If you are applying for for a federal basic distilled spirits plant, bonded winery, or brewer’s notice, the question of whether you need a bond on file with the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) is likely on your mind. This element, embedded within the federal basic permit application, is both complex and crucial. For applicants required to provide a bond, the bond is typically one of the reasons why a TTB federal basic permit application will be returned for corrections.
Understanding TTB Bonds: What is a Bond?
A TTB bond essentially serves as a guarantee that your company will fulfill the federal excise taxes owed to the federal government (TTB). This legal document covers your federal excise tax liability concerning the commodity you are producing, be it wine, distilled spirits, beer, etc. The bond assures the TTB that any owed excise taxes will be paid, either by your company or a third party (e.g., the surety, if that avenue is pursued). In the instances when a bond is required, a specific bond form is required and will depend on the commodity (e.g., TTB F 5110.56 for distilled spirits, TTB F 5120.36 for winery, and TTB F 5130.22 for brewery).
The bond is linked to the premises outlined in your federal basic permit application, which highlights the importance of clearly defining the bonded area during your application. Generally, one bond is associated with one distinct location and each location may require its own bond. The bond is also specific to one company (i.e., to one federal tax ID). If multiple companies operate at the same premises, each company will need to hold its own bond if it meets the required federal excise tax threshold.
Are all industry members required to hold a bond with TTB?
Not all industry members are required to hold a bond with TTB. Generally speaking, wineries, breweries, and distilleries can be required to hold a bond with TTB depending on the excise tax liability. Some companies exporting alcohol outside of the United States may be required to hold a bond in the instance that the alcohol is removed without the payment of federal excise tax. For the purposes of this article, we only focus on the requirements of domestic manufacturers (e.g., wineries, breweries, and distilleries) of alcohol beverages that will be distributed in the United States.
As of January 1, 2017, currently licensed wineries, breweries, or distilled spirits plants are exempt from a federal excise tax bond requirement if they anticipate owing no more than $50,000 in federal excise taxes for the calendar year, had a liability of no more than $50,000 in such taxes in the preceding calendar year, and remit taxes on a semi-monthly, quarterly, or annual basis. Current industry members with a bond on file must file an amendment to remove the bond from their federal permit.
For new applicants, the federal TTB basic permit application will ask about a company’s anticipated excise tax liability. An applicant can determine whether or not a bond is required to be on file and, if required, provide a bond as one of the documents uploaded during the application process. It is important to note that situations change and, if an industry member owes or anticipates owing more than $50,000 in excise tax liability in the future, they will be required to hold a bond on file with TTB.
Note that the federal bond requirement is distinct from any state-level bonds that may need to be held or obtained for a state alcohol beverage license. Exclusion from the federal bond requirement does not mean a company is exempt from holding a bond with its state alcohol beverage agency.
The information provided in this article is a broad overview of the typical TTB bond requirements. It is important to note that more detailed specifications exist and a bond requirement may be further complicated by an industry member’s specific circumstances, such as if a company holds multiple TTB permits.
What are the options for obtaining a bond?
Currently, three options are available for submitting a bond to TTB for wineries and distilleries:
- Surety Company: This functions similarly to an insurance company, where the industry member pays the surety a yearly fee to guarantee excise taxes will be covered, should the producer default. The bond must be approved by TTB.
- Cash: This involves submitting the full bond amount in cash through a personal check, cashier’s check, or money order. The funds are held by the Department of Treasury against any tax payment default.
- Treasury Note or Bond: This serves as collateral for excise tax purposes if the industry member holds a treasury note or bond.
How can Lindsey Zahn P.C. help your winery, brewery, or distillery with the bond process?
Drafting a new bond or modifying an existing bond is far from straightforward. At Lindsey Zahn P.C., the firm is well-versed in guiding applicants from the inception of the application process based on your specifica business model and proposed plan. For detailed assistance, contact us at info@zahnlawpc.com.