To apply for and operate a brewery, a brewer needs to maintain a brewer’s bond, which covers the federal excise tax that will be due on the beer. Luckily, the brewer’s bond is relatively straightforward compared to a distiller’s bond. There are two major questions for breweries to answer before obtaining their first bond (or renewing a bond) are: 1) How much should my bond coverage be and 2) Should I get a Surety Bond or a Collateral Bond?
1. How to Determine the Amount of Your Bond
The amount is determined by whether you file quarterly or semi-monthly excise tax returns. Breweries with less than $50,000 in federal excise tax liability during the previous calendar year, and who reasonably expect not to exceed that amount for the current calendar year, may pay their federal excise taxes quarterly. All other breweries must pay their federal excise taxes semi-monthly (twice per month).
For quarterly filings, you will need a bond equal to 29% of the maximum amount of tax you are liable to pay during a calendar year ($7 per barrel up to 60,000 barrels, then $18 per barrel thereafter). For semi-monthly filings, you will need a bond equal to 10% of the maximum amount of tax you are liable to pay during a calendar year (again, $7 per barrel up to 60,000 barrels, then $18 per barrel thereafter).
Calculation: [number of barrels produced] x [$7.00bbl or $18.00bbl] x [.10 or .29] = amount of bond.
2. Surety Bonds versus Collateral Bonds
Once you determine the amount of your bond, you will then need to choose between the two different types of brewery bonds: Brewer’s Surety Bonds and Brewer’s Collateral Bonds. Surety Bonds are backed by authorized surety companies who ensure payment for your federal excise tax liability. These companies typically charge an annual fee of 1 to 15% of the bond amount. Collateral Bonds are paid for by the applicant in the form of a check, money order or Treasury note/bond covering the amount of the bond (the latter is rarely used due to its complexity). It may make sense for a smaller brewery (with an excise tax liability of $5,000 or less) to go with a collateral bond to avoid tying up capital, but TTB has no preference for one bond over another.
Remember, the bond is one of the most important pieces of a new brewery’s application to TTB. Without an error-free bond attached to the application, TTB will not process or approve your Brewer’s Notice. And unlike other TTB bonds, brewer’s bonds expire after four years, so it is a process you will need to repeat over the life of your brewery.
For more information about this topic, contact John Messinger.