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Found 6 results

  1. It’s Tuesday, It’s Tuesday, Woo, Woo!!!!!!!!!!!!!!!! Good morning my friends in ADI-land! Do you ever have those days where you wake up and do your superhero work out (usually consisting of the dog running me, not the other way around), your weight training routine, and then have some wonderfully flavorful French press coffee and a luxurious breakfast and you just feel like the word is your oyster?!???!?! Well, if you have had those mornings then you know how I am feeling. All is right in Insuranceopolis and I am just in a hap-hap-happy mood. I hope this post finds you feeling the same. In today’s installment of the TMIT I want to touch on a topic that we have never really spoke about here previously. This is something that may concern some of you, and for others it may not be a big deal at all, it just depends on your operation. Although insurance has a long history and is a concept almost as old as dirt, this coverage is one that actually did not even exist just a few decades ago. What am I talking about???? Any guesses???? CYBER LIABILITY!!!!!!!!! Yes, siree Bob. Cyber Liability actually came into existence well after the advent of computer technology, email, and quite honestly, a rather long time after the wide accessibility of the internet and shopping online. As we have discussed previously, insurance is antiquated in many senses and big ships turn slow. Although there was a need for this type of coverage prior to it being offered, this “late to the game” approach by the insurance industry is quite typical. Often times this approach is born out of bureaucracy and red-tape, but more-often-than-not it is simply due to the fact that no one really knows what the true exposures are or how to underwrite or provide coverage for such a new threat. We have been dealing with fires and lawsuits since the beginning of time so those are easily dealt with by insurance carriers. There are specialized underwriting matrix that exist regarding property loss and liability that are backed by over a hundred years’ worth of data. But cyber … well that is something that simply did not exist previous to 1988. Why 1988 you may ask? Well, according to NATO International, the first documented attack on the cyber infrastructure occurred in 1988 and was called the Morris Worm. This was a rather simplistic attack that took advantage of a weakness in the Unix system Noun 1 and slowed computes down, ultimately making them cease completely. Oh, how far and much more nefarious have attacks progressed from then to now!!!!!!!! Realistically, cyber liability coverage can trace it’s roots back to somewhere in the 1990’s, but back then, as is mostly the case through today, no one really understood the need for this coverage and very few purchased it. It was not until around the year 2000 that Lloyd’s of London launched the first Cyber Liability policy. Fast-forward to 2019 and you may think that the percentage of companies that purchase this coverage would be HUGE due to the increase of cyber attacks. Well dear reader, you would be very, very wrong. Less than one-third (1/3) of all US based companies carry any type of Cyber Liability coverage. SERIOUSLY!?!??!! Everyone gets attacked at some point, right?!?!?!?! Well … according to statista.com, not everyone is attacked. In 2018 the annual number of data breaches was upwards of about 1,300 in the U.S. Although that may not seem like as many as one would think, please keep in mind that the AVERAGE COST of a cyber breach at that time was $27,370,000! Yes, that is twenty-seven MILLION DOLLARS!!!!!!!!!!! Now, obviously we are talking about some big-time companies here, hospitals, credit card companies, etc. With that said though, smaller businesses get hit all the time and everything is relative, right??!?! If a big corporation has a cyber liability loss of $27,000,000 it still is going to hurt their bottom line at the end of the year, just like if your business has a loss of maybe $270,000 it is going to hurt your bottom line, maybe even to the point of putting you out of business where as the “Big Boys” can absorb such a loss a bit easier and continue to operate. Ok, enough of the history lesson, although it was needed in order to set the table so that we can discuss this topic further. So, what does Cyber Liability cover? Well, that depends on the type of business, the size, what kind of records you keep, and quite honestly it depends on the carrier that you purchase the coverage though as they are all different. In a nutshell, Cyber provides coverage for financial losses that result from data breaches or other cyber type attacks. As stated, different carriers offer different policies, but most do cover not only first-party (you and your business) coverage, but third-party coverage as well. That means that a cyber policy can provide insurance for losses that you sustain due to a cyber attack that ruin your personal data records as well as anyone that is damaged due to your data being breached. How