What is a TTB bond? Do I need one?
What is a TTB Bond?
A Ttb Bond is essentially a guarantee that your company will pay the excise taxes that are owed to the federal government (TTB). The bond itself is a legal document that covers your federal excise tax liability on the commodity you are producing (e.g., wine, distilled spirits, etc.). It guarantees TTB that whatever excise taxes are owed to it will be paid — whether by you or by a third party (e.g., insurance company should you proceed in that direction). If you are applying for a distilled spirits permit, you would complete a distilled spirits bond form or TTB F 5110.56; if you are applying for a winery permit, you would complete a wine bond form or TTB F 5120.36; if you are completing a brewery permit, you would complete a brewer’s bond form or TTB F 5130.22.
The bond will cover the location or the “premise” that is outline in your federal basic permit application. This is one of the reasons why it is important to clearly define the bonded area when you complete your federal basic permit application with TTB. Generally speaking, a bond will be associated with one distinct location. Each location generally needs its own bond. The bond will also generally cover only one company (i.e., one distillery or one winery). If multiple companies are conducting business at the same premise, each will generally need its own bond for TTB purposes.
What Options are there for a Bond?
Currently, three different options exist as a means to submit a bond to TTB for wineries and distilleries. They are as follows:
- A surety company;
- In cash; or
- Through a treasury note or bond
What is a Surety Company for TTB Bond Purposes?
A surety company is similar to an insurance company where a distillery or winery generally pays the surety a yearly fee (which is generally a small fraction of the actual tax liability owed) and the surety, in exchange, guarantees the federal government (TTB) that it will cover excise taxes for the distiller’s or winemaker’s products should the distiller or winemaker default in paying excise taxes. The bond must be approved by TTB in order for the surety bond to be considered enacted or accepted. It is always important that the bond and/or the bonded area be appropriately represented because surety companies will only guarantee tax owed on wine or distilled spirits that are within the bonded area (i.e., that is clearly spelled out either on the bond or the TTB application itself). If there is untaxpaid wine or distilled spirits in a area that is not approved as the “bonded” area, it would be wine or distilled spirits whose tax value is uninsured (which could be a problem). Thus, it’s important to make sure that if there are any changes to the premise or the bonded area, both TTB and the surety/bond company are aware.
While surety companies are reliable, it is important to work with a surety company that understands alcohol beverage licensing. Because the issues related to alcohol beverage licensing are so unique, many surety companies may not have prior experience working with alcohol beverage clients. On top of that, the way in which the bond form is constructed is incredibly important and often plays a roll in whether or not the bond will be sent back to the applicant needing corrections (which can be time consuming and also delay the permit application). Many insurance or surety companies have not worked with alcohol beverage companies before and are not aware of how to accurately complete the bond form such that it will not result in corrections needed or superseding. Hops & Vine always advises clients to work with a surety who has experience with alcohol beverage companies. We also always review a draft of the bond form before it is finalized and submitted to TTB. For more information, contact us at [email protected] We can also provide the name of companies that have previously worked on winery or distillery bonds in the past that may be more familiar with the process and the requirements. This is very important as most insurance companies do not have experience in this unique area and do not always fill out the forms properly.
What is “Cash” for TTB Bond Purposes?
While most companies choose to pursue the surety company, there are two other options for submitting the distilled spirits or wine bond: through cash or a treasury note. Cash is good if you have it on hand, but many start up wineries or distilleries do not. Further, the amount can be exorbitant (especially for distilleries). Cash can be submitted through a personal check, cashier’s check, or money order for the entire sum of the bond (i.e., not at a reduced or yearly fee, which is generally what is owed when working with a surety company). The funds will be held by the Department of Treasury against any default in tax payment. The funds will be returned if the permit is surrendered or if the bond is revised such that it is guaranteed by a surety company or treasury note. (No interest is paid.)
What is a Treasury Note or Treasury Bond for TTB Purposes?
A treasury note or bond can be used as collateral for excise tax purposes if the distillery or winery holds a treasury note or bond. This requires the bond number, interest rate, date of issuance, and date of maturity.
The above is just a summary of the general TTB bond requirements. There are, of course, more specific details depending on the type of bond application that is completed for the commodity as well as with respect to the actual, individual premise and applicant. E-mail us at [email protected] to find out more about how we can help you from the outset of your application. We can help guide you with respect to completing the bond application, as well as advise you on any requirements that may be important or necessary depending on your premise or your business model.
Note that in addition to the above, your state license application may require you to submit a bond (which is generally a separate bond from the TTB bond application). New York State requires a bond depending on the type of application that is filed. E-mail us at [email protected] to find out more about how we can help you from the outset of your application.
This post first appeared on Alcohol Beverage And Food Legal Compliance Blog, Hops & Vine Consultants | Hops & Vine Consultants, please read the originial post: here