Alcohol Supplier Ownership: Legal Or Not?

Alcohol distribution is a highly regulated industry, with strict laws in place to control the sale and supply of alcoholic beverages. These laws vary from state to state, and even country to country, and non-compliance can result in severe penalties, including criminal prosecution. In the US, the three-tier system separates the supplier, wholesaler, and retailer, with each tier enforced by strict regulations and policies. This system has been in place since the Prohibition era, and while it has undergone some changes, it remains the governing structure for the beverage alcohol market. Alcohol distributors and suppliers must adhere to licensing requirements, taxation rules, and age verification, among other regulations, to operate legally.

Alcohol distribution is a regulated industry

Alcohol distribution is a highly regulated industry. In the US, the alcohol market is governed by a three-tier system: supplier, wholesaler, and retailer. This system was established to ensure the separation of the retail segment from alcohol suppliers and distributors. Each state has its own laws and regulations regarding the distribution and sale of alcohol, and these laws can vary widely. For example, some states allow self-distribution, where a supplier can sell directly to retailers without going through a wholesaler, while others do not. Additionally, the definition of "spirits" and the specific regulations surrounding their distribution can differ from state to state. For instance, in Alaska, there are no franchise rules that restrict a spirits supplier's ability to negotiate or cancel their distributor agreements, while in Arkansas, a spirits supplier may not change the wholesaler without proving good cause.

To legally distribute alcohol, a distributor must obtain a license from the relevant authorities. This typically involves complying with state and federal regulations, including obtaining a surety bond, registering with the Alcohol and Tobacco Tax and Trade Bureau (TTB), and obtaining the necessary permits and licenses. Distributors are also responsible for ensuring age verification, adhering to labelling requirements, and paying taxes. Working with a licensed distributor is crucial for alcohol suppliers as it ensures that their products are being distributed legally and responsibly. It also helps increase product visibility and sales.

While the three-tier system has been in place for many decades, there have been calls for reform. Some argue that the current system is inefficient for small producers, making it difficult for them to gain a foothold in the market. Additionally, consumers are increasingly seeking direct access to specialty alcohol products, bypassing the wholesale level. In response to these challenges, some states have amended their laws to adopt self-distribution rights and tasting room sales, particularly for craft alcohol producers. However, distributors can still provide valuable logistical and sales support to small producers, helping them navigate the complex world of alcohol distribution.

Alcohol distributor license

An alcohol distributor license is a legal document that allows a company to sell and distribute alcoholic beverages in a specific region. This license is crucial for alcohol suppliers who want to distribute their products legally and safely. Alcohol suppliers must work with distributors who have the necessary licenses to legally sell and distribute alcoholic beverages.

To obtain this license, a distributor must comply with all state and federal regulations, including obtaining a surety bond, registering with the Alcohol and Tobacco Tax and Trade Bureau (TTB), and obtaining all necessary permits and licenses. State laws require that wholesalers act as intermediaries in the sale of alcohol, establishing a three-tier system that governs the beverage alcohol market in the US. However, some states have relaxed their laws to allow for self-distribution, especially for craft alcohol. For example, in California, Oregon, and Colorado, craft producers can sell directly to retailers without having to work with a wholesaler.

It is important for alcohol suppliers to ensure that their distributor has a valid license in the state or region where the products will be sold. Suppliers should also verify that the distributor is in good standing with the state and TTB and has a track record of responsible and legal distribution practices. Licensed distributors are required to comply with state and federal laws and regulations, including age verification, labeling requirements, and taxes.

Additionally, suppliers should be aware of any additional fees or requirements associated with working with a licensed distributor, such as storage and distribution fees or minimum order quantities. Maintaining accurate and up-to-date records of products and distribution practices is also crucial for compliance with state and federal regulations.

State-specific laws

In the United States, the 21st Amendment grants each state and territory the power to regulate intoxicating liquors within their jurisdiction. As a result, laws pertaining to the production, sale, distribution, and consumption of alcohol vary significantly across the country.

Alaska

• Alaska does not require a license for out-of-state suppliers to sell to in-state wholesalers.
• Spirits suppliers must certify to wholesalers that they are the primary supplier.
• Only wholesalers may deliver to retail establishments.
• Spirits with an ABV of 21% or less are taxed at $2.50 per gallon, while spirits with a higher ABV are taxed at $12.80 per gallon.

Arizona

• Arizona defines "distilled spirits" as including alcohol, brandy, whiskey, rum, tequila, mescal, gin, absinthe, and mixtures thereof.
• Spirits suppliers must provide the Arizona DLLC with a copy of their distributor invoices by the 20th of each month.

Arkansas

• Arkansas defines "spirituous" as liquor distilled from fermented juices of grain, fruits, or vegetables with an alcohol content of more than 21%.
• An out-of-state manufacturer may not self-distribute to retailers or ship directly to consumers in Arkansas.
• Arkansas requires an Out-of-State Supplier Permit for out-of-state suppliers to sell to in-state wholesalers, which costs $50.
• A wholesaler designated to distribute a spirits brand will be the exclusive distributor of that brand in the entire state.
• Arkansas imposes various taxes on alcoholic beverages, including a per-case tax on all alcohol with an ABW less than 21%.

