The Importance of TTB Updates: Officers, Directors and Shareholders – Oh My!

October 01, 2018

There have been some recent developments at the Alcohol Tobacco Tax & Trade Bureau (“TTB”) regarding filing corporate updates that may affect your federal licensing as an importer, producer or wholesaler of alcoholic beverages. When you receive an approval letter for a TTB permit, you’ll receive information regarding the ongoing requirement to report changes in name, address, ownership, management or control after the original qualification of your business. Perhaps someone on your board of directors is new, or there’s a new 10% or greater shareholder in your company, or an officer leaves, or new officers are appointed; all of these changes must be reviewed by the right folks in your organization to determine if it triggers corporate updates with both the TTB and state authorities where you hold licenses.

We’ve blogged about the importance of staying up to date on your license applications with the TTB in the past, but we’ve just been reminded why keeping up with these compliance requirements is so important. Recently, the TTB announced enforcement against an Illinois wholesaler for not updating its TTB permits to report changes in ownership and control within the required timeline (in this instance, 30 days). See the TTB press release here. The Illinois wholesaler in question had not updated its ownership information with the TTB in a significant period of time, and the TTB ruled that the wholesaler was therefore operating without a valid permit, which is a criminal offense under 27 U.S.C. § 207. Although the Illinois wholesaler was engaged in other, more problematic behavior (paying slotting fees to a retailer), the citation of the unreported permit changes does indicate a potential shift in TTB enforcement priorities.

Accordingly, we recommend that all businesses keep their TTB permits up-to-date within the required deadlines, and, where required, file applications or amendments in advance of such changes. A change in proprietorship typically requires TTB preapproval of the new entity before closing a transaction, while a change in control typically triggers a post-closing notification to TTB. Other changes that may require updates with the TTB include changes to trade names, changes to business names, extensions or curtailments of the premises, changes to any alternation of premises or proprietor, or adding or removing non-contiguous storage locations. The TTB website also features more specific guidance on required updates for wineries, breweries, distilled spirits plants, and wholesalers/importers.

If you have any questions about report updates or licensing, please contact one of the attorneys at Strike & Techel.


Major Changes to Beer Wholesaler Operations in California

September 24, 2018

Governor Brown approved a bill on September 19, 2018, that will impose a range of significant new restrictions on California-licensed beer wholesalers. The bill number is AB-2469.

The new section §23378.05 of the Business & Professions Code (B&PC) will require a beer wholesaler to:

- Own or lease at least one warehouse sufficient to store stocks of beer equal to 10% of the wholesaler’s annual wholesale beer volume (similar to existing warehouse requirements for spirits in 4 CCR §28).

- Actually maintain in at least one warehouse stock equal to no less than 5% of the wholesaler’s annual beer volume.

- Receive all beer at the wholesaler’s warehouse, “unload and maintain” it on the premises, record it into inventory records and for purposes of compliance with California recycling laws, prior to any sale or reloading.

- Only sell beer that the wholesaler owns and has in the wholesaler’s physical possession, that is not acquired, held or offered for sale on consignment.

- Only sell beer from the wholesaler’s licensed premises or per B&PC §23388 (allowing the sale of beer from wagons or trucks operated by the wholesaler).

- Make deliveries to retailers only with equipment that the wholesaler owns, leases, or rents.

- Sell generally to retailers, and not to a single retailer or retailers that have a direct or indirect interest in the wholesaler or in each other, and to retailers that are owned in whole or in part or managed or controlled directly or indirectly by the retailer or retailers.

It also includes reminders on two other, previously existing parts of the ABC Act, which require a wholesaler to: (1) have and file with the state territorial agreements with each of the wholesaler’s beer suppliers; and (2) price post.

The bill was sponsored by the California Beer and Beverage Distributors, and its stated purpose is to “bring parity to California law by setting forth qualifications for a beer wholesaler consistent with qualifications for brandy and distilled spirits wholesalers.”