about an example, eh? You sell your product to John Smithe (pronounced “smYthe” 😊 , either on site at your location or via an internet sale, if that is legal where you are located), and you retain Mr. Smithe’s information in your database. Maybe you have his name (duh!), address, phone number, etc. … but here is where it gets scary … maybe you have also retained his date of birth for legal verification reasons, as well as his credit card number and other vital purchasing information. If Mr. Smythe’s information is stolen due to a cyber-attack, UH-OH, you could be in serious trouble now. In fact, there are multiple sites out there on the world-wide-interweb-thingy that offer “Data Breach Cost Calculators”, and according to one that I like the best, if you have been breached and exposed only 10 clients personal payment information or their personally identifiable information, that loss could cost you upwards of $180,000!!!!!!!!!!! That is on 10 clients!!!!!!! The average cost per record can be nearly $20,000. That number should be an eye opener for sure! Now, just to be fair, that is a large amount of loss due to a data breach, don’t get me wrong but there may be a silver lining to all of this. Let’s say you had 10,000 clients that were breached, who had their information stolen, the claim may not be extrapolated by the same per client cost that was previously mentioned. Again, it depends on the type of loss and your coverage, but typically the majority of the expense comes in the way of incident investigation costs. Those costs typically are the most expensive as the “investigation is the investigation” regardless of the number of clients, but the per client cost goes down dramatically as that is spread across all 10,000 which could essentially drive the per client average down to around $40 per client. Hey, we are still talking about a loss of $380,000 though, and that is enough to put a sizeable dent in your profits and potentially put you out of business if you don’t carry this type of coverage. OK, now that I have your attention, I can hear you pondering the ultimate question that everyone inevitably will ask, “How much is this going to cost me?!?!?!?!” Honestly, it is not as daunting as one may think. The average cyber liability policy premium for a business ranges from about $1,000 annually up to $7,500. It just all really depends on the size of your business, the type of records retained, and a myriad of other factors. All-in-all it is not as much as one would think for such a viable and real threat in today’s world. I have heard many reasons from folks as to why they don’t want or need cyber liability. From, “Well, we only use ‘Square’ and don’t keep any records of a personal nature”, to “We don’t have any records that are worth anything.” I hear you and I understand, but … Although payment services like “Square” and others take care of most of the PCI data compliance for you, maybe that is not your biggest exposure. Do you keep records on employees, or maybe some “trade secret” data of your products, or your own payment and purchasing information? Do you have a website that generates sales for you? What if your website is hacked and you lose revenue? Could this be an issue? Yes, yes it could and yes you do have these exposures! We all do. Let’s face it, everything in our life is all ones and zeros stored on an electronic device somewhere. We don’t have piles of paper files clogging up valuable square-footage like in the olden days. Well, that data has intrinsic value my friends, and without it, or if it is corrupted or stolen and held hostage, what are you going to do? If you have a cyber liability policy in place the world becomes a lot less “gloom and doom” and more “sunshine and rainbows” knowing that you may not have to bear this burden alone since InsuranceMan 2.0!!! and the cyber liability insurance carrier will be there to save the day. Do you want to know more or find out if you really have a need? Then get in touch with me and I can assist you in the process, I am here to help. Until next time … Stay Vigilant, Aaron Linden a.k.a. InsuranceMan 2.0!!! 307-752-5961 insuranceman2.0@yahoo.com
  2. Happy Tuesday To All, In today's installment of the "Tidbit" we are going to try something I gave a shot a while back but it was not as well received as I had hoped it would be, but first ... In the spirit of always growing my superpowers (and due somewhat to regulations and complilance), InsuranceMan 2.0!!! has been a bit preoccupied with CE. Ah yes, as any of you that came from or are still dwelling in the professional world (outside of distilling), there are requirements for Continuing Education (CE) in order to keep your licensure up to date and make all of the regulators happy, happy, happy. Well, 'tis the season, and I am neck deep in it, but that does not mean I am not here to serve and protect you! I should have it all wrapped up in the next day or so, but I have been a bit busy with it all. That then brings us to the meat of the TMIT for today. As stated, I tried