Danow, McMullan & Panoff, P.C.
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ANNOUNCEMENT

February 12th, 2018

 

We are happy to announce that Arielle J. Albert and Barbara J. Kwon have been made Partners of the firm Danow, McMullan and Panoff, P.C.

 

CHANGES TO FEDERAL ALCOHOLIC BEVERAGE TAXES

 

On December 22, 2017, President Donald J. Trump signed into law the Tax Cuts and Jobs Act of 2017, which makes changes to the Internal Revenue Code of 1986, including provisions related to beverage alcohol industry.  All changes were effective January 1, 2018.  The passage of the act included the Craft Beverage Modernization and tax Reform Act which also took effect on January 1, 2018 but incorporated a sunset provision so that all taxes will revert back to the 2017 levels on January 1st, 2020.  The benefits of the new law vary depending upon the type of beverage alcohol produced.

 

DISTILLED SPIRITS

In the case of distilled spirts removed during the calendar years 2018 and 2019 for consumption and sale the applicable tax is $2.70 per proof gallon on the first 100,000 proof gallons and $13.34 per proof gallon on the next 22,130,000 proof gallons. The lower tax applies to all beverages distilled in the United States.  Foreign manufactures can also elect to take advantage of the reduced tax rate on distilled spirits. The Secretary of the United State Department of Treasury is charged with developing procedures for the foreign distillers to assign the reduced rate to their importers in such a way as to keep track of which importer gets the first 100,000 proof gallons and which get the next 22,130,000.  Unless the rate reduction is extended, commencing January 1st, 2020 the tax on distilled spirits will return to $13.50 per proof gallon.  In addition, it appears that distilled spirits transferred in bond during the calendar years 2018 and 2019 can take advantage of the special bulk transfer rules in Section 5212 without regard to weather the distilled spirits are sufficient in volume to be classified as bulk distilled spirits.

 

WINE

Still wine containing not more than 14% alcohol by volume removed prior to December 31, 2017 was taxed at $1.07 per wine gallon.  For wine removed after December 31, 2017 and before January 1st, 2020 the $1.07 rate will apply to wine containing not more than 16% alcohol by volume.  Wine with more than 16% alcohol by volume will be taxed at $1.57 per wine gallon. That is the same rate that applied to wine above 14% before January 1st 2017.

There is also a credit allowable in 2018 and 2019 that can be taken for those wines that do not qualify for the lower tax discussed above including still wine containing more than 21 percent but not more than 24 percent alcohol by volume. Champagne, sparkling wine, artificially carbonated wine and hard cider also qualify for this credit.  The credit applies to the first 750, wine gallons removed during each applicable calendar year. Foreign manufacturers can take advantage of the credit by making an election to assign the credit to their importers. The Secretary of the Treasury is required to set up procedures to accomplish this without duplicating the credit when there is more than one importer.

 

The credit for wine other than hard cider is an amount equal to the sum of $1 per wine gallon on the first 30,000 wine gallons, plus 90 cents on the next 100,000 wine gallons and 53.5 cents per wine gallon on the next 620,000 wine gallons.  A different credit is available on hard cider.

 

BEER

Beer that was heretofore taxed at $18 per barrel is also is subject to reduced rate. The first 6 million barrels of beer removed for consumption and sale during the calendar years 2018 and 2019 will be taxed at a rate of $16 per barrel. Any additional beer removed will be taxed at $18 per barrel. A barrel cannot contain more than 31 gallons. As with distillers, foreign manufactures can take advantage of the reduced rates through a system to be set up by the Secretary of the Treasury that allows the Brewer to assign a number of barrels to each of its importers.

 

In the case of a brewer who produces not more than 2 million barrels of beer during the calendar year, the per barrel rate of the tax imposed will be $3.50 on the first 60,000 barrels of beer which are removed in such year for consumption or sale and which have been brewed or produced by such brewer at qualified breweries in the United States.

