Tag archives for “Ttb”

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

  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.

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Federal Excise Tax Reform Update: More on Beer and Wine Production Requirements

Back in December, we wrote about the new Tax Cuts and Jobs Act of 2017 (the “Act”) and the 2018-2019 excise tax reform for the alcoholic beverage industry. The TTB has since issued additional guidance on the changes to federal excise taxes, including more information on the production requirements for beer and wine to be eligible for reduced excise taxes. Wine: To be eligible for the new wine excise tax credit, the wine must have been produced by the winery claiming the tax credit. The TTB’s guidance states that in addition to fermentation, the following activities constitute “production” for purposes of claiming the new tax credit:

  1. Sweetening (adding sweetening material)
  2. Addition of wine spirits (adding brandy or other authorized wine spirits)
  3. Amelioration (adding water or sugar to adjust acidity)
  4. Production of formula wine (wines with added flavoring or treating materials that require formula approval)
The TTB’s recent guidance also states that activities listed in 24 C.F.R. § 24.278(e) will constitute “production” for the purposes of claiming the new tax credit, but only fermentation and the four activities listed above are specifically listed in the TTB guidance. It is unclear whether the production of sparkling wine constitutes “production” for the purposes of claiming the new tax credit, as that activity is listed in 24 C.F.R. § 24.278(e), but is not listed in the TTB’s recent guidance on this topic. The activities above must be undertaken “in good faith in the ordinary course of production, and not solely for the purpose of obtaining a tax credit.” The entire volume of wine that has undergone one of these production activities would be considered “produced” for purposes of applying the new tax credit. Blending that does not involve one of the operations listed above is not considered production. It is common practice for wineries to store untaxpaid wine under bond at a bonded wine cellar (“BWC”). Under the “small producer tax credit” in effect prior to 2018, a winery was able to “transfer” its tax credit with the wine to a BWC, and the tax credit could be claimed when the wine was removed from bond at the BWC. Under the excise tax changes in effect for 2018 and 2019, because a BWC has not “produced” the wines by one of the methods above, the BWC may not claim the excise tax credit on wines removed from its bond. The TTB recognizes that wineries may need time to change operations in order to take advantage of the 2018-2019 wine tax credits. Accordingly, Industry Circular 2018-1 sets out an alternate procedure for wineries to claim the excise tax credit on wines stored at a BWC through June 30, 2018. This alternate procedure enables a winery to “receive” its untaxpaid wine back in bond from the BWC, and then “remove” it taxpaid by invoicing it back to the BWC. The process is completed entirely on paper, and does not require a winery to physically receive the wine and re-transport it back to the BWC. This alternate procedure is only available for a limited time, and thus wine producers should review their off-site untaxpaid wine storage and plan to coordinate the documentation to take advantage of the new tax credits while they can. Beer: There is also a production requirement for beer in order to be eligible for the new reduced tax rates. The recent TTB guidance provides that, in addition to fermentation, the act of “addi[ng] water or other liquids during any stage of production” constitutes “production” for purposes of claiming the reduced tax rates, if the activity is “undertaken in good faith in the ordinary course of production, and not solely for the purpose of obtaining a tax credit.” The TTB confirmed that simply bottling or blending beer does not constitute “production.” Further, the TTB confirmed that, like wine, the reduced excise tax for beer cannot be “transferred” with beer transferred in bond. However, unlike wine, there is no alternate procedure for obtaining the reduced tax credit via documentation on beer that has already been transferred to another brewery under bond. There are still some outstanding questions regarding the excise tax changes on which the TTB has not yet issued guidance, including how the excise tax reform applies to imported products, as well as when two or more producers will be considered to be a controlled group or a single taxpayer. If you have any questions about how the recent excise tax changes may affect your business, contact one of the attorneys at Strike & Techel.

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ABC Issues Guidance on Use of Cannabis on ABC Licensed Premises

On January 1, 2018, adult use cannabis became legal in California, raising questions for many alcoholic beverage licensees about their ability to hold cannabis licenses and to sell or serve cannabis products on their alcohol licensed premises. The Department of Alcoholic Beverage Control (“ABC”) responded to several of these questions on January 18, 2018, by way of an Industry Advisory. First, the ABC confirmed that there is nothing in the ABC Act or the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”) that prohibits ownership in both alcohol and cannabis related licenses. However, licenses cannot be held at the same location and the premises need to be sufficiently separated so that a person going to a licensed cannabis establishment will not be required to pass through a licensed alcohol establishment and vice versa. The ABC also clarified that cannabis cannot be sold or consumed on ABC licensed premises and that infusing alcohol with cannabis products is strictly prohibited. Contact one of the attorneys at Strike & Techel if you have questions about cannabis under MAUCRSA or the ABC Act.