to do a little Question and Answer (Q&A) post a while back and I have either done such an amazing job at educating all of you that no one has any insurance questions, or people just did not want to ask questions. I hope it was the former but methinkst thou ADI-ers mayst not want to appearest naive. Whatever the case, I would like to open up this post to questions. Any questions that you may have. There are no silly questions, people, so let's have at it. Do you have questions about your General Liability, perhaps your property coverage, maybe how your stock should be calculated?!?!?!?! Do you want to know how to make a killer Pad Thai or ask what I am doing this weekend? Nothing is off limits, so let's get this party started?!!??! Who will be first???? What will they ask?!?!?! So many questions ... but all from me so far. Now it is your turn. Be the first to post a question and let's have some fun with this. Until someone does ... Stay Vigilant!!!!! Best, Aaron Linden a.k.a InsuranceMan 2.0!!! 307-752-5961 insuranceman2.0@yahoo.com
  3. The very best of Tuesday mornings to you!!!!!!! Yes, Tuesday is upon us once again! I know we all look forward to what that means! It is time for today’s installment of the TMIT. Today I am going to shed some light on something that I have mentioned many times in the past but never really took the deep dive on. That “something” is co-insurance. Ah, co-insurance. This “something” is something that most insurance agents cannot even wrap their minds around. Don’t believe me, just ask them. I have actually had conversations with underwriters who have said that they really don’t quite understand it. Well, ok. I guess their job is underwriting and not claims adjusting, BUT STILL!!!!!!!!!! As you sit down with your insurance policy to give it a loving perusal (really, who does this?!?!?!!) you will inevitably come across your property section of the policy. In that section you will see the amounts of coverage you have in regard to your building (if you own it, or maybe your tenant improvements and betterments), your equipment (at least I hope you have coverage for that), your contents or business personal property (BPP), and maybe even your stock on hand (if your agent knows what they are doing that is) to name a few. If your policy is of a more standard ilk, you will see the description of what is being covered, the limit of value of that coverage, your deductible, and more likely than not, your co-insurance limit. OOooooooo …… Yep, there it is!!!!!! It is the insurance equivalent of spotting a unicorn in an open field. It is mythical, it is magical, and really, when you see it, you may rub your eyes and wonder silently, “What the heck am I looking at?!?!?!?!?!” Co-insurance comes in a myriad of different flavors depending on the carrier providing your coverage, but typically you will see an 80%, 90%, or in some cases 100%. I will say that one of the only times you see a 100% co-insurance clause should be if it is an “agreed value” or something of the like. Fear not dear reader, I will explain this so that you understand it, no matter what percentage you have listed. Then, armed with this all-knowing insurance geek knowledge, you can sit around your next dinner party or tasting and astound people with your incredibly in-depth repertoire of insurance knowledge, which to be honest, probably won’t get you anywhere. REGARDLESS, let’s get to it. For this example we will use your building value (fear not, if you do not own your building you can simply apply this to whatever aspect of property coverage you like, it all functions the same way). Let us hypothesis that you have your building listed with a nice round value of $1,000,000 (places pinky to corner of mouth with one eyebrow lifted)!!!!!!! Excellent. Maybe your agent went to the painstaking lengths to run a Marshall & Swift cost estimator or some equivalent based on contractor costs and types of materials used in your location to accurately decipher what your actual building costs would be if you needed to rebuild from the ground up. Wait, what?!?!?!! Who did what now?!?!?! Well, this is an interesting point of fact. Where did your insurance amount come from? Did you give it to the agent and they just said ok and used it? Is it what the property would sell for if you wanted to sell it???? Either way, dollars to donuts, it is wrong. First of all, your agent should always be providing you with a replacement cost estimation of what it would run if you had to rebuild the entire building, end of story. If they have not done that, run, screaming!!!! Not that you don’t know your building and what intrinsic value it may have to you, but in this case, the cost of construction is ever changing and the only accurate way to know what that cost would be is to do an “Insured To Value” (ITV) or “Total Insured Value” (TIV) cost estimation based on the most recent and up to date figures available in your area. As to “what would it sell for”, again, WRONG! The sale value takes into account things such as location, overall land