Taxes, market, sources of info?

[grehorst]

As you may already know, New York passed a law in August that created

> a new class of distillery license, in which legal and application

> fees are greatly reduced in exchange for the distiller limiting

> himself to 35,000 proof-gallons per year, and using NY grown

> agricultural products when possible. It even appears that under this

> license one could sell directly to liquor stores without a distributor.

> Given the popularity of small-batch liquors and the local food

> movement, as well as the large number of customers represented by New

> York City alone, there seems to be an opportunity.

> I've been looking at what it would take financially to capitalize and

> operate a distillery under this law, and I figured you would be a

> good person to start badgering with questions, and that you might be

> able to point me in the right directions on those you can't answer

> offhand.

>

> 1) Do you know a good guide to the operating tax structure of a

> distillery? I bought the books on your website hoping that something

> would leap out in a bibliography, but I don't have much to go on so

> far. Given the huge impact on excise taxes on potential margins, this

> is probably the most important question we have.

>

> 2) Do you know offhand a good place to get data on the liquor market

> as a whole? Consumption per capita by region and market share by

> product class would be especially usefull figures.

>

> 3) In terms of equipment cost estimates, do you have any particular

> reccomendations on what companies would be helpful to talk to?

> There's an abundance on your web site, but perhaps there's one that

> might be more helpful to someone still in the research stage than

> others might be. We're at least a year from purchasing a still(s).

>

> 4) I've been reading the books reccomended on your website, but what

> other sources should I be gathering? Whom should I be bothering? What

> questions would you be asking were you in my place?

>

> Please let me know what you think, and I appreciate the help.

> Rob

>

>

> Robert Lewis

[grehorst]

Robert,

A few answers to your questions...

1. Taxes must be paid to both the federal government and state government. Not sure what NY rate is but the federal excise tax is $13.50/proof gallon which translates to $2.14 per 750ml bottle. Federal taxes are paid every two weeks. Be sure to check out www.ttb.gov click on the distilled spirits tab and learn everything you can find there. Then find out what agency regulates alcohol in NY and find their regulations pertaining to alcohol.

2. Excellent market data can be obtained from Adams- http://www.beveragehandbooks.com very expensive but full of excellent data. I bought one when I was writing my business plan but haven't bought since.

3. Talk to all of them! They all have differing points of view and you need to hear them all.

Good luck!

[Andrew]

A few more thoughts regarding market data:

• The TTB does have some higher level data available at http://www.ttb.gov/spirits/stats.shtml
  
• If your library system has a business library, or better if you're near a business school with a library, head on over and ask them for help. Business research databases tend to contain most of the yearly market reports put together by market research firms, and (usually) use of these resources is free from within the library.
  

[Jonathan Forester]

Rob- If I were you I would go to the several conferences:

Most important is the TTB Expo on June 17-18, 2008. Go and take all of the distillery sessions.

http://www.ttb.gov/conference/index.html

http://www.ttb.gov/conference/session.html

Here are the session titles:

Distilled Spirits Plant Records, Reports and Tax Payments: How to Avoid Warning Letters, Penalties and Interest

How to Produce Spirits the Legal Way: Distilled Spirit Plant Applications

Label Perfection! How Can I Say That on My Distilled Spirits Label?

Just for Artisan Distillers

Section 5010 Tax Credits for Distilled Spirits

Pay.gov—Electronic Return and Report Filing for Distillers Made Simple!

Time Changes Things! What, When, and How to Report Distilled Spirits Plant Changes

Also Bill's Whiskey Conference April 6-9, 2008 has some good sessions.

http://www.distilling.com/PDF/conference08.pdf

How to Form a Business: LLCs, Corporations and Partnerships.

TTB roundtable discussion on DSP Applications, Labels and COLA Issues (government certification allowing cross-state distribution).

How to Market Your Product- Chris Morris and Theo Lioutas (Brown-Forman Corp.) on the world view - The History, Production and Marketing of Whiskey.

Sonja Kassebaum (North Shore Distillery) on Dealing with Distributors.

TTB - Questions, Feedback and Why You Can’t discussion with the revenuers.

As for stills, get in touch with all the manufacturers on the American Distiller resources list and start talking. It may take awhile to get a dialogue going because they are all so busy, but starting a distillery is usually a multiple year process anyway. For most people it's at least a two years, if not more.

http://www.distilling.com/manufacturers.html

[delaware_phoenix]

As far as New York goes, it's a two tier system. Producers are on the same level as wholesalers. Retailers are the other level. All producers (Distillers Class A, A-1, B, B-1, D) have the ability to sell direct to holders of retail liquor licenses.

The new license you refer to is the Distiller Class D, the Farm distiller. It requires no state bond, has a trivial fee, allows direct sales to the customer under very specific circumstances. The catch is that your products must be made with at least 50% New York state agricultural products. Perhaps the alternative interpretation would be that 50% of your products must be made from 100% NY state ag products. I don't know which is correct, check with a lawyer. You still need a Federal license from TTB.

The $2.14 is for an 80 proof spirit.

The web site for NY State Liquor Authority.

NY gets $1.70 per liter, and if you sell in NYC they get an extra $0.264 per liter.

I'd put a lot of work on your business plan, especially your financials. You have to know whether you can make money or not.

[ny_spirits]

Over 2 years ago, we knew this license was coming and decided to get started. We opened two days ago, so be prepared for a long road. However, I do know there will be several more "farm distilleries" in the very near future. The deal is the Class D lets you sell both retail and wholesale, but you have to be located on a farm and must use "primarily" NY grown products. It is not entirely clear now what that really means, but currently they seem to be going with over 50% of the ingredients in each product give the NYS ABC legal dept a call for clarification. If you are really interested in pursuing this, I recommend attending the ADI conferences, the distilling training workshops run by some of the still manufacturers, and visiting lots and lots of distilleries. There are a growing number of small distilleries in the northeast, all of whom would likely welcome you visit.

Good luck on your venture.