Basics of Brewer’s Bonds
Last weekend I sat on the dock of the Bay, relishing the warm sunshine and the passing boats, and shared my homemade guacamole and chips with my wild, athletic spaniel Zack, who was hungry after repeatedly jumping off the dock to chase away the killer ducks. Zack had to settle for cool, fresh water while I enjoyed a frosty, tasty brew. Ah, the joys of summer.
So it was with this marvelous memory close to mind that I began thinking about brewer’s bonds. It seems a fitting homage to summer and its iconic beverage that we address some of the basics of brewer’s bonds. It's time to hop to an overview.
Just what is a brewer’s bond? A brewer’s bond is a license and permit surety bond required by federal and state laws or regulations that govern the sale, manufacturing, and warehousing of beer. It is an excise tax bond that safeguards the government’s (federal or state) ability to collect taxes that the brewer owes to the government. The bond generally guarantees that the brewing business will comply with relevant tax requirements. With the popular and rapid growth in recent years of microbreweries and brewpubs in the United States, many states have passed legislation requiring a brewer’s bond from operators. The requirements vary widely from jurisdiction to jurisdiction. Some jurisdictions separate microbreweries as a unique type of alcoholic beverage producer, and some do not.
Until recently, the Alcohol and Tobacco Tax and Trade Bureau (TTB), a bureau within the U.S. Department of the Treasury, required breweries to file bonds. With lobbying efforts from the growing number of microbreweries, the federal rules were changed to exempt a large number of brewers, pursuant to the PATH Act (Protecting Americans from Tax Hikes Act of 2015). Among other things, the Act amended the Internal Revenue Code to remove bond requirements for certain eligible taxpayers.
As published in TTB Industry Circular 2016-2, effective January 1, 2017, a TTB-permitted entity owing less than $50,000 in excise taxes in the previous year and expecting to owe less than $50,000 in the current year on beer, distilled spirits, or wine would no longer be required to obtain a bond. Brewers were, however, required to notify TTB that they are eligible for the bond exemption. The process for this notification is set forth in Circular 2016-2. Brewers must be in compliance with tax payments, tax returns, and operational reports; otherwise, their notice will be disapproved by TTB. States still generally require brewers to qualify as a brewery/brewpub with a federal license from TTB in order to operate legally.
Brewer bonds--and brewpub bonds--imposed by states mandate varying penal sums, generally anywhere from $500 to $25,000. A few examples of such bonds follow:
- The West Virginia Alcohol Beverage Control Administration provides for brewer bonds in the following amounts: Brewer/Importer Bond: $25,000; Resident Brewer Bond: $5,000; Brewer Representative Bond: $500; Distributor Bond: $5,000; Brewpub Bond (Retail): $5,000.
- The Georgia Department of Revenue requires brewpubs to obtain a Brewpub License Performance and Tax Liability Bond in the amount of $5,000, pursuant to the Georgia Alcoholic Beverage Code.
- The Michigan Liquor Control Commission requires, as a condition of licensure, a brewer’s bond in the minimum amount of $1,000, based on an average of excise taxes paid in the preceding calendar year.
- The Indiana Alcoholic Beverage Commission requires brewers to obtain an Alcoholic Beverage Commission Bond in the amount of $10,000.
- The Florida Department of Business and Professional Regulation requires brewers to obtain a brewer’s bond in the amount of $20,000, as a condition of licensure.
- The Utah Department of Alcoholic Beverage Control requires a brewery to obtain a brewer’s bond in the amount of $10,000.
- The Nevada Department of Taxation requires that brewers and brewpubs obtain a Nevada Liquor Tax Bond in the amount of $1,000.
The above sampling of state brewer’s bond requirements manifests the wide variety of penal sums imposed by the governing authorities.
So which city can properly claim the title of Microbrew Capital of the United States? To a large extent, it depends upon the criteria used for the competition (for instance, city with most microbreweries in operation, city with most microbreweries per capita, or city with best beer ratings). It depends on whether the critical factor is quality or quantity, or a weighted consideration of both. Recognizing that this list is subjective, some favorite contenders for the title include the following, in alphabetical order: Asheville, NC; Boulder, CO; Minneapolis, MN; Portland, ME; Portland OR; San Diego, CA; and Santa Rosa, CA.
While a number of contenders can make claim to the title, it is unlikely a consensus will ever be reached. I am more concerned, however, with teaching Zack to lift the lid of the cooler and bring me a beer.
The author of this article is Martha Perkins, General Counsel at NASBP. Martha Perkins can be reached at firstname.lastname@example.org or 240-200-1270.
This article is provided to NASBP members, affiliates, and associates solely for educational and informational purposes. It is not to be considered the rendering of legal advice in specific cases or to create a lawyer-client relationship. Readers are responsible for obtaining legal advice from their own counsels, and should not act upon any information contained in this article without such advice.