and land size, etc. The sale price is not what it would take to rebuild the building. In fact, sometimes the sale price could be much more, and in some cases it could be much less that what the building alone would cost to replace. Interesting, isn’t it?!?!?!?!?! In fact, I am going to use a real-life example for you so you can see how dangerous this can be. I have a client in a middle of the country city, a city that was hit hard with having too much warehouse real estate and not enough buyers for the market. He was able to score an incredible deal on his building. He procured a 10,000 square foot warehouse for around $150,000!!!!!! That comes out to $15 a square foot (not including the land), which is UNHEARD OF! He calls me all excited and wants to get insurance coverage for his distillery in this location. I said great, and congratulations. He tells me that he wants to insure everything like it was before, but now he owns his own building (proud moment for him to be sure) so he wants to include that on the policy for $150,000. WHOA!!!!! Pump the breaks … What? He tells me of the amazing deal he got, and he only wants to insure the building for what he has into it. Can anyone say, “co-insurance clause”?!?!?!!? OK, here we go. A co-insurance clause is put into insurance policies (almost always reflected as a percentage) and used by insurance companies to ensure that policyholders insure their property (again, any kind of property) to an appropriate value. Why do they do this? Well, it is a way for the carriers to make sure that they are receiving a fair and accurate premium for their risk involved in insuring the property. Ah yes, it all boils down to money! A prime example is the one that I just gave (as by design). This insured wanted to insure his building for $150,000 when the true replacement cost of the building would be much higher. The premium to insure a $150,000 building may be around $1,125 (if it is a $0.75 rate) as opposed to a premium of nearly $7,500 in order to insure a $1,000,000 building value. Now you can see why the carrier is interested in making sure that things line up correctly. This is one of the reasons why they have the co-insurance clause. Co-insurance works like this: It is the amount of insurance you DID have at the time of the loss divided by the amount of insurance your SHOULD have had (and just where does that value come from you are wondering????? You guessed it, mainly from an ITV/TIV that the claims adjustor runs, usually from Marshall & Swift. Oh, all the pieces are fitting together like I had this planned out or something!!!! The voice of experience is loud and clear coming from me!). Take that percentage, multiply it by the loss amount, subtract your deductible and that is what you get reimbursed from the carrier. Lost yet? Most people are, even those who have been in insurance for years. It is easy to understand when we go back to our example. We will get there in a minute, I promise. If this insured’s building has a true replacement cost of $1,000,000 and he has an 80% co-insurance clause, this means that to be in compliance with this provision he MUST insure his building to at least $800,000 (0.80 x $1,000,000 = 800,000) If he insures his building to that amount, he can avoid any kind of co-insurance penalty and he would receive the full amount of insurance (minus the deductible) in the case of a loss. Keep in mind that he will only be able to recoup the amount of value shown on the policy coverage form ($800,000 in this case), which would leave him having to out-of-pocket $200,000 in order to build this same $1,000,000 building, but that is better than what happens if you do incur a co-insurance penalty. OK, now that you understand that aspect, I will illustrate what happens if you are out of compliance. In our example it would look like this: $150,000 (DID have) / $800,000 (SHOULD have had since the value is $1,000,000 @ 80% = $800,000) = 0.1875 or 18.75% Yep, if an insurance agent didn’t know any better (which I of course do!!!!!!!) this client would have only had his building insured to 18.75% of its actual replacement value. VERY BAD!!!!! Here is the equation: Amount of insurance the insured DID have (if they had not known better): $150,000 --------------------------------------------------------------------------------------------------------------------------------------- = 18.75% Amount of insurance the insured SHOULD have had: $800,000 Obviously the insured is WAY out of compliance here. What happens next may make you cringe or toss your cookies, so hold on tight or prepare to look away! You have been warned. If the building were partially damaged, let’s say to the tune of $50,000 here is how this would play out: $150,000 (DID) --------------------------- = 18.75% multiplied by the loss amount of $50,000 – Deductible $800,000 (SHOULD) So you would have a co-insurance equation that looks like this: 18.75% x $50,000 = $9,375 - $1,000 deductible = $8,375 insurance claim payment. GASP!!!! As you can see, due to the insured being out