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Beer that isn’t Beer, Wine that isn’t Wine and Drinks that aren’t Beverages

Mostly in our practice at Strike & Techel we work with clients making fairly traditional alcoholic beverage products, albeit with new flavors, production methods and quality drivers. These classic alcoholic beverages are distilled spirits, wines and beers, subject to regulation by the Alcohol and Tobacco Tax and Trade Bureau (TTB). More and more, however, we are called upon to work with alcohol products that fall outside the TTB’s jurisdiction, either because they don’t meet traditional definitions, or because they simply aren’t classified as beverages. Products that do not fit within TTB jurisdiction are subject to Food & Drug Administration (FDA) labeling requirements. Under TTB rules, wine must contain at least 7% alcohol, and beer must be malt-based. Because of these restricted definitions, common examples of drinks that are subject to FDA rules are wine coolers and ciders below 7% alcohol, and beers that aren’t made with malt. Any beers made with other grains, like sorghum, rice or wheat (usually to be sold as “gluten free” products), are under FDA rules. These beverages do not need to obtain label approval, as a standard alcoholic beverage would, but must comply with FDA rules on labeling, to avoid in-market audits for violations. In December 2014, the FDA finally published its guidance for industry on the labeling of non-malt-based beers, which had been in draft form since 2009 (LINK). It helpfully goes through all of the FDA labeling requirements that apply to such beers. These are the same requirements that apply to any FDA-regulated alcoholic beverage, including many ready to drink (RTD) beverages, as discussed in our recent blog post (LINK). Among the key distinctions from standard alcoholic beverage labeling are that the label must include an ingredient list and a nutritional statement. As well as regulating alcoholic beverages, FDA also regulates certain non-beverage alcoholic products. These are products which are consumed – often as cocktail ingredients – but which are not classified as beverages by the TTB because they have been deemed “unfit” for beverage purposes under TTB regulations. Common examples of these products are bitters and other alcohol-based flavorings. Attaining non-beverage status is a goal rather than a failure for these products because products eligible for non-beverage status are exempt from payment of federal excise taxes and they can be sold by retailers without an alcoholic beverage license. Products with a lot of sugar or other flavorings or ingredients that serve to make them more palatable as beverages may not make the cut as non-beverages and would remain subject to excise taxes and TTB label jurisdiction. TTB and FDA classifications of alcoholic products have significant implications on the way they are labeled, taxed and sold, so it is important to submit these products for TTB review before bringing them to market. For more advice on alcoholic beverages and non-beverages, contact one of the attorneys at Strike & Techel. Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2015 • All Rights Reserved •

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Changes to Small Brewery, Winery and Distillery Bonding, Reporting and Filing Requirements

The general rule for excise tax reporting for alcohol producers is that returns must be filed semi-monthly (i.e. twice a month). A special exception to that rule allows a small producer, who does not reasonably expect to be liable for more than $50,000 in excise tax in the year, to file quarterly returns. Each small producer is required to make a choice of whether to file quarterly or semi-monthly, with that choice impacting the bonding requirements for the production facility. The less frequent the excise tax payment, the higher the required bond amount. Very small wineries currently benefit from even longer reporting and tax deadlines. Wineries that expect to pay less than $1,000 in wine excise taxes in the coming year may file excise tax returns annually. Operations reports may also be filed annually if the winery doesn’t expect to produce more than 20,000 gallons of wine in any one month in the calendar year. Now, under recent guidance from the Alcohol and Tobacco Tax and Trade Bureau (“TTB”), small brewers will be forced to file returns quarterly rather than semi-monthly. This change will affect around 90% of licensed brewers. With the mandatory quarterly filing, the required bond is set at a flat $1,000 amount (previously, the bond for a brewer paying $50,000 in excise tax would have been $5,000 if filing semi-monthly, and close to $15,000 if filing quarterly). A brewery filing quarterly tax returns must also file a quarterly report of operations. To further lessen the burden of reporting for both brewers and TTB employees, the information required in the reports has been revised, with two sections removed. To see the full guidance, click here. In addition to the TTB changes for small breweries, there is also a bill pending in the Senate that could reduce the compliance burden for all small producers. It would exempt small breweries, wineries and distilleries (i.e. not liable for more than $50,000 in excise tax in the year) from all current bonding requirements and would allow any small producer – not just small wineries—owing less than $1,000 a year to file annually. The proposal passed the Senate Finance Committee on February 11, 2015, and is awaiting consideration on the Senate floor. It has not yet been introduced in the House. If you have any questions about brewery, winery or distillery operations reporting or taxes, contact an attorney at Strike & Techel. Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2015 • All Rights Reserved •

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