol of high proof is not an
intoxicating liquor by reason of its being unfit for beverage
purposes without dilution, the fraternity known as bootleggers’ can
hereafter ply their trade with impunity.
Ia, at 69. Thus, high alcohdic content alone does not render the beverage unfit for human
consumption Even if it is assumed high proof alcohol could not be consumed, the simple
expedient of dilution would make it fit for human conmmption. Moreover, the Texas
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Honorable Raul L. Longoria - Page Three (Mw-12 5)
Alcohdic Beverage Commission, under authority granted in section 5.38 of the Code to
regulate labeling, has expressly approved labels of 190 proof alcohol commonly sold in
package stores.
The Texas Alcohdic Beverage Code does not contain any specification for
denaturing alcohol, and there is no rule or regulation controlling the denaturing process.
We believe it is within the reasonable discretion of the Commission to establish standards
for denaturing alcohol. They would not necessarily be limited to the federal formula for
denaturing alcohd, see 27 C.F.R., sections 212.10, et seq. It is clear, however that the
legislature apparently determined that mixture of alcohol with gasoline would make it
unfit for human consumption. -See Alcohdic Beverage Code, ch 47.
The second series of four questions is addressed to facts concerning a local industrial
alcohol manufacturer’s permit and a distiller’s permit, collectively. The first of those
questions asks whether an enterprise, holding both the local industrial alcohol
manufacturer’s permit and the distiller’s permit, can be operated if the plant and facilities
are owned and built by an out-of-state company.
Under the set of facts outlined above, the question must be answered in the
negative. A corporate affiliate of the out-of-state corporation is the holder of a
nonresident seller’s permit. The nonresident seller’s permit puts its holder at a different
level of the industry than the holder of a manufacturer’s permit. Accordingly, the anti-
tied hoarse provisions of chapter 102 of the Code would prohibit a corporation and its
affiliate from holding a distiller’s and nonresident seller’s permit respectively. See Texas
Liquor Control Board v. Continental Distilling Sales Co., 199 S.W.2d 1009 (Tex. m.App
- Dallas 1947), appeal dismissed, 68 S. Ct. 26 (1947). In light of the fact situation it is
unnecessary to determine if the tied house prohibitions would apply to a company holding
only a local industrial alcohd manufacturer% permit.
The next question asks whether the facilities can be leased to an operating company
by an out-of-state company.
. In light of our answer to the preceding question, this inquiry would not be relevant to
a corporation fitting the factual situation outlined at the beginning of the opinion, since
the tied house prohibition would prevent its hdding a distiller’s permit. If a corporation,
which has no direct or indirect interest in any level of the alcoholic beverage industry,
owned a plant and facilities in this state, the property could be leased to an operating
company which held both a local industrial alcohol manufacturer’s permit and a distiller’s
permit.
Of course, questions of leases to operating companies are subject to examination on
a case by case basis in making a factual determination that no subterfuge of ownership
exists as prohibited in section 109.53 of the Code, which provides:
. . . It is the intent of the legislature to prevent subterfuge
owner&p of or unlawful use of a permit or the premises covered
by such a permit; and all provisions of this code shall be liberally
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Honorable Raul L. Longoria - Page Four (~~-125)
construed to carry out this Intent, and it shall be the duty of the
commission or the administrator to provide strict adherence to the
general policy of preventing subterfuge owner&tip and related
practices . . . . Any device, scheme or plan which surrenders
control of the employees, premises or business of the permittee to
persons other than the permittee shall be unlawful. . . .
Your next question is
If the operating company complies with existing regulations
pertaining to ownership, etc., could both the above mentioned
permits be granted to the operating company?
We know of no statutory prohibition against a single qualified entity holding both
permits
Your final question asks whether the operating company can be owned “partially (in
minority interest, i.e., 49%) by an out of state company?”
A permit may be issued to a corporation so long as at least 51 per cent of the stock
is “owned at all times by citizens who have resided within the state for a period of three
years and who possess the qualifications required of other applicants for permits. . . .”
Alcoholic Beverage Code! S 109.53. Of course, the facts of any specific situation would
have to be examined to msure that there is no violation of the tied house or subterfuge
ownership prohibitions, See Alcohdic Beverage Code, SS 102.01et, 109.53.
SUMMARY
There are no residency requirements for a holder of a local
Industrial alcohol manufacturer’s permit (gasohol). A corporation
may not hdd a distiller’s permit if it has an affiliate which holds a
nonresident seller’s permit. As much as 49 percent of a corporate
permit hdder may be owned by a person residing out-of-state but .
the facts of any specific situation must be examined to insure that
there is no question of subterfuge ownership or violation of tied
house prohibitions.
&zjgg%&
Attorney General of Texas
JOHN W. FAINTER, JR.
First Assistant Attorney General
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Honorable RauI L. Loworia - Page Five (MW-125)
TED L. HARTLEY
Executive Assistant Attorney General
Prepared by Reed Lockhoof
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
C. Robert Heath, Chairman
Bob Gam mage
Susan Garrison
Rick Gilpin
Reed Lockhoof
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