DSP Expansion

[McClintockDistilling]

Hey All,

I called the TTB about this a few times and got several different answers so I figured I would throw this out to see if anyone had any experience with this.

We are looking at signing a lease for a storage facility/rickhouse nearby our distillery and I wanted to see if I would need to submit a new DSP application or could amend our current DSP to include the new space. It is not attached to our building and is owned by a different company than our current facility but is less than a mile away.

Please let me know if anyone has a similar setup and what they were required to do. If I need a new DSP I would rather get that submitted ASAP so we are not paying a lease on a building that we have nothing sitting in. 

 

Thanks! 

[SeanC]

On 3/21/2019 at 6:48 PM, McClintockDistilling said:

Hey All,

I called the TTB about this a few times and got several different answers so I figured I would throw this out to see if anyone had any experience with this.

We are looking at signing a lease for a storage facility/rickhouse nearby our distillery and I wanted to see if I would need to submit a new DSP application or could amend our current DSP to include the new space. It is not attached to our building and is owned by a different company than our current facility but is less than a mile away.

Please let me know if anyone has a similar setup and what they were required to do. If I need a new DSP I would rather get that submitted ASAP so we are not paying a lease on a building that we have nothing sitting in. 

 

Thanks! 

We added a few buildings over the past four years; all of them via an amendment.  One of those first amendments took five months, but the others ran about two months.  Hope this helps. 

Sean 

[Roger]

Ammendment . It's called a non-contiguous addition to your DSP. Must be within 10 miles of original. 

[RedFalcon]

That brings up another question that I was thinking about.  One company, multiple DSPs (where two facilities may be in the same state but a significant distance apart)? Is that a thing?

[dhdunbar]

As others state, generally this is done by amendment for discontinuous storage, but not always.  TTB can insist on spearate qwualifications. 

The ten mile rule is a good guide to a generally unquestioned safe harbor, but in need not be absolute.  The rule appears in §19.53 It provides: 

 

      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.

The Distilled Spirits Institute has argued, unsuccessfully, for 200 miles in the past.  TTB had suggested changes to the DSP regulations in 1998 and after some consideration, issued a final rule on the changes in 2011.  I have not misstated the dates.  Here is TTB's response:

      TTB Response: In the preamble to Notice No. 83, we explained that we would not adopt a 200-mile rule and the current comment does not provide sufficient justification for any change           of our position. We will continue to evaluate requests for alternate methods or procedures concerning plant continuity on a case-by-case basis, each analysis to be based upon multiple         factors. Generally, we believe that the ‘‘same general location’’ must not be too large an area so that the revenue is placed at risk. Also, because a distance of 200 miles could extend               over   a multistate area and would cross over into different field offices within TTB, such a distance would create administrative difficulties for TTB.

That is TTB's official position.   I too tell people 10 miles is a good "safe harbor" rule of thumb.   But if you find a location that is 12 or 15 miles away, that is not ruled out.  If i were making the arguments, I'd explain why the extra two or five or even 10 miles does not create a risk to the revenue.  TTB's specific reference to "different field offices" provides a hint of how to argue that it would not create administrative difficulties.  ne could possible argue that a separation of more than 10 miles in a rural area creates less administrative difficult than a separation of three miles in a an urban area, especially since it reduces the number of reports and returns with which TTB must deal. Whether it is worth the argument depends on your circumstances.

[dhdunbar]

3 minutes ago, RedFalcon said:

That brings up another question that I was thinking about.  One company, multiple DSPs (where two facilities may be in the same state but a significant distance apart)? Is that a thing?

A new question arrives while I am posting my last response.  You may have as many DSP's as you like.  There is no restriction.  But each must have its own permit and registration and every transfer between them becomes a transfer in bond that must be authorized by an approved transfer in bond application (one  approved application is good for all future transfer,s) and must be accompanied by the appropriate transfer records.  Each of the DSP's must then file its own tax returns and operating reports and if some cler wag tries to keep below the 100,000 pg limit for the $2.70 a p.g. tax rate, TTB requires that the removals from all be lumped together for that purpose, not that many of you will have that problem.

[Langdon Guenther]

As others have stated here, your rickhouse will be an amendment in PONL. The 10 mile limitation is not found in the regulations, but was "established" by a 1990 ATF internal memorandum. If you have a bond (probably not), you will have to execute and submit TTB Form 5000.18, Change in Bond (Consent of Surety). You will also submit a diagram of your non-contiguous premises and a lease agreement. I'm sorry you're getting different answers from TTB. There was a major "brain drain" when the Technical Advisors retired at TTB's National Revenue Center (NRC).

[McClintockDistilling]

Awesome thanks so much. It was the 10 mile limitation that I couldn't find anywhere out so I appreciate the attention to the memorandum. Appreciate it everyone!

[dhdunbar]

I am a little reluctant to post a treatise - okay an additional treatise - on the 10 mile limit.  But I think it is instructive. 

Consider the question, "If TTB has a 10 mile limit, why has it not publicly published that limit, thereby eliminating the questions that arise?" 

That would be easy.  So, doesn't that strike you as a bit strange that TTB has not so?  I think there are, in the public record, explanations for its silence, but you have to be ready to get wonky.  In short, I think the 10 mile limit is a safe haven, an internal instruction to specialists that 10 miles or less is a distance within which, barring other reasons,  TTB specialists should not question the propriety of approving discontinuous premises.  I do not think it is a line drawn in  the sand.  So, taking a deep breath,  I will jump into the deeper waters for those who might want to know.

