Pennsylvania liquor licenses and BYOB: the real cost for a restaurant

In most states, a restaurant that wants to serve alcohol applies for a license and pays a fee. In Pennsylvania, particularly Philadelphia, the license is an asset you buy from someone else, at a price that can rival the cost of fitting out the restaurant. That is why so many Philadelphia restaurants are BYOB. This guide explains the system for owners who are deciding whether to chase a license or build a business without one.

How does the quota work?

Pennsylvania is a control state, which means the government controls the wholesale trade in wine and spirits, and licenses for retail sale are limited in number by population. The Pennsylvania Liquor Control Board describes the limit as one license per 3,000 residents in a county. For Philadelphia, local reporting says the cap dates from the end of Prohibition and that there are no new restaurant licenses to apply for. A new restaurant must buy an existing license from a holder, usually when a space that had a license changes hands, or win one at auction.

What does a license cost?

Prices on the secondary market vary widely by source, year and neighborhood. Local reporting and licensing guides describe six figures in many cases, and they disagree with each other, so no price is given here. The state's own filing and annual fees are published by the Pennsylvania Liquor Control Board and are small next to the cost of buying a license from a holder. The price you pay depends on the market when you buy, on the neighborhood and on the type of license. Ask a Pennsylvania liquor law attorney for current quotes before you plan.

Why do restaurants choose BYOB?

A restaurant run on personal savings and a modest loan may not be able to afford the cost of a license. A BYOB restaurant can open sooner, with a smaller space, and focus the kitchen on food. Chefs interviewed by local media said that dropping the bar let them concentrate on the food and avoid building a beverage program. Philadelphia's narrow rowhouse storefronts are also hard to fit with a full bar. The model suits an owner-operator with a small team and a strong menu.

How does BYOB change your numbers?

You lose the high margin that alcohol provides. A typical full-service restaurant earns a large share of its profit from drinks, so your food menu must earn the whole margin. You also lose the per-person ticket that drinks add. In exchange, you save the license cost and its financing, the inventory, the extra insurance and the staff for the bar. Many BYOB restaurants offer a short list of non-alcoholic drinks, such as house sodas, teas and sparkling water, to earn some drink revenue. Some charge a corkage fee, which should be clearly stated.

What rules apply to BYOB?

The rules on bringing alcohol into a restaurant that has no license are set by the state and the liquor board. There is no plain-language summary to rely on, so ask the Pennsylvania Liquor Control Board about what you may and may not do, for example whether you may charge corkage, provide glasses, chill bottles or open bottles for guests. Do not sell or give alcohol to guests unless you hold a license. Post any house rules, such as no spirits, on your menu or website, and train staff to be consistent.

Can you get a license later?

Yes, if you can afford it. Many owners open as BYOB, build the business and later buy a license when cash allows. Others find a license holder who wants to sell, or take over a lease on a licensed space. Factor in the time: transfers take months, and the board must approve the buyer and the location. Include the license in lease negotiations if the previous tenant had one. If you buy a license, check that it has no liens, unpaid taxes or violations attached, and that the sale is conditional on the board's approval. Escrow the payment until the transfer is approved.

What about the rest of Pennsylvania?

Outside Philadelphia, quotas are based on population, and licenses may be easier to find in less dense areas. The price falls with the demand. Prices in a small town may be a fraction of those in a big city. Restaurants and bars have different license types with different rules on food, seating and hours. Ask the board and an attorney which fits your plan.

What are the tax and record implications?

Alcohol you sell is subject to sales tax, and Pennsylvania has additional taxes on alcoholic beverages handled through the liquor system. A BYOB restaurant does not sell alcohol, so it collects sales tax only on food and non-alcoholic drinks. Keep clear records of any corkage fees and charge tax on them as the Department of Revenue directs. See our guide to Pennsylvania sales tax on meals.

What should you do first?

Decide how important alcohol is to your concept and your margin. If it is central, price a license and test the numbers before you sign a lease. If it is not, design a BYOB menu with prices that stand on their own, a good non-alcoholic list and a clear policy. Either way, talk to a Pennsylvania liquor attorney early.

More guides for your business:

• Pennsylvania tip pooling and service charge rules for restaurants
• Pennsylvania sales tax on restaurant meals, by county
• Pennsylvania tipped wage and tip credit for restaurants: a worked example

More in the US guides for food businesses.