The new law will go into effect on January 1, 2019. It contains no grandfathering provisions for existing licensees, or deferred effectivity provisions, so California beer wholesalers should review the new law and ensure they are in compliance by January 1, 2019.


Federal Excise Tax Reform Update: Beer Transferred in Bond

August 29, 2018

Last month, the TTB released TTB Procedure Number 2018-1 addressing the transfer of beer between breweries not of the same ownership. Unlike wineries, prior to the Tax Cuts & Jobs Act of 2017 (the “Act”), breweries could not transfer beer under bond unless the transferring and receiving brewer were under common control. However, the Act now allows the transfer of beer under bond (i.e., without the payment of excise tax) between breweries not of the same ownership, subject to certain conditions, and only through December 31, 2019. In these transfers, the receiving brewery must accept responsibility for the payment of excise taxes on the beer, when the beer is ultimately removed from the receiving brewery for sale. TTB Procedure Number 2018-1 sets out the record keeping and documentation requirements for these transfers, and also provides instructions for completing TTB operational reports to reflect transfers of beer under bond.

Note that a brewery may only claim the reduced excise tax rates on beer that the brewery has produced. Beer is considered to be “produced” if it is brewed or produced at a brewery premises, including beer that has been brewed by fermentation or to which water or other liquids have been added during any stage of production. However, blending or combining two beers does not count as “production” for reduced tax purposes. Thus, for beer transferred in bond, the receiving brewery may not be eligible to claim the reduced excise tax rates on the beer received under bond. However, transfers beer produced at the brewery to another brewery for bottling, and which receives the same beer back under bond, would be eligible to remove such beer at reduced tax rates.

The TTB is still working on guidance regarding the Act’s changes to alcohol excise taxes. For more information on the excise tax changes, production requirements, and the alternate procedure relating to claiming the excise tax credit, we have previously blogged on these subjects here, here, and here. The TTB has not yet issued guidance on the controlled group and single taxpayer rules, but such guidance could impact how your business is able to claim the Act’s reduced excise tax rates. We will continue to post updates on the TTB’s guidance as it is released.

If you have any questions about how the recent excise tax changes may affect your business, contact one of the attorneys at Strike & Techel.


Compliance with California Prop 65 – The August 30, 2018 Deadline is Approaching!

August 22, 2018

Effective August 30, 2018, new Prop 65 signage requirements will be in effect in California for alcohol retailers and suppliers with ten or more employees. In a nutshell, there are two new requirements:

(1) The existing Prop 65 general alcohol warning language has been slightly revised to include the word WARNING and a link to the state government’s Prop 65 website;

(2) A new warning is required to warn consumers about Bisphenol A (BPA), which is a chemical present in certain packaging materials, such as some synthetic wine corks and aluminum cans, and in certain processing equipment, such as some hoses. (We previously wrote about BPA here.)

Suppliers and retailers of alcoholic beverages must comply to the letter with the new requirements to remain safe from possible lawsuits for violating the Prop 65 consumer warning requirements. Below is a summary of the specific signage requirements and instructions about where these required warnings will need to be posted.

(1) The Prop 65 General Alcohol Warning Sign

(a) Who must provide the general alcohol warning?

All retailers of alcoholic beverages in California with 10 or more employees must post the new general alcohol warning sign pictured below. The posting requirements also extend to California producers with tasting rooms, ecommerce websites, catalog sales, and to retailers outside of California shipping wine to California consumers.

(b) What does the general alcohol warning say?

The warning must use the exact language shown below, including the word WARNING in uppercase, bold type. When it is posted at the retail point-of-sale, it must be presented within a rectangular border, as shown below.

P65 Warning

(c) Where must the general alcohol warning sign be posted?

