Regulating the liquor industry is primarily a state function, but counties and cities may adopt regulations that do not conflict with those of the state. Package stores and the sale of liquor-by-the-drink must be approved by referendum, an option open to cities that have a population of 700 or more people (except in four excluded counties).  Some smaller cities are permitted to hold referenda if they fall within specific population brackets. Banning such stores can likewise be accomplished by referendum. T.C.A. § 57-3-101, T.C.A. § 57-3-106, T.C.A. § 57-4-103.

T.C.A. § 57-4-101(a) lists several entities in which liquor-by-the-drink may be sold without a referendum. Among these are cities and counties that have elected to be a Tennessee River Resort District under T.C.A. § 67-6-103(a)(3)(F).

Tennessee law grants authority for the sale of alcohol on Sundays between the hours of 10:00 a.m. and 11:00 p.m. by retail package stores. An applicant for retail package store license must first obtain a certificate signed by the mayor or a majority of the city governing body stating that:

• the applicant(s) to be in actual charge or the corporation officers (or those in control) have not been convicted of a felony within 10 years preceding the application date; 
• the applicant has a business site that meets all local requirements; and
• the applicant is in compliance with any ordinance regulating the number of retail licenses to be issued in the municipality. 

Failure to act within 60 days on an application for such a certificate shall constitute approval. Cities and counties are authorized to control the location and number of licenses as long as they do not "unreasonably restrict the availability of alcoholic beverages" to their residents. An appeal of a certificate denial may be taken to a chancery court within 60 days. T.C.A. § 57-3-208.

State law regulates hours during which sales may be made for consumption of alcohol on the premises, but the ABC may expand those hours. Cities that have approved liquor by the drink sales may opt out of or into the hour expansion adopted by the Alcoholic Beverage Commission. T.C.A. § 57-4-203(d)(5).

An elected or appointed public officer may not hold a liquor license or have any interest in any wholesale or retail liquor business. T.C.A. § 57-3-210.

T.C.A. § 57-3-707 allows servers in liquor-by-the-drink establishments to work 61 days after being hired without a server permit.

The law permits a city to impose the following annual privilege taxes on places serving drinks for consumption on the premises:

• $300 for a private club;
• $60 to $1,000 for restaurants, according to seating capacity;
• $1,000 for a hotel or motel;
• $1,500 for a premiere-type tourist resort; and
• Other amounts for several other classifications. T.C.A. § 57-4-301.

Cities may adopt ordinances levying inspection fees on retail liquor licensees (package liquor stores) based on wholesale liquor prices.  Inspection fees may not exceed 8 percent in counties with a population of less than 60,000, and in counties in which a premier tourist resort city is located, and not more than 5 percent in other counties. Population is to be taken from the most recent federal census. T.C.A. § 57-3-501.

State highway patrol and Alcoholic Beverage Commission officers and agents are empowered to help local law enforcement personnel enforce liquor statutes in cities that have not authorized liquor sales by local option elections. T.C.A. § 57-3-412(b).