Ariz. Rev. Stat. § 4-213 – Restaurant audit

A. The director may require a restaurant to submit an audit of its records to demonstrate compliance with section 4-205.02. The director shall not require an establishment to submit to such an audit more than once a year after the initial twelve months of operation and shall not audit the first three months of operation even if the establishment is allowed to continue operating as a restaurant pursuant to subsection E of this section.
B. Except as provided in subsection D of this section, the department shall audit accounts, records and operations of a licensee that cover a twelve month period. When conducting an audit, the department shall use generally accepted auditing standards. An establishment that averages at least forty percent of its gross revenue from the sale of food during the twelve month audit period shall be deemed to comply with the gross revenue requirements of section 4-205.02. The twelve month audit period shall fall within the sixteen months immediately preceding the beginning of the audit.
C. If the audit or a consent agreement that may be offered at the discretion of the director and that is signed by the licensee and the director reveals that the licensee did not meet the definition of a restaurant as prescribed in section 4-205.02 and the percentage of food sales determined by the audit or consent agreement was:
1. 1. Less than thirty percent, notwithstanding section 4-209, subsection A, the director shall deem the license to have been surrendered or may revoke the license as provided in section 4-205.02, subsection D.
2. 2. At least thirty percent but less than thirty-seven percent, the department shall allow the licensee a six-month period to continue to operate under the restaurant license, during which the licensee shall either:
  1. (a) Replace the license with a bar or beer and wine bar license, except that, at the end of that six-month period, the department shall revoke the restaurant license or the licensee shall surrender the restaurant license.
  2. (b) Obtain permission from the department to continue operating with a restaurant license pursuant to subsection E of this section.
3. 3. At least thirty-seven percent but less than forty percent, the licensee shall be granted a period of one year to continue to operate under the restaurant license, during which the licensee shall attempt to increase the food percentage to at least forty percent. If the licensee does not increase the percentage of food sales to at least forty percent, the department shall allow the licensee a six-month period to continue to operate under the restaurant license, during which the licensee shall either:
  1. (a) Replace the license with a bar or beer and wine bar license, except that, at the end of the six-month period, the department shall revoke the restaurant license or the licensee shall surrender the restaurant license.
  2. (b) Obtain permission from the department to continue operating with a restaurant license pursuant to subsection E of this section.
D. The department may conduct an audit of a licensee described in section 4-209, subsection B, paragraph 12 after twelve months following the beginning of operations as a restaurant by the licensee to determine compliance by the licensee with section 4-205.02, except that the department may conduct an audit of a licensee within the first twelve months of operation if the licensee has made a substantial modification in the restaurant equipment, service or entertainment items or seating capacity during that twelve-month period, in which event the department may conduct the audit for a period of less than twelve months.
E. A restaurant licensee may continue to operate with its restaurant license if its food sales are at least thirty percent and less than forty percent and the department approves the continuation of the restaurant license pursuant to this subsection and subsections C, F, G, H and I of this section. The department shall not approve more than fifteen restaurant licenses pursuant to this subsection and subsections C, F, G, H and I of this section in any fiscal year. The department shall not approve any additional licenses pursuant to this subsection and subsections C, F, G, H and I of this section from consent agreements entered into or audits conducted in any fiscal year after 2012-2013. The department may approve a request submitted by the licensee to continue to operate with its restaurant license only if all of the following apply at the time the licensee files its request with the department:
1. 1. The restaurant has a sufficient number of cooks, food preparation personnel and wait staff to prepare and provide the restaurant services that are necessary for the menu offered by the licensee.
2. 2. The restaurant's equipment is of a sufficient grade and the size of the restaurant's kitchen is appropriate to the menu offered and the kitchen occupies not less than twenty percent of the total floor space of the licensed premises.
3. 3. The menu is of a type consistent with a restaurant operation. In making a determination pursuant to this paragraph, the department may consider the proportion of food sales to alcohol sales, the price of spirituous liquor beverages and food served by the licensee and whether the licensee provides reduced price or complimentary food and beverages.
4. 4. Not more than thirty percent of the public interior area floor space consists of pool tables, dart or arcade games, barstools, cocktail tables and similar types of seating and dance floors, and the aggregate area of all dance floors on the premises is not greater than ten percent of the total floor space of the public area of the premises.
5. 5. The name of the restaurant does not include terms associated with alcohol consumption, such as "bar", "tavern", "pub", "spirits", "club", "lounge", "cabaret", "cantina" or "saloon".
6. 6. Disposable dinnerware and smallware, including dining utensils, are not used except in outdoor areas.
F. If the department intends to approve a restaurant's continuation of operation pursuant to subsection E of this section:
1. 1. The department shall advise the governing body of the city or town if the premises are within the incorporated limits of a city or town or the county of the department's intent.
2. 2. The city or town or the county shall post a notice for at least twenty days on the licensed premises that the licensee has made a request for continuation to operate with a restaurant license and invite bona fide residents who own, lease or reside on property within a one mile radius of the licensed premises to file written comments with the department regarding the request within thirty days after the first posting of the notice.
G. If the local jurisdiction through its governing body or its authorized agent does not object within ninety days, the licensee may continue its operation as a restaurant.
H. If the department intends to disapprove a restaurant's continuation of operation pursuant to subsection E of this section, or if the local jurisdiction or its agent timely objects to its continuation, the department shall set a hearing before the board and the local jurisdiction shall post a notice of the hearing for a period of at least twenty days on the licensed premises. The city or town or the county may testify at the hearing and bona fide residents who own, lease or reside on property within a one mile radius of the licensed premises may testify before the board regarding the licensee's request. The board shall determine whether the restaurant may continue its operation based on consideration of the criteria listed in subsection E of this section.
I. A restaurant licensee may continue to operate with its restaurant license pursuant to subsection E of this section if the restaurant and the restaurant licensee continue to meet the requirements of this subsection, subsection E of this section and any other statute. As a condition of continuing operation as a restaurant under subsection E of this section, the department may require the licensee to specifically acknowledge the representations made by the licensee regarding its operations in support of the licensee's continuing operation as a restaurant. Notwithstanding subsection A of this section, if the licensee changes its operation in any way that materially and detrimentally affects the representations made by the licensee, the department may audit the licensee or terminate the license without an audit.
J. Notwithstanding section 4-209, subsection D, paragraph 12, the state treasurer shall deposit five percent of the annual fee for a restaurant that is permitted to continue operating as a restaurant pursuant to subsection E of this section in the driving under the influence abatement fund established by section 28-1304.