California

• California-based importers of spirits (often wholesalers) may not purchase spirits produced out-of-state unless designated by the brand owner.
• Deliveries must be unloaded at the wholesaler's premises.
• California imposes an excise tax on spirits, with rates varying based on ABV.
• Out-of-state suppliers are not required to remit excise taxes unless also operating as a California-based importer.

Georgia

• Georgia has franchise rules that can restrict a spirits supplier's ability to negotiate or cancel distributor agreements.
• Georgia imposes an excise tax of $1.00 per liter on spirits.
• Out-of-state suppliers are not required to remit excise taxes but must file the ATT-11 Monthly Report of Distilled Spirits Shipments.

New Jersey

• New Jersey has sourcing restrictions on whom wholesalers can purchase from.
• Sales to New Jersey retailers must come from the in-state warehouse of a licensed wholesaler and remain there for at least 24 hours.
• New Jersey imposes an excise tax of $5.50 per gallon on spirits.
• Out-of-state distillers can pay excise taxes if they obtain a license as a New Jersey wholesaler.
• New Jersey requires a bi-monthly R-2 Wholesaler Excise Tax Report from out-of-state suppliers on their sales to in-state wholesalers.

New Mexico

• New Mexico has franchise rules that can restrict a spirits supplier's ability to negotiate or cancel distributor agreements.
• New Mexico has sourcing restrictions, and goods must be shipped to and unloaded at the facility of a New Mexico wholesaler.
• New Mexico imposes an excise tax of $1.60 per liter on spirits.
• Out-of-state suppliers are not required to remit excise taxes but must file a monthly report detailing each shipment made to in-state wholesalers.

These are just a few examples of how state-specific laws can impact the distribution of alcoholic beverages in the United States. It is important for anyone in the alcohol distribution business to be aware of the regulations in their state and ensure compliance with all applicable laws.

Self-distribution

The laws surrounding self-distribution of alcohol vary from state to state in the US, and it is important to consult official sources for the most up-to-date information. That being said, self-distribution is an increasingly popular option for small craft alcohol producers, who can bypass the three-tier system and sell directly to retailers, bars, and restaurants without a third-party distributor. This gives them greater control over their sales processes, pricing, and customer relationships, and can result in higher margins.

In the US, the three-tier system, established after Prohibition, requires wholesalers to act as intermediaries in the sale of alcohol. This has been a barrier for small producers, who have struggled to gain a foothold in the market. To address this, some states began to amend their laws in the 1970s, adopting self-distribution rights.

However, self-distribution is not without its complexities and challenges. It requires a significant investment in infrastructure, personnel, and systems, and the laws surrounding it can be restrictive and are subject to change. For example, self-distribution is generally only permitted for in-state suppliers, and often only for smaller craft producers. Additionally, the type of alcohol being sold (beer, wine, or spirits) can impact the legality of self-distribution, with beer facing more legal restrictions than wine, for example.

To self-distribute, producers need transportation, storage facilities, sales staff, and systems for order management and compliance tracking. They also need to ensure they are complying with all state and federal regulations, including age verification, labeling requirements, and taxes.

It is worth noting that working with a licensed distributor can have benefits, such as increased product visibility and sales, and distributors can provide invaluable logistical and sales support. Distributors also have established relationships with retailers, which can help new alcohol products gain a foothold in the market.

Alcohol and Tobacco Tax and Trade Bureau (TTB)

The Alcohol and Tobacco Tax and Trade Bureau, statutorily named the Tax and Trade Bureau and commonly shortened to TTB, is a bureau of the United States Department of the Treasury. The TTB was created on January 24, 2003, following the Homeland Security Act of 2002, which split the Bureau of Alcohol, Tobacco and Firearms (ATF) into two new organisations with separate functions.

The TTB's functions include regulating and collecting taxes on trade and imports of alcohol, tobacco, firearms, and ammunition within the United States. The TTB's work is organised into five divisions:

• National Revenue Center: This division reconciles returns, reports, and claims; screens applications and issues permits; and provides technical assistance.
• Tax Audit: This division verifies the payment of excise taxes on alcohol, tobacco, firearms, and ammunition, ensuring compliance with laws and regulations.
• Trade Investigations: This division includes investigators who ensure that industries comply with the laws and regulations administered by the TTB.
• Tobacco Enforcement Division: This division monitors the domestic tobacco trade, ensuring compliance with tax laws and facilitating TTB's enforcement functions.
• Advertising, Labelling, and Formulation Division (ALFD): This division implements and enforces statutory and compliance provisions of the Internal Revenue Code and the Federal Alcohol Administration Act.

Alcohol distributors are required to register with the TTB and obtain the necessary permits and licenses to comply with federal regulations. Alcohol suppliers must work with licensed distributors to ensure their products are legally and responsibly distributed, complying with age verification, labelling requirements, and tax regulations.

Frequently asked questions