of compliance and the co-insurance penalty being implemented, this insured is only going to received $8,375 on a $50,000 claim. This leaves this poor bugger having to out-of-pocket $41,625 in order to repair the building to bring it back up to where it was prior to the loss. Horrifying, right?!?!?!?!?! I don’t want to leave you with that vision today though, so I am going to show you what happens if everything is a hunky-dory! Same situation, but we have the building insured at $800,000. $800,000 (DID) -------------------------- = 1 or 100% x $50,000 loss - $1,000 deductible = $49,000 $800,000 (SHOULD) AND THE CROWD GOES WILD!!!!!!!!!! Here is the real deal folks and what you really need to know about co-insurance. Just don’t even play the game. My advice is to never try to get into a situation where you are trying to hit right on the value you need to meet your co-insurance limit. The price of concrete fluctuates, drywall, plywood, etc. Even if you think you are right on the money, it could all be different tomorrow and it could cost you big time! Think of this, what is it going to cost you to insure your building to its full value instead of 80% of its value? Well, in the case I gave above, it may cost you $1,500 more a year to insure your building (maybe!!!!) at $1,000,000 as opposed to playing the co-insurance game of Roulette and having it at $800,000 only to find out that is not enough. Do not scrimp on your coverage here, please, I implore you. Unless you are a “let it all ride on red” kinda gambler, this is something you need to stay away from. There are ways to shave some of the costs off your building replacement cost, there are. I have tricks and tips as to how to get some of the value down, but I am not going to share that here. Too many non-superhero agents read my posts to try and garner some of my super insurance knowledge, but there are ways to reduce the overall ITV/TIV. If you are interested in that further or need a comprehensive review of all things insurance-y, get a hold of me, InsuranceMan 2.0!!! and I would be glad to lend you a helping superhero hand. Until next time dear reader … Stay Vigilant, Aaron Linden a.k.a. InsuranceMan 2.0!!! 307-752-5961 insruanceman2.0@yahoo.com
  4. Happy Tuesday Morning, ADI-Land!!!!!!!!!!!!!!! I know, I know, you are probably currently undergoing some-sort-of anxiety as well as other physical symptoms of withdrawal associated with not having you weekly dose of the Tuesday Morning Insurance Tidbit for the last couple of weeks. Well dear reader, sit back, take in a deep breath, sip your coffee or what-have-you, and relax. I am back and you can rest easy knowing that the TMIT is back in all of its outstanding glory for your reading pleasure ….. You’re Welcome!!!!!! Yes, it has been a few weeks since the last installment of the TMIT and for that I apologize. As it turns out, InsuranceMan 2.0!!! was otherwise occupied administering superhero justice in a different capacity. Suffice to say, although it was not insurance justice, it was justice nonetheless and it was doled out in healthy, hefty amounts to the evildoers. With that said, let us get on to todays “Tidbit”. As you all are aware (unless you have either been under a rock or doing an insane amount of runs and bottling to get ready for the 4th of July sales) there have been a lot of sizeable disasters in the distilling world as of late. As you know, the Barton bourbon warehouse #30 that initially collapsed back on June 22nd ruined nearly 18,000 barrels of Bourbon. Despite attempts to shore up the warehouse and save what bourbon was left, those attempts proved to be unsuccessful as the rest of the warehouse came tumbling down on the 4th of July destroying the remaining barrels. Ugh, the horror!!!! Then on July 2nd we had the Jim Beam fire in Woodford County, Kentucky that destroyed 45,000 barrels. Again, THE HORROR!!!!!!!!!! This is just insane, people! Now, to make matters worse, an alcohol plume 23 miles long has spread down the Kentucky River from the runoff killing innumerable amounts of fish. Although Beam Suntory has brought in a team of environmental cleanup contractors and consultants the damage is far reaching and unfortunately far from over. As if all of this was not enough, back on March 5th of this year Sazerac had a 120,000-gallon mash spill in which not only was there a massive cleanup involved, but people were also injured. To this I truly say, OH THE HORROR!!!!!!!! Loss of property, damaged stock, and massive cleanup efforts are one thing, but injury to human life is undoubtably something that gives us all pause and is certainly “worst case scenario”. Things can be replaced, people cannot. My heart goes out! So, why am I bringing you all this doom and gloom in todays “Tidbit” you may be wondering? “I’m just a micro-distillery and I don’t have anything close to 45,000 barrels or 120,000 gallons of mash! What does this have to do with me?!?!?!”, you may wonder. Well, honestly, it has everything to do with you and here is why. Yes, although it is true that many of