What TTB brewer’s bond amount does a brewery need? Learn the essentials—calculating the right brewer’s bond amount, and choosing the right kind of bond.
What brewer’s bond amount does a brewery need? It’s a question that often comes up when a new brewery is completing its TTB application for its Brewer’s Notice. The TTB brewer’s bond form can look intimdating, but it’s fairly straightforward. First some background, then some guidance to frequently asked questions.
What is a TTB brewer’s bond?
A brewer’s bond is a way of guaranteeing TTB (or states that require them) that production tax, also known as excise tax on beer, is going to get paid. If a brewery fails to make its tax obligations, the bond is going to kick in and cover the deficient amount. That’s why it’s important to get a brewer’s bond amount right. In fact, if a brewer’s bond is too low for a brewery’s production, the brewery is not compliant.
How can I get a TTB brewer’s bond?
There are two kinds of TTB brewer’s bonds. A brewer’s surety bond and a brewer’s collateral bond. A TTB brewer’s surety bond is when a third party covers the brewery; it’s essentially insurance. The brewery pays a certain amount up front, and the insurance company is obligated to cover the bond. A brewery can get a surety bond by contacting an insurance agent. Many breweries go this route because the start-up brewery needs to put all of its cash toward start-up and build out expenses, and the bonds are relatively cheap. Typically $100 up front for a $1,000 bond and sometimes still just that $100 for a $5,000 bond. To avoid having to deal with a third party, and keep filing paperwork every few years, another option is a Brewer’s Collateral Bond. Instead of paying a certain amount up front for the bond coverage, with a collateral bond, the brewery itself pays its full bond amount to TTB and TTB holds onto that cash. If a brewery doesn’t mind locking up the cash, it’s an option.
What TTB brewer’s bond amount is adequate?
The right TTB brewer’s bond amount depends on a brewery’s production. How many barrels of beer will a brewery produce in a quarter, and what would the brewery’s federal tax obligation on that beer be? That’s the amount of a TTB brewer’s bond a brewery needs to have on file. If a brewery anticipates its quarterly production and, in turn, brewery tax obligation is going to go up in a quarter, a brewery needs to strengthen its bond. The first bond a brewery files is an original. A superseding bond replaces that bond. A strengthening bond strengthens the amount of the one that’s on file.
Currently, the minimum TTB brewer’s bond amount for a production facility is $1,000. For nano breweries opening today, that’s sufficient. Or, at least, it wouldn’t take much more to be sufficient. If you plan to brew more than around 12 bbl per week, the bond would need to be bigger. We’ll walk through the numbers. Tax on beer is, at the time of writing, $7 per barrel for nearly all brewers. If you’re producing below 60,000 bbl per year, it’s $7/bbl today. So, a brewery would have to produce a bit more than 142 bbl per quarter—about 48 bbl per month or 12 bbl per week—to need a bigger brewer’s bond than the minimum $1,000 TTB brewer’s bond. Showing the math, $7 * 142 = $994. That 143rd bbl would bring the quarterly tax obligation to $1001, putting a brewery over the $1,000 minimum coverage. A greater bond would be required.
Notably, if a brewery is seeking a surety bond, very frequently a brewery can pay the same up-front amount, but get a much bigger bond. If a brewery is not posting a cash brewer’s collateral bond, it’s best to get the biggest surety bond it can while paying the lowest amount. This covers the brewery for increased production, without thinking twice. A brewery can shop around for coverage, often a $5,000 bond can be obtained for the same price as a $1,000 bond—that’d be 5x the coverage, giving headroom for production of up to nearly 60 bbl per week. As a brewery expands, or makes plan to, the amount of bond coverage on file with TTB should be in the back of the brewery’s mind.
Do TTB brewer’s bonds expire?
They do. Keep in mind that a brewer’s bond expires after four years. A Brewer’s Bond Continuation Certificate, whether for a surety brewer’s bond or a collateral brewer’s bond, must be filed and accepted by TTB.
Can a brewer change its TTB brewer’s bond type?
Yes, a brewery could switch from a surety brewer’s bond to a collateral brewer’s bond, or go from a collateral brewer’s bond to a surety brewer’s bond.
Help with a TTB Brewer’s Bond or TTB Brewer’s Notice Application
We regularly help handle TTB bonds as a part of our two Brewer’s Notice federal licensing packages. The first is our Comprehensive TTB Licensing Package, where we oversee the entire licensing process, guiding a brewery through every step of the way and handling all the application drafting. The second is our TTB Application Review, which is geared toward DIY breweries who want to save money by taking a stab at the Brewer’s Notice, but want an experienced professional’s review for completeness, removal of errors that may hold up the application, and guidance on streamlining the application for an efficient TTB review. Breweries in planning may call or email for details.
The post TTB Brewer’s Bond Amount: How Much of a Bond Does a Brewery Need? appeared first on Brewery Law Blog | Insight on Beer Law from the Brewery Attorneys at Reiser Legal PLLC.
