The three-tier system is the reason you can't just go buy alcohol for your client and mark it up on their invoice. Established after Prohibition ended in 1933, this framework divides the alcohol industry into three levels — producers, distributors, and retailers — and it governs who can legally sell alcohol in 49 out of 50 states. If you run a mobile bar and you don't understand how this system works, you're either leaving money on the table or — worse — operating illegally without knowing it.

One of the most common questions we hear from mobile bar owners — both inside the Mobile Bar Academy and in bartending groups across the internet — is some version of: "Can I buy the alcohol for my client?" The confusion is understandable because the laws aren't intuitive, and they vary by state. But the underlying framework is consistent almost everywhere, and once you understand it, the answer becomes obvious.

What Is the Three-Tier System?

The three-tier system was created after the ratification of the 21st Amendment, which ended Prohibition. At that point, each state was given the authority to create its own laws governing alcohol production, distribution, and sale. Over time, 49 out of 50 states adopted some version of the three-tier framework. The only state that doesn't technically have it codified is Washington — and even they largely follow it in practice.

Here's how it breaks down:

The critical point: each tier is separately licensed and separately taxed. Product flows one direction — from producer to consumer — and money flows the other way. No single entity is supposed to operate in more than one tier, and each tier remits its own taxes directly to the government.

The Simple Test: Follow the Tax

Here's the clearest way to think about whether you can legally provide alcohol to your clients: if you are not remitting a tax on that alcohol directly to the government, you cannot sell it. That's it. That's the line. 

When you walk into a liquor store and buy a bottle of vodka, you're paying sales tax — but that tax gets remitted to the government by the retailer, not by you. You're the end of the line. You're the consumer. You can't turn around and resell that bottle because you don't have a license that allows you to collect and remit alcohol taxes to the state.

This is why, if you don't have a liquor license, a wholesaler won't sell to you. They can't. You don't have the licensing that authorizes you to purchase at the wholesale tier and collect retail taxes on the other side. In most states, if you buy alcohol at retail and invoice your client — even at cost with an "admin fee" — that's still considered the sale of alcohol. The regulators will follow the money.

That said, the landscape is shifting. A growing number of states have recently passed laws that allow mobile bartenders to invoice their clients for the exact cost of alcohol — at cost, with zero markup or profit. In some of these states, you can also charge a separate pickup or delivery fee. But there's a catch: some states have laws that prohibit transporting alcohol you don't own, which creates a legal gray area around buying on behalf of a client. The rules vary widely, and getting this wrong has real consequences. You need to check your specific state's laws — not just the general framework — before deciding how you handle alcohol for events.

What This Means for Your Mobile Bar Business

Your business model depends entirely on your licensing situation, and there are really two paths:

Path 1: You Have a Liquor License

If you hold a valid liquor license (or a caterer's permit, depending on your state's terminology), you're operating as a Tier 3 retailer. You can purchase alcohol from licensed distributors, serve it at events, and charge your clients for it. You're collecting and remitting the appropriate taxes. This is the full-service mobile bar model, and it's the most profitable — but it comes with significant regulatory responsibility. For a deeper dive on licensing, read our guide on how to start a mobile bar without a liquor license.

Path 2: You Don't Have a Liquor License (Traditional Dry-Hire)

In this model, no money for alcohol passes through your bank account. Your client purchases all the alcohol themselves. You provide the bartending service, the bar setup, the mixers, garnishes, ice, and the experience. You give your client a recommended shopping list and tell them exactly what and how much to buy. But the transaction for the alcohol itself happens between your client and the retailer — you're not in that chain.

This is the dry-hire model, and it's how the majority of mobile bar businesses in the U.S. operate. It's completely legal, it's profitable, and it keeps you on the right side of the law. If you want to understand how profitable mobile bars actually are, the dry-hire model has lower overhead because you're not carrying inventory.

Path 3: Cost-Pass-Through (Where State Law Allows It)

This is the newer option, and it's gaining traction. A growing number of states now allow unlicensed mobile bartenders to purchase alcohol on behalf of their client and invoice them at exact cost — with zero markup and zero profit on the alcohol itself. Some of these states also allow you to charge a separate fee for the pickup or delivery of the alcohol, distinct from the alcohol cost.

This is not a license to sell alcohol. You're acting as a purchasing agent, not a retailer. The distinction matters: you cannot profit from the alcohol in any way. Your revenue still comes entirely from your service fee.