these larger disasters took place at the “big boy” distilleries and many of those are either self-insured or coverage is placed with a large reinsurance company, it still has an impact on all of us. Although the losses in these aforementioned cases may not have a direct impact on many of the insurance carriers that I work with, the overarching scenarios certainly do. Underwriters are a fastidious bunch and they pay a lot of attention to the news, especially when it has to do with an industry that they are providing insurance coverage for. Although the claims of these horrible losses may never hit my carriers P&L sheets, that does not mean that they are not paying close attention to the types of losses, the severity of the losses, and the frequency at which they are occurring. That is an interesting point. “Frequency” and “Severity” are two terms that are often batted around in the insurance world. Some may argue that it is better to have one event of “severity” over the course of many years than it is to have less damage but more “frequency”. Why is that? Well, in the world of insurance, it is not “if” you will sustain a loss, but “when” according to many actuaries (and you know how I feel about them if you have read my other posts). Generally, actuaries will say that everyone will have a loss at some point in time. And if you have never had a loss, then you are due to have one sooner than later. I don’t like that saying, but it is somewhat true. “Severity” is sometimes better in that if you have one large loss over the course of a decade it could be said that everyone is due to have a loss and that may not be as impactful to your premium as having multiple smaller losses every year or so. The reasoning behind this is, that if you are having losses more often, than there is potentially something inherently wrong with your process, safety protocols, or overall operation. Underwriters and actuaries do not like “frequency” in the slightest. These types of losses often have a greater impact on your overall premiums and can even lead to loss of coverage completely. Circling back around, these news stories and losses have an impact on the industry as a whole since they demonstrate that there is a potential for losses within the distillery business. Fire is of course one of the utmost concerns that carriers have when insuring alcohol. Alcohol is flammable and fire can spread quickly. In the case of the Jim Beam fire, they are hypothesizing that the initial fire was started by a lightning strike. Obviously, if lightning were the cause than this was not an operational or safety issue on the part of Beam Suntory, but it still resulted in an incredible loss. A loss that now is not just a loss of product, building, and value but now it is also an environmental loss, or a loss due to “pollution”. The point to all of this being that no matter your size of operation, things can and do happen. Things that more often than not are out of your control. Tanks leak, structures give way, fires break out, and people can be injured. If it can happen on a large scale at facilities who have been honing their skills for hundreds of years than it can certainly happen (albeit on a smaller scale) at any size operation no matter the precautions taken. Afterall, that is why they are called “accidents” and not “on-purpose-es”. Take for instance the matter of the Jim Beam fire. According to sources, the building was equipped with a fully functioning sprinkler system, yet the results were a complete loss. (ASIDE HERE … I have made this argument time and time again to underwriters, fire marshals, etc., that sprinkler systems do not stop these types of fires, if anything they only possibly mitigate the damage slightly, but I digress!) Could they have had lightning rods in place? Maybe. Would they have helped? Possibly. At the end of the day though, although this loss may have been due to an “act of God” (again, I don’t like that term. I would like to think that God, no matter your manner of religion, would never destroy so much delicious alcohol) and not due to their policies or procedures. A true “accident”. Accidents though are what drive insurance premiums and cause underwriters and companies to tighten up their already stringent underwriting guidelines. That is the impact on all of us. That is the issue at hand. This is why these losses are devastating not only to those who have sustained these atrocities, but to all of us in the industry as a whole. As I have written about previously (see: ), carriers have been undergoing an underwriting guideline tightening over the last 6 months or so and these stories certainly are not helpful. So, take heed and be warned, the difficult underwriting requirements that we have all been facing could potentially become more challenging in the months to come. So far, we have not seen an increased impact from these issues, but they are relatively new on the scene, but be prepared in the months to come. In the meantime, if you are struggling with your insurance coverage, need coverage to get up and going, or want to have a more in depth conversation about pollution coverage as it relates to the alcohol industry (especially if you are close to a natural body of water or waterway), just call on me, InsuranceMan 2.0!!! and I will zing to your rescue. Until next time dear reader …. Stay Vigilant!!!!!!! Aaron Linden a.k.a. InsuranceMan 2.0!!! 307-752-5961 insuranceman2.0@yahoo.com