  • Must be visible to consumers before they purchase alcohol. Retail stores and tasting rooms have two options:

1) on an 8.5” x 11” sign with 22-point type at the point-of-display, that is at eye level, and is “readable and conspicuous” i.e., on the wall of the tasting room or retail store near where the alcohol is displayed; or

2) on a 5” x 5” sign with 20-point type presented within a square border, just as pictured above, placed at each point-of-sale (i.e., near each cash register) or each point-of-display.

  • Bars and restaurants may use one of the options above, or may provide the warning on a menu or drink list.
  • Websites and product catalogs displaying alcohol for purchase also must display the general alcohol warning. In cases where the size of the sign and text is not specified, such as on menus, websites and catalogs, the warning must be prominently displayed with such conspicuousness as compared to other words and designs on the labels or related signage as to make the warning likely to be seen, read and understood by an ordinary individual.
  • Deliveries of alcohol direct-to-consumer must include the general alcohol warning “on or in the shipping container or delivery package in a type size no smaller than the largest type used for other consumer information on the product,” and in no case smaller than 8-point type. The warning must be readable and conspicuous, so place it where it will be seen before consumption.

(2) The BPA Warning Sign

(a) Who must provide the BPA warning sign?

The BPA warning only applies to companies with 10 or more employees that sell products that contain BPA, and may not apply to your business. If you aren’t sure if your product contains BPA, you can seek written certification letters from your suppliers of equipment and packaging materials (e.g., cans, bottles, caps, hoses, synthetic corks, etc.). If you are unsure, it would be wise to err on the side of caution and include the warning.

(b) What does the BPA warning sign say?

The BPA warning must use the exact language shown below: including the symbol (a black exclamation point within a yellow triangle) at least as large as the word “WARNING,” which must appear in uppercase, bold type. (The triangle symbol can be black and white if the sign is black and white.)

Warning triangleWARNING: This product can expose you to chemicals including bisphenol A (BPA), which are known to the State of California to cause birth defects or other reproductive harm. For more information go to http://www.P65Warnings.ca.gov. For a list of products go to: http://www.prop65bpa.org.

(c) Where must the BPA warning sign be posted?

  • Must be visible to consumers before they purchase alcohol. Retail stores and tasting rooms have two options:

1) on a posted sign, shelf tag or shelf sign at the point-of-display; or

2) with an automatic warning provided to the consumer prior to or during the purchase, that does not require the consumer to seek out the warning.

  • Websites displaying alcohol can either use one of the methods above, or can print only the word WARNING on the product display page with a hyperlink directly to the text of the warning above. In any case, the warning must be prominently displayed and cannot be buried in the general website content. (A website wanting to use the automatic warning option above, could enable a pop-up warning that appears when the consumer enters a California zip code, for example.)
  • Catalogs featuring alcohol for sale must display the warning “in a manner that clearly associates it with the item being purchased.”
  • Shipments of alcohol delivered direct-to-consumer must include the BPA warning prominently on or in the packaging if the products may expose the consumer to BPA.

If the alcohol products being displayed or sold contain advertising or consumer information in a foreign language, the general alcohol warning and the BPA warning must also appear in that language, as well as English.

More information on the BPA requirements, including sign templates, can be found at the Wine Institute’s website here. Note that you can order free signs that are compliant, provided by Prop 65 Sign Management, as we noted in our earlier article.

This summary is provided for general information purposes only and should not be construed as legal advice. Any businesses selling alcoholic beverages in California should be aware of the impact of Prop 65 on their activity. If you have any questions, contact one of the attorneys at Strike & Techel.


South Carolina Off-Premises Retail Caps, Part II

August 01, 2018

Last year, we covered the South Carolina Supreme Court case that ruled the state’s prohibition against an entity holding more than three off-premises retail liquor licenses was unconstitutional. The court held that the South Carolina law was enacted to protect small retailers, and that economic protectionism was not a sufficient justification for the law. Read our previous blog on that March 2017 decision in Total Wine v. South Carolina DOR here.

