LET'S GET STARTED
n 2013 I wrote the original version of this article, covering the basics of what a new distiller should consider when preparing to file their application to establish a Distilled Spirits Plant (DSP). Looking at changes in this process in the past six years, I felt it would be a good idea to refresh the information. Legal and procedural changes, a couple of policy updates, and a revised online application database are the leading reasons that the original article is somewhat outdated. The first item on the compliance agenda of the new distiller is to create and submit the Federal application for an FAA Act Permit and to register the Distilled Spirits Plant (DSP). Let’s look at the five most common issues that confront and can delay the distiller when putting together their permit application and registration:
the FIVE MOST COMMON ISSUES THAT CONFRONT & CAN DELAY THE DISTILLER
Establish premises. Whether owned or leased, the distillery has to be secured and meet state and local requirements for the type of operations planned. Our focus is on the Federal rules, which call for the plant to be secure and located in commercial premises; the law does not allow for any distillery to be located in a residence, nor in a building containing a residence. Documentation of the premises includes a copy of the lease or evidence of deed to the property. The legal description is required, along with a point-to-point (feet/inches by direction) description of the area covered by the distillery bond. TTB requires a diagram of the premises; nothing too fancy, just a simple drawing of the plant layout, with dimensions, doors, and windows. Use colored lines to outline the bonded and “other” premises. The diagram has to have the name and address of the applicant, and compass direction indicated (an arrow with “N” depicting North will suffice). This “Bonded Premises” must be secured to ensure no one has unauthorized access to spirits held under the Federal bond — see updated bond information below. Under the Federal rules, if the DSP has a retail or tasting room, that area cannot be on the bonded premises but may be next to it. Please note the separation between the two must be complete, with the bonded area required to have its own separate outside entrance. Each still, tank and other major piece of equipment for containing or handling spirits is to be listed: serial number, capacity and use.
Bond – TTB Form 5110.56 Distilled Spirits Bond, if required, must be executed perfectly, and the operations coverage must be sufficient for the tax value of all spirits on hand at the distillery at any one time, plus bulk spirits in transit to the DSP from another DSP. Since 2017, a DSP paying less than $50,000 in excise tax during the calendar year is permitted to operate without providing a bond. When taxable removals reach $50,000 during a given year, a bond must be provided within 30 days. The minimum bond for a distiller who will be making, storing and bottling products is $15,000, plus additional withdrawal coverage for deferral of taxes on the products withdrawn from the DSP for sale or use as tasting samples. This amount covers about 1,100 proof gallons, or about 1,375 gallons at 80 proof/40% alcohol. Expect to experience delays in getting the application processed, if the submitted bond is not perfect. In respect to taxes, through the end of 2019, distillers can benefit from a reduced rate of tax on products removed from bond for sale. Absent action by Congress to extend or make permanent the reduced rate, in 2020 the full rate of tax will be due, and bonds will be required to cover withdrawals at the higher tax rate.
WRITTEN BY JIM MCCOY
Source of Funds must be documented. This can vary; if the money invested comes from personal funds, such as a loan against a retirement account, a commercial loan, or withdrawals of savings, the source would be documented (i.e. statement from investment account showing withdrawals, matched to deposits in the DSP business account) and images of that documentation submitted with the DSP application. The government does this to ensure that the ownership and interest in the business are clear and correctly presented.
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