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 antitied 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 102.01 et, 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 

p- 394