Brewery Licensing: 7 Important Laws and Regulations
February 05, 2020
When you’re ready to make the jump from hobbyist to professional, opening a craft brewery can be a dream come true. Unfortunately, starting your business is a little more complicated than slapping a price tag on your bottles. Outside of purchasing all of your brewery equipment and developing your brewery business plan, there’s a myriad of legal issues that you’ll need to handle before you can open your doors.
Alcohol sales are a highly regulated industry. Many states have their own sets of rules and regulations, but they will usually have some similarities. When working in the alcohol industry, even the most ambitious entrepreneurs can have their dreams slashed if they don’t follow the legal process.
Here are seven important legal permits, regulations, and processes to complete before opening your new brewery:
1. Form a Legal Entity
One of the first things that you’ll do when starting your brewery is to form a legal entity. Creating your brewery’s legal entity will help separate all of your personal assets from your business’s liabilities. Nobody wants to think about the worst-case scenario, but if your company has to declare bankruptcy, all of your personal assets – like your home, car, and bank account – will be protected.
LLC or S Corps for Breweries
The most common forms of business entities are Limited Liability Companies (LLC) or S Corps. Research the difference between the types so that you can identify which one works best for your business.
2. Choose a Business Name for Your Brewery
Part of forming your legal entity will require you to choose a name for your business. If this has been a lifelong dream, you’ve probably thought about this before. Nonetheless, it would be best if you still researched the name that you’ve chosen before you start printing out all of your business cards and swag.
The name that you select cannot be trademarked by anyone else already. If your name sounds too similar to another already established company, it could cause some confusion for your customers. You can research company names by searching on the internet, or checking with the United States Patent and Trademark Office’s database for any similar trademarks.
3. Trademark Your Brewery’s Name
Once you’ve selected your company name, you should register for the trademark to ensure that no other businesses can use it. As your business grows, you will also need to trademark your logos and names of your beers. If you decide on all of these at the same time, you can file for them on the same application (beer names can be submitted up to 36 months before the launch of the beer). Trademarking your brand can be a complicated process. It might be worthwhile to hire a patent attorney to assist you during the application process.
Somewhere along the way, you’ll need to find the location for your brewery. Your basement or garage may have sufficed when you were brewing just for your family and friends, but if you’re opening up a brewery, you need a spot for operations.
Opening a brewery can be expensive and will require a large amount of capital. You can get your funding in various ways, like selling part of the ownership of the business or taking out a loan. However you do it, you need to be sure you’re following federal and state securities laws. Breaking securities laws can have severe punishments and even criminal penalties.
4. Register with the Alcohol and Tobacco Tax and Trade Bureau (TTB)
The Alcohol and Tobacco Tax and Trade Bureau (TTB) is a department of the United States Treasury. The TTB regulated and collected taxes on trade and imports of alcohol and other goods in the United States.
To start your brewery, you’ll need to qualify with the TTB by submitting a Brewer’s Notice application. Your brewer’s notice can take more than 150 days for the TTB to process, so it is critical to get this application submitted well in advance of your anticipated launch date.
5. Submit a Brewer’s Notice
A Brewer’s Notice will require a lot of documentation and have many requirements – like a copy of your lease and proof that you’ve secured funding. Luckily, if you plan well, you’ll have all of your requirements done before you need to apply for your notice.
There’s no fee to submit a Brewer’s Notice application. A Brewer’s Notice can be filed online with the TTB’s application system. The application can be tricky to process, but you can make it easier by studying up on beer regulations in the Code of Federal Regulations.
6. Obtain a State Liquor License
In addition to a Brewer’s notice, you’ll also likely need to obtain a state liquor license. If you’re planning on capitalizing on our audience and opening a taproom in your brewery, you’ll need to be sure to have trained staff that is legally allowed to serve alcohol as well.
You may be required to apply for other local and state licenses. You should be sure that you are familiar with all of these requirements before you begin opening your business.
7. Get a Brewer’s Bond
A brewer’s bond is just a formal guarantee that you will pay the taxes that you’re required to pay. These taxes are for the federal excise tax for the beer that you sell. When obtaining a brewer’s bond, you need to decide on the amount of your bond, and whether you need a surety bond or a collateral bond.
Deciding on the amount of your brewer’s bond will depend on if you’re planning to file your excise tax returns quarterly or semi-monthly. If your brewery brings in less than $50,000 in excise taxes in the previous calendar year and you won’t bring in more than that in the current year, then you can pay your taxes quarterly. If that doesn’t describe your brewery, then you’ll need to pay your excise taxes semi-monthly – twice per month.
If your brewery is paying quarterly, your bond will need to be equal to 29% of the maximum amount of tax that you’ll be liable to pay during a calendar year. If you’re filing your taxes semi-monthly, your bond is required to be 10% of the maximum.
Excise Tax Formula for Breweries
Excise taxes in 2020 for a domestic brewer that brews less than 2,000,000 barrels a year are $3.50 per barrel up to 60,000 barrels and $18 per barrel after that up to 2,000,000.
To calculate the amount of your bond, you can use the formula below:
(number of barrels produced) x ($3.50bbl or $16.00bbl) x ).10 or .29) = amount of bond
Surety Bond vs. Collateral Bond
A surety bond is backed by an accredited company that guarantees payment for your excise tax liability. A surety company will charge an annual fee that is a percentage of the bond amount – generally 1 to 15%.
A collateral bond is paid for by the applicant by check or money order. Smaller breweries that have a tax liability of $5,000 or less will typically opt for a collateral bond, but TTB has no preference.
A brewer’s bond is one of the most significant parts of a new brewery’s application to TTB. TTB will not approve a Brewer’s Notice without an errorless bond. A brewer’s bond will expire after four years, so you’ll need to repeat the process over the lifetime of your brewery.
You’re One Step Closer to Opening Your Brewery!
Owning a brewery is a dream for many entrepreneurs. The thought of being your own boss and doing something that you’re passionate about every day is a goal for many people. But before you can get into the business, you need to make sure to take care of all of your legal responsibilities. Do your research, know your state and federal laws, and make sure to take care while filling out your applications, and you’ll be just fine.