LEGAL CONSIDERATIONS OF WAREHOUSING SPIRITS BY MARC E. SORINI
Marc E. Sorini is a partner in the law firm of McDermott Will & Emery LLP, based in the Firm’s Washington D.C. office. He leads the Firm’s Alcohol Regulatory & Distribution Group, where he concentrates his practice on regulatory and litigation issues faced by supplier-tier industry members. His practice includes distribution agreements, distribution counseling and litigation, product formulation, labeling, promotional compliance, compliance strategy, and federal and state tax and trade practice enforcement defense.
REMOTE STORAGE Almost all distillers recognize growth as a positive, and growth can eventually require the use
of remote storage areas separated from the original DSP location. At that point, a public warehouse down the road may provide an attractive storage area, especially where expansion
arehouses aren’t exciting or sexy. In fact, they are usually of the DSP is impossible (due to space constraints) or cost boring to look at and think about. But a surprising amount prohibitive. Here, too, the legalities require some attention.
of specialized alcohol beverage law surrounds the use of Ideally the distiller can successfully have TTB include the remote warehouses for the storage of distilled spirits. This article will warehouse in the bonded area of its DSP. TTB has a long history briefly explore some of the basics.
ON PREMISE STORAGE
of approving such “non-contiguous [separate] premises,” within reasonable bounds. As a rule of thumb, TTB will approve storage in non-contiguous premises if the storage area is within the
For start-up artisan distillers, their first “warehouse” is same political boundaries as the original DSP (i.e., no crossing usually just a space reserved for storage within their bonded state lines) and the non-contiguous premises is located within distillery, called a distilled spirits plant (DSP) in the language ten miles of the original DSP. As a rule of thumb, TTB’s tenof the federal Alcohol & Tobacco Tax & Trade Bureau (TTB). mile policy is subject to exceptions, provided that the totality of The magic of the “bonded area” is that keeping spirits within the facts persuades TTB that approval of the remote premises that area defers the payment of federal excise taxes (the bond will not present a significant risk of tax evasion. And, of course, is more formally called a “deferral bond”) until the goods are storage of non-taxpaid spirits at a non-contiguous area should “removed” from the bonded area. Few distillers are eager to pay not start until after TTB has approved an amendment to the taxes before they must, so pay attention to your bonded area distiller’s DSP registration that authorizes such use. and bond amounts. When a new storage area is built or utilized,
State law, too, requires some attention. While each state’s law
check your federal DSP registration documents to make sure that is different, most establish some type of public warehouse license the new storage area falls within the bonded area shown in your that permits the storage of distilled spirits within the warehouse, original registration filed with TTB. If it does not, amend the DSP and shipments from that location. Some states may, like TTB, registration to include the new area. Failure to do so could trigger recognize close-by warehouse spaces as part of the distiller’s earlier tax payment or, worse, excise tax assessments, interest licensed premises. Still other states authorize one or more and penalties if TTB discovers that a distiller stored un-taxpaid “satellite” storage places for use by certain in-state licensees. spirits in a non-bonded area. I have personal experience with And in many, a public warehouse can obtain a state warehouse TTB tax enforcement matters seeking millions of dollars in excise license in order to store products on behalf of other licensees, or tax payments and penalties arising from the failure to properly even non-licensees. Before signing a warehouse lease or making bond a warehouse used for alcohol beverage storage.
other substantial investments in a storage project, the prudent