  5. All, I just wanted to share an article that I was honored to be featured in recently that discusses the new lower FET rates, and what needs to happen at a grass roots level in order to make sure that the rates are extended beyond the 2019 date. I have done a lot of work with different groups in regards to the impact that this new rate has had throughout the industry but I would implore you, the owners of distilleries, do everyone a huge favor ... Document, document, document! Of all the groups I have worked with, and all the discussions I have had, the most important factor in the very near future is going to be documentation. If you are enjoying the new lower FET's, and you have been able to purchase new equipment, finally do that marketing campaign you have been dreaming of, or hire some new employees to increase your output, DOCUMENT IT!!!!! Put real numbers to work for you. If you have saved "X" amount of dollars due to the lower FET rate, and have reinvested that in the economy via purchases, employment, whatever, make sure you are documenting it and sharing it with your state guild, national associations, etc. I am here to warn you, if this information is not produced and shared in concrete numbers, the government all-to-likely may not extend this wonderful incentive. If no one can provide solid evidence as to the economic impact that this has had on the industry as a whole, there will be no incentive for the fed's to cut their own large source of funding any further. I would also caution that these numbers have to be produced sooner than later due to the fact that these rates are due to expire at the end of 2019 unless action is taken. That means that numbers for 2018 need to be pulled together and presented as soon as 2019 kicks off. The government is a big ship and it turns slowly, meaning, these numbers cannot be produced in September of 2019 with the hopes of having anyone have time to look at them in time to have an impact. Keep in mind that these lower FET's are due to "sunset" on December 31st, 2019 if action is not taken. That is what I am asking of you all, to take action. Start pulling your "economic impact" numbers together now, so that come the end of 2018, you can go into 2019 armed with the information needed to ensure that these lower rates are here to stay! Here is a link to the article in case you would like to check it out: http://www.spiritedbiz.com/inside-spirits-making-the-tax-cut-permanent/ Best, Aaron Linden 307-752-5961
  6. Happy 11/11 everyone!!! It has been a little while since I have posted anything new here on the forums and I thank you all for that based on the fact that ADI members have been keeping me VERY busy with insurance and bonding needs. Speaking of bonds, what a segue into the hot topic of the day. On 11/7/17 the TTB released new information in regards to the "Information for Alcohol Excise Taxpayers and Applicants for Permits and Brewers’ Notices Regarding Internal Revenue Code Amendments Affecting Excise Tax Due Dates and Bond Requirements". Specifically they cite the "Protecting Americans from Tax Hikes Act of 2015 (“the PATH Act”) (Public Law 114-113). Section 332 of the PATH Act amends the Internal Revenue Code of 1986 (IRC) to change excise tax due dates and remove bond requirements for certain eligible taxpayers (see 26 U.S.C. 5061 and 5551)." Are you sleeping yet? Still with me????? OK ............ This bulletin they released specifies new "Excise Tax Due Dates" that basically say that if you were not liable for more than $50,000 of taxable liability for the calendar year prior, and you don't think you will be above that amount this year, then you can pay your taxes on a quarterly basis beginning 1/1/17. That's cool. It also says that if you reasonably (can someone define what that may mean?? "reasonably" according to who???) expect to not be liable for more than $1,000 in taxes this year as well as in the prior year, you can now pay those taxes annually rather than quarterly. No offense here, but if you have less than $1,000 in taxable liability as a distiller, you have to be quite small as that is only about 463 bottles a year, or in other words, just under 40 bottles a month. Ok, on to the "beefier" subject of this information and what you are really wanting to know; who is exempt and no longer needs this pesky bond stuff anyway!??!!?!? Well, staring as of 1/1/17 it says, " ..... taxpayers who pay taxes annually (so anyone paying less than $1,000 a year, my words here, not theirs) or quarterly (so those folks doing less than an $50,000 a year in taxable liability) will be exempt from the requirements to file bonds covering operations