jessicajlemmon

TTB - General Premises question

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In the TTB review questions, they asked about if and where we have a DSP "general premises". Our facility is on the small side and from what I can see, that area is not required. I'm not sure if it is worth establishing space within our layout or not? Any advice? I'm working on getting these questions turned around ASAP since it's taken so long for them to look at our application.

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Similar problem here...

Do you intend to have a tasting room/bar? In the Bonded Area? If it's a stand alone building in front of your Bonded Area, is it on the same tract?

I have been to many a place with tasting bars in the Bonded Area.

Where do you intend to store raw materials? In the Bonded Area? If it's a convex behind your Bonded Area, is it on the same tract?

I think those could be General Premises and need to be defined.

But I'm interested in how others did this..

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We have a tasting room/bar but it is out of the bonded area. Due to the size we were bonding the main production area so we could have flexibility. I'm not sure we *need* the General Premises unless we want an area to store bulk booze out of bond.

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You do not need general premises.

I routinely submit applications where the bonded premises has the same footprint as the distilled spirits plant premises.  

In that regard, note that the regulations (Sec. 19.74(b)) require that you "Clearly distinguish between the bonded premises and any general premises."  The word "any" is important.  It is very different than requiring that you distinguish between the bonded premises and "the" general premises.  The latter recognizes a requirement; the former does not. 

Retail sales and tasting room  - If you choose to establish general premises, which  basically are defined as what is left over after you subtract the bonded premises you describe on the application from the DSP premises you describe on the application (see 19.54(c)), you MAY NOT sell spirits, at retail, in the areas identified as general premises.  General premises are part of the distilled spirits plant premises, and the law prohibits establishing a DSP on any premises where liquors of any sort are sold at retail - see 26  USC 5178, which provides "no distilled spirits plant for the production of distilled spirits shall be located ... on premises where ... liquors of any description are retailed."    Although a reasoned reading of the law would not prohibit a tasting room on general premises - reasoned meaning the way I read it ;-),TTB interprets the law to mean that you may not operate a tasting room on the general premises.   Further, the law prohibits locating a DSP for the production of alcohol.  It does not address warehousing or processing and it logically follows that TTB is not prohibited by law from allowing retail sales from the general premises of a plant that does not produce spirits.  But logic does not count.  TTB's interpretation trumps reason.  The regulations contain a much broader prohibition, stating, "A person who intends to establish a distilled spirits plant may not locate it ... where liquors are sold at retail."

I will not argue that people do not have tasting areas in the bonded area.  I will tell you unequivocally that it is prohibited by regulation and that TTB will not approve it if you tell them that you intend to do it.  

Storage on other than bonded premises - Next, disavow yourself of any notion that you may legal store bulk spirits on anything but distilled spirits plant premises.  You may not.  All distilled spirits operations, which is a defined term, must be conducted on bonded premises.  General premises cannot be used for such operations.  See Sction 19.54(c) - General premises are any portion of the distilled spirits plant described in the notice of registration other than bonded premises. A person may not use the general premises of a distilled spirits plant for any operation required under the provisions of this part to be conducted on bonded premises."  All distilled spirits operations, which are defined in Sec. 19.1 to be "any authorized distilling, warehousing, or processing operation conducted on the bonded premises of a plant qualified under this part," must be conducted on bonded premises.  .  And bonded premises, completing the circle, are defined to be "the premises of a distilled spirits plant, or part thereof, as described in the application for registration, on which the conduct of distilled spirits operations defined in 26 U.S.C. 5002 is authorized."  

Now, to really close the loop, Sec. 5002 identifies distilled spirits operations as "any operation for which qualification is required under subchapter B, which leads us to Sec. 5171, which provides, "except as otherwise provided by law, operations a distiller, warehouseman, or processor may be conducted only on the bonded premises of a distilled spirits plant by a person who is qualified under this subchapter.  Finally,  a warehouseman is defined in Sec. 5002 as "any person who stores bulk distilled spirits.

