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Importing Finished Products Through a Third Party


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We were discussing a hypothetical situation today and I thought I would throw it out here to get everybody else's thoughts.

We were wondering if a situation arose in which you purchased a finished product through a domestic company that originated in a foreign country, would it fall into column C or D of part IV on the production report?

For example: Lets say a distillery was going out of business. They had imported some Russian vodka to sell and you wanted to purchase their remaining stock to sell it. I a wondering how this transaction would need to look in the eyes of the TTB. Is column B only for products that you have imported, or for any finished product that was imported? Is there another scenario in which you could purchase a finished foreign product from a domestic supplier for resale?





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Let me ask,"How did you came to conclude that you would report this on the production report?" I'm not being facetious or smart assed about it. My question is Socratic. Stop, right now and answer it for yourself before you read further.

Now, I will tell you that whatever reason you just gave is bogus. The spirits you describe are not distilling materials or material used in distillation; they are already distilled. They do not show up in Part IV anywhere. They do not show up on the production report period. TTB does not classify the receipt of spirits in bond as a production operation.

You enter these spirits into your system by receiving them in the warehouse account. The imported spirits in question make their appearance in line 2 of the Report of Storage Operations - if you are the importer and receive them directly from customs custody, they would make their appearance on line 3, but that is not your scenario.

Now, that is a fine pronouncement, but it does you little good. I've given you a fish but not taught you how to fish. To boot, I've not given you any reason to think that my answer is any better than yours.

To understand TTB's system, which TTB does not do a good job of explaining from what I like to call "first principles," you have to understand which operations and transactions are production operations, which are storage operations, and which are which are processing.

That is a matter of what accounting rules call "proper classification." The account works according to generally accepted accounting principals that include rules of classification. Proprietors of distilled spirits plant work according the the requirements of part 19, which has rules that govern production, storage, and processing operations. You conduct all operations, in spirits, on which tax has not been determined, within production, processing and storage accounts. When I teach about this, I stress that I have to repeat the "production-storage-processing" mantra until there is a moment of awakening.

Proper classification is entering an operation into the proper account. The receipt of spirits in bond, whether they were produced in the United States or somewhere else, is usually, but not always, a storage operation (you could receive them in the processing account, line 2, if you intend to immediately process, for example bottle, them). That is the rule according to part 19. Storage operations take place within the storage account under the rules that govern storage operations. You record them in the storage records and report them on the storage report.

Unless you understand how to classify operations and transactions according to TTB's regulatory fiat, the records and reports are going to be a source of both mystery and frustration. This is not a matter of "natural law" and the rules are not intuitively obvious. They are not necessary, but they are sufficient, and I'd describe the failure to understand classification as a recipe for a perpetual state of snafu.

Now, I hate keeping records. My predilections stray very far from those of the person who likes to operate in a world of artificial rules, but in business you have to keep records that accurately reflect your financial transactions and as the proprietor of a distilled spirits plant, you have to keep a lot of records that reflect transactions in spirits as opposed to dollars. TTB's system is artificial, but it is designed to provide consistent accounting and meaningful reports. The rules do not have to be the way they are, but there must be a consistent set of rules. TTB is responsible for making the rules; you are responsible for knowing them. If you understand the skeleton of the system on which TTB hangs the recordkeeping requirements, you will experience a lot less frustration trying to live up to your end of the bargain.

I'm not going to go further here. The situation you propose is hypothetical, but the need to be able to classify hypothetical situations properly is real. That is the root of my first question in this response.

I will add that when you put a spirit in a bottle, you have to be able to prove that it is entitled to the label claims you make. Don't buy imported spirits without also receiving the documentation needed to satisfy TTB that you are not pulling a fast one with label claims. I'll not get into that further here.


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