Sioux Falls liquor business halts discount program, points finger at state regulators

A Sioux Falls liquor business has abruptly shelved its long-time rewards and discount programs after its owner say state regulators told him he was running afoul of state rules.

JJ's Wine, Spirits & Cigars owner Tom Slattery says he is throttling his VIP Rewards and discount programs after he received a directive from the South Dakota Department of Revenue on Tuesday.

The letter said the department had received a complaint about his programs, and it determined they violated liquor regulations and Slattery could lose his license if he didn't halt them, Slattery said.

"It took me by surprise, just simply for the fact that we've been doing this for 10 years now in its current capacity, and we did get the blessing from the Department of Revenue when we implemented it 10 years ago, as long as everything was being applied to alcohol and non-alcohol items," he said. 

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The Department of Revenue later confirmed it sent the letter after it received a complaint about JJ's programs, but it didn't elaborate further on its decision and communication with Slattery.

"It's our practice to provide guidance when asked," the department said in an emailed response. "We investigated the complaint and issued guidance to the business."

At issue is Administrative Rule 64:75:04:14, Slattery says. The rule limits what's known as inducement, the offering of something of monetary value to "induce" the purchase of alcohol.

Slattery said the department was objecting both to his practice of offering quantity discounts on mix-and-match items as well as his rewards program, which accumulates points for members based on purchases of both alcohol and non-alcohol items.

"We're not the only ones that do tiered discounts either; everyone in town does tiered discounts," Slattery said said. "We're just the only ones being singled out as violating what is the interpretation of the rule, at this point."

JJ's may not be the only retailer grappling with the state's direction, although the scope of the state's guidance to anyone other than JJ's isn't yet clear.

Booze Boys Discount Wine & Liquor told customers via Facebook on Tuesday it had been informed it could no longer offer a discount on six or 12 bottles of wine but could still offer a discount on "uncut" cases — a single type of item in a single box.  Robert Wentz, owner of Booze Boys, wasn't immediately available for comment. An employee at a local Hy-Vee Wine & Spirits said he had no comment on the state of the store's discount offerings.

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Slattery, at JJ's, said he had contacted the Department of Revenue a decade ago about its rewards program and had been told what they were doing was legal, but he couldn't provide the proof to the department since it was based on a conversation with former staff.

He said he'll now seek relief from regulators as well as encourage legislation from state legislators to legalize his discount programs. 

"We're going to attack it from that perspective, and if the administration doesn't want to change the rule, and that's at the purview of the (Department of Revenue), then we're going to try to do it legislatively," Slattery said.

In the meantime, he said JJ's will offer current and new VIP members a non-tiered discounted price through the end of the year, although current points earned by members cannot be spent on alcohol or gift cards.