The South Carolina legislature recently passed a law that reenacts limits on the number of off-premises retail liquor licenses that an entity may hold. Act 147 was signed by the South Carolina Governor in April, and it went into effect immediately. In an attempt to distinguish the Act from the law previously ruled unconstitutional by the South Carolina Supreme Court, the legislature listed a variety of health and safety policy arguments in favor of the legislation, in addition to the economic goals of spurring competition and reducing monopolization of the alcohol market. The legislature asserted that harms related to excessive alcohol consumption are tied to liquor retailer density, and cited statistics involving alcohol-related deaths, traffic fatalities, as well as binge drinking rates.

The new law, S.C. Code § 61- 6-141, provides that an entity may only obtain three off-premises retail liquor licenses in the state. However, an entity may obtain three additional off-premises retail liquor licenses, if the new retail liquor licenses are obtained in counties with more than 250,000 residents. Furthermore, an entity seeking any of the three additional off-premises retail liquor licenses may not operate more than two stores in a county with more than 250,000 residents. However, if the entity already operated three off-premises retail liquor licenses in a
county with more than 250,000 residents as of March 21, 2018, then the entity may obtain two additional off-premises retail liquor licenses to operate in that county. Currently, only seven counties have a population larger than 250,000 residents.

The issuance of the three additional off-premises retail liquor licenses is staggered under the new law. Entities may obtain only one additional license between now and May 31, 2020, a second additional license between June 1, 2020 and May 31, 2022, and the third additional license will not be available until June 1, 2022.

If you have any questions about retail liquor licensing or chain limitations, contact one of the attorneys at Strike & Techel.


Federal Excise Tax Reform Updates: Imports and Wine Transferred In Bond

May 22, 2018

The Alcohol and Tobacco Tax and Trade Bureau (“TTB”) has issued a revised industry circular regarding the alternate procedure for wineries to claim the excise tax credit on wines that are stored at a bonded wine cellar or bonded winery. Per Industry Circular 2018-1A, that alternate procedure is now available through December 31, 2019, rather than expiring on June 30th as originally determined. Thus, the alternate procedure is available for the entire term of the federal excise tax revisions, which are set to expire on December 31, 2019, although industry groups are working to get the excise tax revisions extended. Furthermore, the alternate procedure is available for wines stored untaxpaid at a bonded winery as well as at a bonded wine cellar. The prior industry circular had only specified bonded wine cellars. For more information on the excise tax changes, production requirements, and the alternate procedure relating to claiming the excise tax credit, we have previously blogged on these subjects here and here.

Those following our blog will be aware that the tax changes that took effect in January apply to beverage alcohol products produced outside of the United States, as well as domestic production. Having said that, it is still not possible to claim the tax credit for wine, or the reduced beer and distilled spirits tax rates, for products coming into the US from overseas. The TTB issued preliminary guidance through its FAQ page back in February that it was working with Customs and Border Protection to establish procedures and issue guidance for importers. Based on recent public statements from TTB, we expect those procedures and guidance to issue in June. Until then, imported products continue to be subject to tax payment at the full excise tax rates for each product category. Once the new procedures take effect, importers will be eligible to claim retroactive credits and lower tax rates for products brought in since January 1st of this year.

If you have any questions about how the recent excise tax changes may affect your business, contact one of the attorneys at Strike & Techel.


Florida Clarifies Permissibility of Delivery by Third Party Providers

April 23, 2018

Earlier this month, Florida House Bill 667 was passed and signed into law (effective July 1, 2018), which clarifies and expands delivery and third party provider rules for Florida retailers (known as “vendors” under Florida law). The bill amends Florida Statute § 561.57 to clarify that vendors can take orders online, and delivery can be made by a vendor in its own vehicle “or in a third-party vehicle pursuant to a contract with a third party with whom the vendor has contracted to make deliveries, including, but not limited to, common carriers.”.

