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Bond Nonsense


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The most recent issue of the ADI newsletter has two - count them - articles on bonds that are at misleading.  The first, "How the Government is Saving Craft Alcohol, argues that dropping the bond requirement ... well, here are my comments.


First, the Tax and Trade Bureau (TTB), the federal office that governs the alcohol industry, eliminated bond requirements for small breweries, wineries, and distilleries. 

      This is true, but anyone who sells more than 2,000 cases, of 80 proof 1/750ml bottles, a year will still have to have a bond.

In essence, a bond is a pre-paid amount of tax that the government holds as collateral to make sure booze producers pay their other taxes and generally play by the government’s rules. 

     It is nothing of the sor
t. It is a guarntee of payment. If you have $20,000 in deferred taxes, i.e., excise taxes due but not yet paid on spirits removed, the bond would be in the amount of $20,000, but the bond would probably cost about $150 a year, including processing fees. That is a whale of a difference from its being, in essence, a prepayment of the $20,000.

But applying for bonds is time consuming, technical (they require submitting elaborate architectural plans of any production space), and requires a large capital outlay up front, a serious strain for businesses that have no cash flow. 

     This is once again false. You do not apply to the government for a bond. You apply to the surety. It does not invlove architectural plans. It involves your indemnifying the surety against loss and swearing that you've never been bankrupt, etc. 

     The plans - which can be hand drawn - are submitted with the application to register the plant. Aside from no longer requiring that you submit a bond when you apply to register, NOTHING, I hate screamoing capitals but sometimes they are necessary - NOTHING else changes.

By eliminating the bond requirement, this amendment removed a major hurdle for new producers, making it significantly cheaper and easier for newbies to start out as a small brand.

     No, unless you figure that a bond costing $10 per $1,000 in principal is a significant cost vs, the cost of rent, the still, etc.. It is neither significantly cheaper or easier for anyone to start out as a small brand.

Now, they can apply to receive a refund of their original bond payment and operate under the small-producer permit instead. And they can use their capital to make more drinks!

     Refund? Well, yes, but most sureties are only going to refund a prorated amount, and a prorated refund on $130 - which is the cost to most small wineries per year and since it is the minimum will not be refunded - to, I don't know, chose your poison, $500, for example, is not going to be a cornucopia from which flows capital to make more drinks. 

     Next - while direct to consumer sales of wine are becoming more and more common and are certainly a boon to both wine and spirits, you are not about to be able to ship spirits around the country for mail order or internet sales. It won't happen and do not - I refrained from screaming capitals - try and factor that into your spirits business plan.


I'll respond later to the attorney who counsels that you might want to keep your bond.  

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  • 4 weeks later...

Hear, hear dhdunbar!!!!!!  Well stated.

Bonding for your distillery is quite an easy process and the cost of a bond is more than likely the most inexpensive item you will procure for your business.  One other point that needs to be discussed, yet gets very little attention, is the fact that although you MAY be able to do without a federal TTB bond (do the math and read up on the new regulations), you may (more than likely) still have to obtain a surety bond for the state in which you are operating.  Many states require either a sales and use bond, and/or an alcoholic manufactures bond.  You will want to check with your state ABC/three tier/etc. to find out what the rules are for where you are located.  As always, if you have questions or are looking for further information, I am always pleased to speak with anyone about surety bonding or any other insurance questions.


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