Many Arizona nonprofits serving alcohol do so without fully understanding the legal limits that apply to serving alcohol at fundraising events. In Arizona, the law permits charitable organizations to serve and auction alcohol at fundraising events provided that they obtain the necessary special event licenses.
These organizations may obtain an on-sale special event license or an off-sale special event license. An on-sale license allows the organization to serve alcohol for consumption on the licensed premises. An off-sale license allows the organization to auction or raffle (if eligible) alcohol in the original container for later consumption. Additionally, applicants for a special event license may contract with a special event contractor to assist the organization in selling and serving alcohol at the event.
Related Post: Fundraising with Alcohol in Washington
Do I need a liquor license for my event?
If the Arizona nonprofit serving alcohol is hosting a private fundraising event open only to invited guests, no special event license is necessary. Generally, if the organization is not charging for admission and requires no fee for any food or drinks provided at the event, it may provide alcohol to guests and solicit donations without first obtaining a liquor license.
If, however, the organization wishes to hold a public fundraising event where alcohol will be served, it is necessary to first obtain a license from the Arizona State Liquor Board. The process for obtaining a license depends on the location where the special event is to be held. If the event is to be held at an unlicensed location (such as a warehouse or a private lot), the organization must first apply to the city or county in which the event will be held.
In addition to the application, the organization will need to submit a Letter of Agreement where the owner of the venue agrees to hold a special event serving liquor on the property, attach a diagram on a licensed location, and state the date and hours of the event.
If the event is to be held at a liquor licensed location (such as a restaurant or bar), the organization will apply directly with the Liquor Board. In addition, a Letter of Agreement including the name and license number of the licensed location, an agreement to suspend all or a portion of the liquor license for the special event, a diagram of the area in which the event will be held and what areas of a licensed location will be suspended, and the date and hours of the event that will correspond with the suspension of the license must be included.
In either case, the Liquor Board must receive a completed application at least 10 days prior to the event.
Where can the alcohol come from?
An organization selling alcohol under an on-sale special event license or a special event contractor that has been retained for an approved special event may order alcohol from the holder of an off-sale liquor license or a licensed wholesaler. However, charitable organizations, which receive special event licenses for charitable fundraising activities, may receive alcohol from a wholesaler, farm winery, microbrewery, or producer as a donation.
Additionally, if the alcohol is to be auctioned or raffled (such as in a wine pull) under an off-sale special event license, rather than consumed at the event, charitable organizations may use alcohol donated from individuals who receive no remuneration in connection with the donation other than tax benefits.
Recently, the legislature approved HB 2337, which allows either the special event licensee or a special event contractor to order or purchase or receive donations of alcohol for the special event. Previously, only the charitable organization or its employee could purchase alcohol for special events.
Additionally, HB 2337 now specifically authorizes charitable organizations with either an on-sale or off-sale special event license to conduct a wine pull or distilled spirits pull of up to 50 bottles of wine or spirits.
Who serves the alcohol?
If the event is to be held at a location that does not have its own liquor license, the special event licensee or the special event contractor must conduct all dispensing, serving, and selling of alcohol. If, however, the event is held at a location with its own liquor license, the organization has four options:
- First, the licensed retailer may place its license in nonuse status (a letter of agreement to this effect must be submitted with the special event license application) and cease to sell alcohol. The special event licensee or special event contractor then conducts all dispensing, serving, and selling of alcohol.
- Second, the licensed retailer dispenses and serves all alcohol under its own license and neither the special event licensee nor the special event contractor dispenses or serves alcohol. In this case, the alcohol served is purchased directly from the liquor licensed location. Thus alcohol may not be donated to a charitable organization for use at the event.
- Third, the licensed retailer dispenses and serves all alcohol under the special event license and the special event licensee does not dispense or serve alcohol. Only alcohol purchased by or donated to the special event licensee may be served.
- Fourth, the area is divided into two spaces. In one, the licensed retailer serves alcohol purchased from a wholesaler. In the other, the special event licensee serves alcohol purchased by or donated to the special event licensee. If the organization chooses this option, a diagram showing the event space and how it will be divided must be submitted with the special event license application.
How are the proceeds from alcohol sales divided?
When liquor is sold for consumption at a special event, the nonprofit organization must receive at least 25% of gross revenues of all alcohol sold at the event. A contract to this effect must be submitted to the Liquor Board with the special event application. This is the case even where the alcohol is sold by a liquor licensed retailed under its own license.
When liquor is auctioned or raffled, the nonprofit organization must receive at least 75% of the gross receipts of the auction. Up to 25% of gross receipts may be used to pay expenses incurred in connection with the auction. However, expenses must be evidenced by receipts, contracts, or invoices.
Arizona does not regulate pricing of alcohol sold either for consumption or for auction or raffle at special events. Thus there is no requirement that the price of a glass of wine equals the wholesale cost. Additionally, there is no requirement that a bottle of wine auctioned must sell for at least the wholesale value of the bottle. Further, there is no requirement that the price of a raffle ticket equal the value of the most expensive bottle a participant could win.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.