This amendment clarifies prior ambiguity over whether third party providers can deliver alcoholic beverages on behalf of vendors. The new law thus should provide comfort to both vendors and third party providers that third party providers can deliver in their own vehicles if they have an agreement with the vendor that makes the sale. Delivery vehicles are subject to search by law enforcement or employees of the Division of Alcoholic Beverages and Tobacco without a warrant to ensure compliance with the law.

The new law makes a couple of additional changes relating to delivery. It expressly prohibits brewpubs (i.e., a Florida manufacturer with a vendor license under Florida Statute § 561.221(2)) from delivering alcoholic beverages. And, a new section was added to § 561.57 which requires that proof of identification must be produced by the customer and checked by the delivery person upon delivery.

If you have any questions about delivery or third party providers, contact one of the attorneys at Strike & Techel for guidance.


It’s a Chemical World – California’s Prop 65 List Expands Again, Plus Developments on BPA

March 15, 2018

California’s Prop 65 (officially the Safe Drinking Water and Toxic Enforcement Act of 1986) requires businesses in the state to inform Californians about exposure to chemicals identified by the state as causing cancer or reproductive toxicity. Inconveniently, though the obligation is on the producer of the product to ensure that the consumer is warned, it is the retailer that must display a notice sign at the point of sale to comply with the law. The Act provides for reimbursement of attorney fees to claimants who bring suit based on missing notice signs, leading to watchdog lawsuits calling out different consumer goods producers. To address the responsibilities of alcoholic beverage suppliers, whose products often include a number of chemicals from the list, three key trade bodies, the Beer Institute, the Wine Institute, and the Distilled Spirits Council, set up the Prop 65 Sign Management Company in 2014. This group distributes signs to retail licensees free of charge, on behalf of all members of the alcohol industry. These signs generally indicate that the consumption of alcoholic beverages may expose drinkers to Prop 65 chemicals, but do not name specific chemicals. This means that when new chemicals are added to the list, such as the impending August 2018 addition of a common ingredient in caramel color, the signs do not need to change.

One of the main aspects of Prop 65 is that chemicals are added to the list if the State of California identifies them as potentially harmful. This means that the California list does not always correlate with guidance from other regulators. As an example, in 2015, the state added Bisphenol A (BPA) to the Prop 65 list of chemicals, for warning to be provided where it is “intentionally added” (which can include where it is present in materials that consumer goods are exposed to – BPA is a common ingredient in linings of lids and beverage cans, and is often used in equipment such as hoses at production facilities). Although the regular Prop 65 warning doesn’t have specific language, in the case of BPA, California created emergency regulations in 2016 with a special safe harbor warning notice. That regulation ran out in January, meaning that sign is no longer mandatory until the regular regulations take effect in August, but it is recommended by trade bodies to keep distributing it in the interim. Prop 65 Sign Management Company distributes a safe harbor warning, but only on behalf of identified suppliers (who are encouraged to add their affected products directly at the site).

The Food & Drug Administration (FDA) allows the use of BPA, and opposed California’s addition of BPA to the list in 2015, indicating the FDA’s research did not indicate it caused reproductive toxicity. A draft report released by the National Toxicology Program (NTP) this month also found only minimal effects on persons exposed to BPA. On the other hand, a new Regulation passed by the European Commission (EU 2018/213) in February introduces stricter measures for BPA use in food contact materials in Europe from September this year, and the European Food Safety Authority (EFSA) is re-evaluating its impact after it originally cleared its use in 2015, in the face of many health bodies calling for a complete ban on its use. Despite the differences of opinion among regulatory agencies, both in the US and abroad, BPA remains on the Prop 65 list and suppliers whose products or packaging are exposed to BPA are subject to the California signage requirements.

Any businesses selling alcoholic beverages in California should be aware of the impact of Prop 65 on their activity. If you have any questions, contact one of the attorneys at Strike & Techel.


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