Yea, I know it is a long way around, but the only way to know what TTB requires is to know what it means by the terms it uses.  

 

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When "tasting" is done in bonded space, to the degree anyone is getting away with it, it is because nothing is being sold, and the "tasting" is treated as a "research" task, with the spirits removed from bond in that way. Considering it is actually a marketing task, albeit one might say market research, I suspect this is iffy. I recall specifically one long-established distillery that conducts the tasting, including pre-bottling samples, in the bonded area, but any sales later had to be conducted outside of the DSP. Also, the individual state laws will come into play as well.

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From what dhdunbar posted it really seems like there is no need to have a General Premise and additionally no benefit or practical advantage to having one.  Designating a general premise simply creates and area where technically you can not distill, rectify, store or retail spirits.  It basically creates a space where your prohibited from doing a bunch of things, but does not give you rights to do anything you cants already to in an unlicensed area. 

Would you describe that as an accurate summary of what you posted dhdunbar?

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I'd have to check on my permit as it's been a long time since I've looked, but I think my inspecting agent strongly suggested a GP area (is there any other tax paid area definition?) right inside the loading dock.  The thought was that if I ever had to receive tax paid spirits (recall) I'd need a place to put them while waiting for the paperwork to be approved to bring the spirits back into the bonded premise.  I just tagged off a 10x6' area on the floor around the dock plate.

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Re bluesta'rs posting -  

I too can name you places that taste on DSP premises. I can name you a place that tastes and sells on DSP premises.  I can even name you a place that a TTB investigator visited and observed, you shouldn't do that, but did not insist they not do it.  That said, I can only tell you what TTB approves and doesn't if you submit.   Test them and you are likely to get an answer like, "We don't let you taste because it is likely to lead to sales." Even when the sales are prohibited by state law.  I think I saw that on a thread here somewhere.  

For my part, I think that law and regulation do not speak to tasting at all. And I think the law does not prohibit sales at a location where spirits are not produced, i.e. distilled, but are only warehoused and processed. So I think tasting is "iffy" only if TTB does not enforce its own policy uniformly.  I also think that TTB can "get tough" about approving things like tasting on general premises.  I think that the powers that be have probably laid down the law on that and that specialists, who live in fear of being gigged for doing something wrong, are now paying more attention to what gets approved.,

However, I find that the regulations are clear and unambiguous about sampling (tasting is sampling, right?.  See Sections 19.434 and 19.435.  They allow sampling, but only for specific purposes.  Parsing those sections makes it clear that the purposes do not include consumer sampling and 19.434(d)(1) makes this clear, “the spirits [used as samples] may not be used for consumer testing or other market analysis.  

What happens if the TTB auditor or investigator, who knocks on the door of someone who uses samples as a tasting room ploy, tumbles to a sampling practice that violates 19.435?  Likely they will tell you to pay the taxes owed,  along with penalty and interest, computed based on the sample records you are keeping as required by 19.616.  Not keeping those records?  That is another violation.  But I doubt they would take further action, except to tell you to cease and desist in the practice and warn that if you do not, "future violations will be considered willful."  Those are words you do not want to hear, because their goes your tasting room program.  It can leave you scrambling if you do not have a space off DSP premises to which you can move our tasting.  

If establishing a tasting room involves curtailing a section of the existing DSP premises, and constructing segregation acceptable to TTB between the DSP premises and the tasting room, then welcome to the world of waiting six months for TTB to approve amendments to registrations. 

My point is simple.  Don’t put yourself in that position.  Do it right from the outset.  Otherwise you are just waiting for the other shoe to fall.  Because TTB does not tread often into craft distilleries, that time might never come.  

Re Hedgebirds posting - you express my thoughts better than I did.  But this raised a question by Skaalvenn to which I mut reply.

