TTB Bonds

[absaroka]

Looking over the application, I'm trying to filter through the surety bond section. As I read it, if I'm a small start-up craft distiller that produces and stores the product on-site until delivered to a distribution network then I am only subject to a $10,000 bond. Am I reading this correctly? Hopefully some of you that have been through this process can help me out a bit.

Thanks in advance,

Bryan

Owner of a soon-to-be-named distillery in Montana

Confused, overwhelmed, and watching the funds disappear fast... and enjoying every minute of it!

(P.S. hope to meet some of you at the 2008 conference in April! )

[delaware_phoenix]

$10K is the minimum bond. It all depends on your production capacity in a 15 day period in proof gallons, your storage capacity in proof gallons, and the quantity of spirits (NGS or whatever) that are in transport to or from your bonded warehouse, again in proof gallons. Add all those numbers up. Multiply by $13.50. That's your bond amount. If you're doing any kind of aging at higher proofs, those numbers add up real quick.

If you haven't already, mosey on over to the introductions section and tell us about yourself (think of it as your first bit of self-promotion).

[grehorst]

Looking over the application, I'm trying to filter through the surety bond section. As I read it, if I'm a small start-up craft distiller that produces and stores the product on-site until delivered to a distribution network then I am only subject to a $10,000 bond. Am I reading this correctly? Hopefully some of you that have been through this process can help me out a bit.

Thanks in advance,

Bryan

Owner of a soon-to-be-named distillery in Montana

Confused, overwhelmed, and watching the funds disappear fast... and enjoying every minute of it!

(P.S. hope to meet some of you at the 2008 conference in April! )

Bryan, I think you are correct in the $10,000 minimum. When I started I tried to keep the bond as small as possible, that was fine for the first 6 months but became a pain in the ass afterwords. You can file a supersceeding bond to increase it later but keep in mind it may take the TTB a few months to approve it. The cost difference between a $10k and $20k bond is not huge (I'll guess $100 a year?) so be sure to get a quote on what you think you need and what double the coverage would cost- it may save you a headache later. Also keep in mind that sales can be somewhat seasonal so a bond amount that may work fine in March may be a problem in December.

Good luck!

[absaroka]

Thanks everybody! That was how I interpreted it, just wanted to clarify before starting the bonding process.

I'll make a formal introduction here soon. Until then, I look forward to exchanging information and learning through those that have successfully done this.

Cheers,

Bryan

[The California Spirits Co.]

I was reading through these posts and didn't see any actual suggestions for good insurance companies. I'm currently looking for a surety bond ($10,000). Is there any advice about putting all your insurance eggs in one basket (equipment, tax, product, personal, etc...) Anyone have any insight on competitive pricing for the Southern California area?

Casey

[CountySeat]

Who did you end up using for your bond?

[dhdunbar]

I would not lock in on the $10,000 minimum. Technically, it is true (actually, if you only produce or only warehouse it could be $5,000). But you have to consider youur operations and business plan when yoy arrive at the penal sum of the bond you want to purchase. $10,000 generally won't cut it.

There are two sorts of bonds, operatonal and withdrawal. The withdrawal bond comes in three "flavors," production, warehousing and processing. Each of those operations carries a $5,000 minimum.

Processing can mean a lot of things, and I'm not up to giving a class right now, but if you bottle you do it in processing and if you are qualifyng as a processer, you must also qualify as either a warehouseman or for production (distilling). So the minimujm operational bond for someone who bottles is indeed $10,000.

You determine the amount of the operatoins bond you require by adding together the number of proof gallons you produce during 15 days, plus the maximum quantity, in proof gallons, that you will have in bulk, either in processing or the warehouse, on any one day, plus the number of proof gallons you have in cases waiting to be shipped. Multiple the proof gallons by $13.50 and you have the amount of the bond you require.

Next, unless you want to pay taxes every time you remove product from bond, you will also need a withdrawal bond and the mininmum there is $1,000, which doesn't go very far at about $26 a case for 750/12 80 proof cases. Remember, it has to cover a months removals - the first half of the month for which you are defering the tax, plus the second half of the month, the period of deferral, during which you are adding to the amount under bond each time you make a removal. If you chose to make quarterly payments, the amount you need is obviously more. Use $26 a case on your projected removals at the end of a year's time - bonds are cheap enough that you don't want to be constantly increasing them.

Now, I've talked about a lot of different sorts of bonds, but you do not need to get separate bonds. The best way is to get a unit bond, which combines the operations and withdrawal bonds. With the $10,000 minimum operations bond and the $1,000 minimum withdrawals, the minimum becomes $11,000, but if you produce, store and bottle, it is $16,000. My advice is always to look at what you think you will be doing at the end of the year and go with that amount. Remember that if you are aging product, every month when you put some more into barrels, the total in the storage account increases. Minimums quickly become not enough.

The cost of the bonds is not prohibitive. It depends on the company you chose. The cost is reasonable enough that you shuld be able to buy too much bond for not much more than you would pay for too little.

Is $16,000 enough? Only you can answer that based on what you think you will be doing 12 months down the road.

Please excuse any typos. It is late, it has been a busy day, and I am tired.