Brewer's Guide to Compliance Glossary
What is a Beer?
Seems like a silly question, right? But different products can have different licenses or different taxes, and some may not even be allowed for sale. States define beer by ABV, ABW or ingredients, so a quick check may prove to be worthwhile, as it can affect what you sell and how to sell it. We’ve quoted exactly what is written in the state’s statutory or regulatory code; the string of numbers ahead of each definition is the citation code (good for an internet search).
We’re all well-versed in the three-tier system — suppliers sell to distributors, who sell to retailers, who sell to consumers. But some states allow certain sellers to skip the step of selling to distributors. These exemptions are fairly common for in-state microbreweries. Here we note the states that also allow out-of-state breweries to distribute their products straight to retailers.
We get this question all the time: How can I sell my beer to people in other states over the internet and ship it directly to them? It works great for the wine industry, but why not beer?
The basic answer is many states have established their rules with beer unfortunately on the outside looking in. But a few states do allow beer manufacturers to sell directly to their residents through phone, internet, catalogue or other remote orders. We’ve indicated them here.
However, be aware these sales come with regulatory issues attached, including license requirements, special packaging rules, tax and shipping report requirements, age verification and working with licensed and approved common carriers like FedEx and UPS.
You have a Brewer’s Basic Permit from the TTB, a Beer Manufacturer’s license from the local ABC…what other license is required? Well, that depends on where you’re selling. Almost every state has some kind of additional requirement — such as vendors’, importers’ or manufacturers’ licenses — for out-of-state breweries for distributions. Be sure to look into variances by production level, as several states have less expensive versions for smaller producers.
Bonds are not a common requirement for out-of-state breweries. They serve as financial guarantees to the state to ensure you submit future payables, like excise taxes, and generally out-of-state breweries do not have this burden. However, there are a handful of states that will withhold a large sum of cash when you are in the process of obtaining or renewing a license. We indicate where a bond is required and how much it can drop.
You’re almost all set to begin selling products in a state! But who is actually talking to distributors, providing samples and showcasing your great brand? Some states need to know this information. They may require you to register your local representatives or at least have them get licenses. Some states will even require you to have a local party engaged as a sales representative. We let you know where it’s required, and what it will cost.
The state knows who is selling the beer, but it also wants to know exactly what beer is going to be sold. We indicate which states have this requirement and which product levels have to be registered. Be aware of this product level information: States vary in their definitions, though we try to keep things standard. When we refer to a “brand,” we mean the general name used for a product line — such as “Centennial Beer” produced by the Colorado Brewers Consortium, which has an amber, a porter and an IPA line. When we refer to a “label,” we mean Certificate Labels of Approval (COLA) for each beer you plan to sell.
Some states have rules prohibiting price discrimination. To track this, they require you to notify them of your prices. We let you know if that step — which is usually coordinated with product registration — is required.
Distributor Agreements are made between you, the brewer, and your partner distributors, who indicate the brands and products they will support. When registering these brands and products for sale, you will occasionally be asked to provide a record of these agreements to the state. This enables the state to enforce regulations it may have limiting the products certain distributors can sell. We indicate where you should include a record of a Distributor Agreement with your registration packet. This is not necessarily your full contract with your distributor, which is a vital piece of establishing your business and should be drafted carefully with proper input from legal counsel to ensure your rights and requirements are accounted for.
Similarly to Distributor Agreements, some states dictate you can only assign one distributor for a given territory. These states also enforce these agreements, and ensure distributors don’t overextend their range. In these states, you will need to include your designation of territories with your product registrations.
No one wants to sell an inferior product. It’s often critical to show potential retailers that your beer will be a positive addition on their shelves. However, there are restrictions on who, what, where, and when a retailer can try out a new product. We indicate here if samples are permitted, and if so, who can provide them and what they can provide. Often, only licensed sales representatives — see above — or wholesalers) are allowed do so.
One of the most complicated aspects of selling beer is complying with a state’s Franchise Rules, which almost every state has. These rules are generally baselines for how a supplier and its distributor will conduct business. In particular, the rules establish standards and procedures for when one side seeks to change the conditions of an existing agreement. Largely, these are restrictions on how a relationship between a supplier and a distributor can develop, expand, or end.
Therefore, it is extremely important to be aware of them when establishing a new distributor agreement. As an example, a state’s rules may say, “cancellation of an agreement is only permitted with a showing of good cause.” Though there are likely some conditions on what “good cause” is, your agreement can, and should, also contain some clarifications on how exactly those conditions apply to your situation. (Say, by indicating a minimum amount of annual sales that you consider to be good faith attempts to sell your products.)
Because these rules are particularly complicated, and often quite long, we don’t include a lot of information here, and merely indicate that they are present and need to be accounted for. Always consult with legal counsel when dealing with Franchise Rules and establishing Distributor Agreements.
Being the “Primary American Source” means being a beer’s initial owner. Many states have regulations stating only the Primary Source can sell a beer to distributors, while some extend that ability to authorized providers who have received permission from the Primary Source to sell in that state. Typically, that means being the brewer. For foreign beer, though, it means being an authorized importer. In practice, this often dictates those who are permitted to register a beer for sale in a state and have exclusive rights to provide it to distributors. Though ultimately more of a restriction on distributors, we’ve included this to provide valuable context for brewers.
At Rest Laws
Where they exist, “At Rest” laws impose some sort of burden on beer distribution from you, the supplier, to your distributor. At best, these merely require the distributor to take possession of the beer before it is transported to the retailer. However, At Rest laws can be more restrictive, requiring the beer to actually be unloaded at the distributor’s warehouse and remain at the warehouse for up to a few days. These rules can affect your distribution plans and the go-to-market process. We indicate here what kind of restrictions you can expect.
Excise Tax Rates
The beverage alcohol market is riddled with excise taxes. States impose these product-specific levies to generate revenue and control regulated products like beer. Paying excise taxes to the federal government is a requirement under your Basic Permit and your local Manufacturer’s License. When you sell into a different state, that state will also levy a tax on the amount sold. We indicate here what these rates are for your reference when determining prices. Where we say “per barrel” we universally mean a 31-gallon barrel.
OOS Pays Excise Tax
Understanding excise tax rates can be important for establishing prices in a certain state. Generally, the distributor is responsible for remitting an excise tax, but several states do require you, as the supplier, to collect and remit sales tax. We indicate those states here so you can keep track of these additional requirements.
In a regulatory capacity, states want to know what happens within their borders. This is necessary for ensuring sales take place properly all due tax is being collected. To help track this, almost every state requires some kind of report from you, the supplier. These are typically monthly reports. Some require specific forms to be filled out and copies of every invoice, while others simply ask for a notice that beer was — or wasn’t — shipped. We indicate the frequency of reporting and which, if any, specific form to use. Searching online for the report name or code should help lead you to the proper form.