or withdrawals of distilled spirits or wines for nonindustrial use, or beer." Based on the fact that taxable liability only comes into play when spirits are withdrawn (yes, in some cases destroyed, but lets not focus on the negative here people) for distribution/sale (not a transfer in bond, I know my stuff), then as long as you will have less than $50,000 in taxable liability you are good to go without a bond. So is this as clear as mud yet!?!?!?! Basically what is being said here is that if you are going to have less than $50,000 in taxable liability this year (and you had less than that last year) you do not have to have a bond any longer. "BONDS!??! WE DON'T NEED NO STINKING BONDS!!!!!!!!!!" WooHoo, right!?!?!? Well ................... not so fast there speedy. There are a few things to consider before making the call to your agent and telling them to cancel that money sucking bond (actually, my bonds are the lowest in the country so they are not "money sucking" at all). First off, are you close to that bond limit of $50,000? If you are close, or expect to be "reasonably" (hahahaha) close, you may want to leave it in place, just in case. You do not want to cancel the bond only to have to turn around a few months or a few quarters later because you have increased your sales/distribution which equates to withdrawal, and now need to be bonded again. Another aspect to consider is this, when does your bond term come due? I have a lot of folks who will fit the requirements to cancel their bond, however their bond terms renew in November or December. According to the stipulations, they need to renew and keep their bond up until 1/1/17, so they MUST renew it. Here is another caveat to that, depending on the surety carrier that issues the bond, the premium may be pro-rated (you can get money back for the unused portion of the term once you cancel) but they may keep a minimum of $100 service fee ............ or ............. if the premium is 100% full earned, you may not get anything back. Well, why cancel the bond at that point?!?!?! The other issue is that the TTB will not allow you to cancel the bond until all unpaid taxes are rectified from 2016. Once they are you can file for a bond exemption with the TTB through the PONL system but they never specify how long that process will take. So here again is something to watch out for. What if your bond term is after the 1/1/17 date and you file for the exemption but it takes them 6 months (for whatever reason) to process it. Do you need to renew your bond while this is in process? At this point in time I would suggest that you do renew it since you do not want to be out of compliance during the processing time. See, this is not as simplistic as it is made to sound. Obviously, these scenarios are all in regards to existing DSP proprietors. So what about new applicants. Well, for new applicants, since the current processing time for a permit is over 200 days, you should be able to apply for your permit and ask for the exemption during the permitting process. That part actually does sound simplistic and appears to be pretty straightforward. There is a first time for everything!!! So what does this all mean, in real facts and figures and how do you know if you will be below the magical $50,000 mark? Well here is a quick mathematical computation for you (keep in mind these numbers are rounded for simplistic purposes): Current excise tax liability = $13.50 per proof gallon (proof gallon defined as 50% ABV or 100 proof) Taxes are only due when spirits leave the plant, so anything in holding/process does not count against this amount Most spirits go out the door at 80 proof, so the tax rate then would be $13.50 x .8 = $10.80 per gallon (since it is proofed down) Therefore, $50,000 / $10.80 = 4,629 gallons a year or roughly 23,000 bottles of booze, or nearly 2,000 bottles a month Here are pretty much the same numbers but done in actual proof gallons (not rounded): $50,000/$13.50 = 3,703.7 p.g. One case of 12-750’s at 80 proof = 1.902 p.g. per case 3703.7 p.g./1.902 p.g = 1,947 cases or 23,364 bottles per year (cases rounded down to full case) 1947/12 = 162.25 cases per month 23,364/12 = 1947 bottles per month So there you have it folks. A long run for a short slide as it were. The just of all of this is that some of you may not need a bond if you are just getting going and some of you may not need a bond even if you are operating, however make sure you understand where you stand and when the bond term comes due before cancelling you bond. As always, if you have any questions please feel free to reach out to me with any questions. I can be reached here on the forums, via email at aaron.linden@hubinternational.com , or give me a call or shoot me a text at 307-752-5961. I am always more than happy to assist you with your bonding questions and do keep in mind ***** I OFFER A FULL LINE OF ALL DISTILLERY INSURANCE NEEDS, AS WELL, I HAVE THE BEST RATES IN THE COUNTRY. ***** Just sayin'. Best, Aaron
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