Re Skaalvenn's posting - I've heard the argument.  It goes, "How are you going to relabel if you don't have general premises?"  My answer is that a proprietor may return spirits to bonded premises for relabeling without having to pass them through general premises or, as far as I can see, make application to bring them onto bond for relabeling. Here is the citation - 

Sec. 19.453  Return of bottled spirits for relabeling or reclosing.     A proprietor may return bottled distilled spirits to his bonded premises for relabeling or reclosing. When bottled spirits are returned for relabeling or reclosing, the proprietor may not claim credit or refund of tax on the returned spirits, and no tax will be due on their subsequent removal. The proprietor must relabel or reclose the bottles 

immediately and must promptly remove the spirits from bonded premises. The provisions of Sec. 19.363 apply to relabeling and reclosing performed under this section.
§ 19.363 Reclosing and relabeling.

(a) A proprietor may reclose or relabel distilled spirits before removal from, or after return to, bonded premises. The reclosing or relabeling of spirits returned to bonded premises must be done immediately, and the spirits promptly removed.

(b) If the spirits were originally bottled by another proprietor, the relabeling proprietor must have on file a statement from the original bottler consenting to the relabeling.

(c) When spirits are relabeled, the proprietor must have a certificate of label approval or certificate of exemption from label approval issued under part 5 of this chapter for the labels used on relabeled spirits.

(d) A proprietor must prepare a separate record under § 19.604 for the relabeling or reclosing of spirits.

The problem is not finding a place to house them when they are returned for relabeling; if there is a problem, it is finding a place to hold them once they are "promptly removed."  I think I could solve that problem somehow.

Finally, I do not find a requirement that you make application to return spirits to bond for relabeling.  I'm not saying it doesn't exist.  I'm just saying I don't find it.  

This is far more than I ever meant to say about this issue :-).  

 

 

 

  

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On August 27, 2016 at 0:51 AM, dhdunbar said:

Re bluesta'rs posting -  

However, I find that the regulations are clear and unambiguous about sampling (tasting is sampling, right?.  See Sections 19.434 and 19.435.  They allow sampling, but only for specific purposes.  Parsing those sections makes it clear that the purposes do not include consumer sampling and 19.434(d)(1) makes this clear, “the spirits [used as samples] may not be used for consumer testing or other market analysis.  

  

DHDunbar, that is why I referred to it as "iffy". Yes, one could be considering it sampling, if one wanted to justify it as meeting CFR requirements, but in fact if made available to the public, it would be "consumer testing or other market analysis" which is not allowed. And specifically, the state laws, which are all over the map, treat tasting differently. In Illinois, tasting (unpaid 1/4 oz x 3 samples) are actually allowed specifically as market research (and hence would not be allowed under 19.434). And moreover, in Illinois, the market research must be done at a location with a retail liquor license, which does not actually apply to the bonded space (because it is not retail space). Of course, there is a gray area there too, because the state does not use the term premises in the same way as the TTB, and thus talks about including the retail room where sales and tasting can occur as being done on the SAME premises as the manufacturing (which by TTB definition is the combination of the bonded and general premises). The TTB distinguishes between the bonded premise (DSP), general premise (DSP), and the non-DSP premise (retail shop), but the state calls it all one premise.

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Which is why definition matters so much.  There is no rule  that different laws must use the same terms consistently.  Look at the federal statutes, in which "wine" is defined differently in the IRC and the FAA Act.  Who knows how many different ways it might be defined in state law?  

When TTB talks about a distilled spirits plant premises, it defines the term as it uses it within part 19.  States usually would not use the term "distilled sprits plant."  They would define the term "distillery," or some similar designation, as they use the terms, within their scheme.  

So, what constitute distilled spirits operations under one law may not be operations in distilled spirits under the other.    In a state's regulatory scheme, the federal definition of premises is often  an apple to the state's orange, and visa versa.  Therefore we keep them in separate baskets.  Unless the laws create a direct and positive conflict, i.e., unless there is no way around breaking one law to comply with the other, you must do what each requires. If, using the terms consistent with the particular requirement in the particular laws, you can't do what you want to do and still do what each requires, you give up the idea.

