TTB to Allow Proprietors to Request Alternating Premise Variances for Storage of Tax- and Non-Tax-Determined Commodities

By on June 6, 2018

On May 16, 2018, the Alcohol and Tobacco Tax and Trade Bureau (TTB) issued Industry Circular 2018-3, allowing proprietors of distilled spirits plants (DSPs), bonded wine cellars (BWCs) and breweries to submit a request for a variance to the typical method for storing tax-determined and non-tax-determined products. Under TTB regulations, a proprietor designates areas of the premises as bonded and non-bonded. With few exceptions, tax-determined products can only be stored on non-bonded areas of the premises and non-tax-determined products can only be stored in bonded areas.

Under Industry Circular 2018-3, proprietors may request a variance to the bonded/non-bonded designations established in existing regulations. This variance would allow an “alternation” of a specific area or multiple areas between a bonded and non-bonded designation. An “alternation” allows two practices (e.g., brewing and winemaking) statutorily prohibited from occurring at the same premise to occur through the creation of a legal fiction. The premise “alternates” between one type of premise to accomplish one task and reverts to another type of premise to accomplish another task.

In seeking a variance under Industry Circular 2018-3, a proprietor must show: 1) good cause for the variance, 2) the method or procedure providing equal security to tax-determined and non-tax-determined products, 3) to identify the products and alternating areas, 4) identify any equipment and/or markings on tax-determined products, and 5) identify the method of separating tax-determined and non-tax-determined products. When evaluating a variance request authorized by Industry Circular 2018-3, TTB will take into account the information supplied by the proprietor, the compliance history of the proprietor, whether or not there will be an increased cost to TTB, and/or whether the variance will hinder TTB’s administration of the regulations. If TTB grants a variance request, the proprietor must also file an amended permit or brewer’s notice documenting the alternation.

By releasing Industry Circular 2018-3, TTB takes a step towards modernizing its processes and better aligning with real world business practices of proprietors. This Circular recognizes that many proprietors use or may soon use sophisticated inventory management systems that can keep track of the location of individual pallets of tax-determined and non-tax-determined goods at any given time in a warehouse. Marking off a corner of the premises with tape or designating a caged area for bonded and non-bonded areas is no longer necessary with the use of such inventory management systems. TTB has recognized this and taken a step towards modernity.

T. Marshall Fawley III
T. Marshall Fawley III focuses his practice on regulatory issues in the alcohol beverage industry as well as complex civil litigation. He counsels clients in matters relating to the sale and distribution of alcohol beverages, on both the state and federal level. His experience spans e-discovery, data privacy issues relative to antitrust litigation, Foreign Corrupt Practices Act investigations and white-collar criminal defense. Marshall has completed extensive training on the proper utilization of litigation technology and is recognized as a Relativity Review Specialist by kCura, the developers of Relativity. Read Marshall Fawley's full bio.