I will preface this with the admonition, “Pick your fights.”  Some things are not worth fighting about.  

If you want to located a second building for storage, or processing, or production, 12 or 15 or even 20 miles from a currently registered DSP, and it is important to you that both sites be included under the same qualification, I would not hesitate to submit a request for a variance to §19.53, notwithstanding the fact that the 10 mile policy is often repeated as biblically ordained.  

Now, I have no reason to doubt that there is a  10 miles or less policy that dates 1990.  That makes it older than the years that I can count on me fingers and toes.  Further, and far more importantly, it is prior to at least two published notices (1998 and 2011), one of which (2011) was a final ruling explaining a major revision of the regulations.  Both of those documents specifically address TTB’s position on the matter of discontinuous premises.  Neither propose a 10 mile or less standard. Importantly, both those documents were issued under the Administrative Procedure Act.  That makes them an official interpretation of the regulation and provides the government’s reason for that interpretation.

 The quotation I first offered is from 2011.  Here, in somewhat more detail, is what TTB said about the separation issue in 1998.  TTB affirmed ATF’s prior position in the 2011 Treasury Decision.  Here is what ATF said in 1998 (quoted in full but parsed to separate the points ATF made:

DISCUS recommends that the term ‘‘same general location’’ mean within 200 miles of the distilled spirits plant. We [ATF] did not adopt this recommendation in the proposed regulations.

Although DISCUS states that a ‘‘200 mile rule’’ would provide increased operational flexibility for proprietors, they do not explain how this would occur under their proposal and why that distance is more appropriate than any other. [My emphasis here and below]

Over the years TTB has received a number of requests to establish noncontiguous distilled spirits plant premises. We have evaluated each of these requests on a case-by-case basis.

 In our evaluation of each request, we consider a number of factors, such as:

 • Security and protection of the revenue,

• Distance between the main plant premises and the proposed noncontiguous premises,

• Whether the non-contiguous premises would cross State lines,

 • Whether the non-contiguous premises will facilitate inspections and audits, and

• Whether establishment of noncontiguous premises would provide the proprietor with a means for delaying payment of taxes. [The explanation of how this gets included is kind of wonky, but I’ll offer it.   ATF and TTB long have been concerned with an issue they call “downstreaming” taxes, i.e., making in bond shipments to remote locations from which a proprietor could remove spirits, later, to persons located in the downstream DSP area, thereby possible shifting the return period in which the taxes had to be paid.  That was the root of the now defunct prohibition against the in-bond transfers of beverage spirits in containers of less than one gallon, the maximum size for removals for delivery to consumers.  For large bottlers, shifting the date the tax payment became due by even a couple of days could significantly impact the amounts paid].

TTB then concluded:

We propose to retain the case-by-case analysis based on multiple factors, instead of adopting a 200 mile rule as proposed by DISCUS.  As a general rule, we believe that the ‘‘same general location’’ must not be too large an area so that the revenue is placed at risk. Also, because a distance of 200 miles could extend over a multi-state area and would cross over into different field offices within TTB, such a distance would create administrative difficulties for TTB. This provision appears in the proposed regulations at § 19.53.

I think it is important that ATF stated that it did not know why the 200 mile separation was “more appropriate than any other.”  I read this as ATF  saying, “There is not a necessarily appropriate maximum distance.”  And as the above list shows, distance is only one of the factors TTB states it will consider when determining whether to approve.

In short, had TTB wanted to draw a firm, 10 mile line in the sand, they had opportunity to do so in 1998 and again in 2011, l but they did not do so.  Further, if they wanted to consider other things, while holding the 10 mile limit, they could have said, “If the plant is within 10 miles we will approve if you also can establish to our satisfaction that  …. “  It did not do so.

I conclude that the fact that it did not do so suggests that the 10-mile rule is safe harbor rule., i.e., that, barring other reasons, TTB specialists will not challenge an amendment that proposes a location that is within 10 miles.  I conclude it does not say that TTB will deny a variance, in every case, when the location is greater than 10 miles.  I conclude that it will instead consider the distance in conjunction with the other factorsATF  enumerated in 1998 and TTB affirmed in 2011, then decide. But, the rule is so often stated that you may end up in a fight.  That is why I said at the beginning, pick your fights carefully.  It is possible to win battles and lose wars.

So, if you have a need, worthy of the fight, to establish a location that is more than 10 miles away, as a part of the current DSP,  then you would argue from all those points ATF raised in 1998 and TTB affirmed in 2011, including arguing why it would facilitate TTB’s auditing to have both locations under the same DSP.  That's what I would do if it were important to me.  Finally, this is why it is important to ask persons within TTB what they rely on when they tell you what the rule is.  If real estate is location, location, location, regulation is citation, citation, citation.  

 

 

 

 

[captnKB]

I was going to weigh in but @dhdunbar nailed it to the point. 

[Roger]

In our case our 2nd location  is 13 miles away from our DSP, and was originally rejected with the "10 mile rule" quoted by the TTB . We responded that our entire area is very rural, and included a Google map and road route. We argued that our 13 mile rural route conceivably would take far less time to transport and far less opportunity to create "loss of product and or tax revenue" than a 2 mile trip in an urban environment.

They approved.