In most cases we can find a way to structure what you want to do in a way that makes it legal under federal law, but not always.  Infusions made by retailers were an example.  Generally, states did not object to a bar stuffing a pear into a bottle of vodka to make an infused product, i.e., change the class and type from vodka to flavored vodka.  TTB did, because that was "rectification" as the term used to be used, and that required a permit as a DSP.  So, what did TTB do?  It declared:

TTB exercises its enforcement discretion not to take enforcement action solely on the basis of violations with regard to a retail liquor dealer that mixes taxpaid spirits to produce infusions for on-premise consumption. This position does not apply to and TTB will continue to enforce prohibitions on processing with non-taxpaid spirits, bottling spirits, aging spirits in barrels, heating spirits, refilling of liquor bottles by retail liquor dealers, and with respect to any other conduct that may jeopardize the revenue." 

So, even when something is prohibited under one law and allowed under another, there are sometimes ways to find a work around solution.  But it is going to require an official statement of the agencies position or you are going to be exposed.

 

  

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Hi guys, just an update. There was a ton of great info shared here... after I resubmitted. ;) We decided to nix the general premises for now, and the permit went through just fine. After waiting 8 months for them to actually look at it, it got turned around in 2 weeks after a small set of clarifications....

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Congratulations Jessica...but 8 months?  Was this on your first submittal or in total after resubmittal?

DHDunbar,

I'm looking at a place now in an industrial park.  A 1200 sq.ft. unit in one building will house production area with still, fermenters, and some storage (all non-sprinklered...but that's another story.)  Another building has a 1200 sq.ft. space that's intended to be chopped into 3 x 400 sq.ft. units (pedestrian door & overhead door in each.)  I'm looking at using one for storage, one for bottling, and one for adjacent retail.  Only the adjacent retail area will not technically be part of the DSP.  All other areas (storage, bottling, and production) will make up the bonded area with no general area.  If I need extra office space, I'll buildout over the 3 x 400 sq.ft. units and connect it to the adjacent retail space.

Does this sound about right?

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I'm not the one to advise on how to divide a DSP for efficient operations, but I doubt you are asking about that.  

From the government point of view, you will need to make an application for discontinuous premises, since you propose separate buildings.  See 19.53: Continuity of plant premises:.

    As a general rule, the premises of a distilled spirits plant must be continuous except for separations by public waterways, roads, or carrier rights-of-way. However, the appropriate TTB officer may approve the registration of the plant where there are separations of the plant premises and all parts of the plant are in the same general location if:

    (a) There is no jeopardy to revenue caused by the separation of premises; and

    (b) The separation of premises does not create administrative problems for TTB.


TTB routinely grants that if they are located within 10 miles (and there is no state line between them, which is extremely unlikely for about 109  different reasons).  Doing that also requires a consent of surety, which also is routinely given by the surety at no additional charge, at least my agent doesn't charge extra.  

In the chopped up space, you will want to have a door between the two bays that you intend to include in the DSP because it you do not, you have to move the spirits off the bonded premise to get them from one bay to the next.

With approved discontinuous premises, you can then move product back and forth between the two areas or the bays into which they may be divided.  TTB asks that you describe the use of each premise.  Some specialists also want you to designate space within the bonded premise for different operations, but that is simply a misstatement of what is required.  You conduct all distilled spirits operations, which is a defined term to mean production, storage, and processing operations, on the bonded premise.  But you do not need separate areas or equipment, notwithstanding what a specialist may want.  When TTB rewrote the DSP regulations (part 19) in 2011, they published the final rule in a Treasury Decision, which contained the following explanation at one point:

Recordkeeping accounts. All operations at a DSP are accounted for within four recordkeeping accounts— production, storage, denaturation, and processing. Since the facilities (tanks and rooms) of a DSP may be used for multiple purposes, the accountability for spirits must be maintained of necessity by appropriate records within the four accounts instead of by physical separation."  

So your space works and you can use any part of it for any distilled spirits operation, as long as you describe the DSP in a way that omits the tasting room, but you understand that.  The space is otherwise "fungible."

If you want specific help with this or with the application or other TTB requirements, send me a message.

     

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