There's an additional complication to be aware of: some states have laws that prohibit transporting alcohol you don't own. If you buy the alcohol on behalf of a client and drive it to the venue before the client has reimbursed you, you may technically be transporting alcohol that belongs to you — which could create a conflict with transportation laws in your jurisdiction. This is exactly the kind of detail that varies state by state and requires you to check your local regulations before implementing this model.

Why the Three-Tier System Exists

If you're the kind of person who wants to understand the why behind the law — and you should be, because it makes you a sharper operator — here's the history.

The Economic Reason

Before Prohibition, producers were also the salespeople. A distiller could own the saloon that served his product. These "tied houses" used aggressive tactics to push consumption. A worker would walk in after his shift, and the saloon owner — who was also the producer — had every incentive to keep him drinking. Entire paychecks were spent at the bar. Families went hungry. If you haven't watched Ken Burns' documentary on Prohibition, you should — it shows exactly how bad this cycle got.

The three-tier system broke that cycle by separating production from retail. A bartender can still upsell, but the financial incentive is smaller because the retailer isn't also the manufacturer. Each tier generates its own tax revenue — tens of billions of dollars annually — which gives governments a direct economic stake in maintaining the system.

The Public Health Reason

Without regulation, there was no quality control. Tainted gin and dangerous moonshine were real problems. The three-tier system created a regulated supply chain with accountability at every level. In 2008, Boston Beer Company issued a voluntary recall of Sam Adams bottles after routine quality inspections found defective glass that could break off into the beer. Because the distribution chain was so well-documented, they traced the affected product back to a single glass supplier, recalled it across the country, and reported zero injuries. That's the system working as designed.

The Competition Reason

This might be the most important one for small business owners. Without the three-tier system, a company like Molson Coors could be the manufacturer, the distributor, and the retailer. They would have the resources to undercut and push out every craft brewer, boutique distiller, and neighborhood wine shop. The three-tier system is the reason small producers can compete — and by extension, it's why you have interesting products to serve at your mobile bar instead of a wall of macro brands.

Common Mistakes Mobile Bar Owners Make

We've coached hundreds of mobile bar owners through the Mobile Bar Academy, and these mistakes come up repeatedly:

How to Protect Your Business

The three-tier system isn't going anywhere. Even Molson Coors actively lobbies to maintain it — and when PepsiCo tried to bypass the distribution tier with its own alcohol shipping operation, the entire industry pushed back. The system creates stability, and the major players want to keep it that way. Here's how to make sure you're operating correctly:

• Know your state's laws. Every state handles liquor licensing differently. Some states offer specific mobile bar or caterer's permits. Others don't. Contact your state's Alcohol Beverage Control (ABC) board and ask specifically about mobile bartending and event service. 
• Never profit from alcohol without a license. If your state allows cost-pass-through, you can invoice at exact cost — but you cannot mark it up by a single cent. If your state doesn't allow it, the client buys the alcohol directly. Either way, your profit comes from service, not product.
• Build your pricing around service, not product. Your value is the experience — the bar, the bartender, the presentation, the professionalism. You don't need to mark up alcohol to be profitable. If you want to understand exactly how much it costs to start a mobile bar business and how the numbers work, we break it all down.
• Get proper insurance. Whether you're licensed or dry-hire, you need liquor liability coverage. Read our full breakdown of mobile bar insurance so you're covered before your first event.
• Educate your clients. Most clients don't know how this works and they don't care — they just want a great bar at their event. Make the process easy for them. Provide a detailed shopping list with exact quantities, suggest stores, and offer to coordinate delivery timing. The smoother you make it, the less friction the alcohol question creates.

The Bottom Line

The three-tier system exists for real, historical reasons — and it's not going away. As a mobile bar operator, the framework comes down to three paths: you hold a license and can sell alcohol, your state allows at-cost pass-through with zero profit, or the client buys the alcohol themselves. There is no fourth option. Don't try to work around this with creative invoicing or bundled pricing. The regulators will follow the money, and the consequences aren't worth the risk.

The good news is that every one of these models works. The dry-hire model and the cost-pass-through model are both profitable, legal, and let you focus on what actually makes your business valuable — the service and the experience. The one thing that's true across all 50 states: you cannot profit from the sale of alcohol without a license. If you want a structured framework for building a mobile bar business that's both compliant and profitable, the Mobile Bar Academy walks you through every aspect of the business, from licensing to pricing to operations.