 

[1] Keven Danow is an attorney representing members of all three tiers of the Beverage Alcohol Industry and member of the firm of Danow, McMullan & Panoff, P.C. 275 Madison Ave, NY, NY. 10022.  (212 3703744). Website: dmppc.com; email: kdanow@dmppc.com. Arielle Albert is a partner of the firm of Danow, McMullan & Panoff, P.C. and is admitted in New York and New Jersey. This article is not intended to give specific legal advice. Before taking any action, the reader should consult with an attorney familiar with the relevant facts and circumstances.






KNOW THE LAW _ The Craft Beverage Modernization and tax Reform Act

February 12th, 2018

 

Congress passed and the President signed the Tax Cuts and Jobs Act.  The Craft Beverage Modernization and tax Reform Act was included in that act, with a sunset provision so that all taxes will revert back to the 2017 levels on January 1st, 2020.  The benefits of the new law vary depending upon the type of beverage alcohol produced.

 

DISTILLED SPIRITS

 

In the case of distilled spirts removed during the calendar years 2018 and 2019 for consumption and sale the applicable tax is $2.70 per proof gallon on the first 100,000 proof gallons and $13.34 per proof gallon on the next 22,130,000 proof gallons. The lower tax applies to all beverages distilled in the United States.  Foreign manufactures can also elect to take advantage of the reduced tax rate on distilled spirits. The Secretary of the Treasury  is charged with developing procedures for the foreign distillers to assign the reduced rate to their importers in such a way as to keep track of which importer gets the first 100,000 proof gallons and which the next 22,130,000.  Unless the rate reduction is extended, commencing January 1st, 2020 the tax on distilled spirits will return to $13.50 per proof gallon.  In addition, it appears that distilled spirits transferred in bond during the calendar years 2018 and 2019 can take advantage of the special bulk transfer rules in Section 5212 without regard to weather the distilled spirts are sufficient in volume to be classified as bulk distilled spirits.

 

WINE

 

Still wine containing not more than 14% alcohol by volume removed prior to December 31, 2017 was taxed at $1.07 per wine gallon.  For wine removed after December 31, 2017 and before January 1st, 2020 the $1.07 rate will apply to wine containing not more than 16% alcohol by volume.  Wine with more than 16% alcohol by volume will be taxed at $1.57 per wine gallon. That is the same rate that applied to wine above 14% before January 1st 2017.

 

There is also a credit allowable in 2018 and 2019 that can be taken for those wines that do not qualify for the lower tax discussed above including still wine containing more than 21 percent but not more than 24 percent alcohol by volume, champagne and sparkling wine, artificially carbonated wine and hard cider.  The credit applies to the fires 750, wine gallons removed during each applicable calendar year. Foreign manufacturers can take advantage of the credit by making an election to assign the credit to their importers. The Secretary of the Treasury is required to set up procedures to accomplish this without duplicating the credit when there is more than one importer.

 

 

The credit for wine other than hard cider is an amount equal to the sum of  $1 per wine gallon the first 30,000 wine gallons, plus 90 cents the next 100,000 wine gallons and 53.5 cents per wine gallon the next 620,000 wine gallons.  A different credit is available on hard cider.

 

 

BEER

 

Beer that was heretofore taxed at $18 per barrel also is subject to reduced rate. The first 6 million barrels of beer removed for consumption and sale during the calendar years 2018 and 2019 will be taxed at a rate of $16 per barrel. Any additional beer removed will be taxed at $18 per barrel. A barrel cannot contain more than 31 gallons. As with distillers, foreign manufactures can take advantage of the reduced rates through an system to be set up by the Secretary of the Treasury that allows the Brewer to assign a number of barrels to each of its importers.

 

In the case of a brewer who produces not more than 2 million  barrels of beer during the calendar year, the per barrel rate of the tax imposed will be $3.50 on the first 60,000 barrels of beer which are removed in such year for consumption or sale and which have been brewed or produced by such brewer at qualified breweries in the United States.

 

 

 






Package Stores Can Offer House Accounts to Businesses

June 1st, 2016

Until now, a wine and spirits off-premise retailer was permitted to accept credit cards, but could not extend credit on its own. This regulation was problematic for retailers who serviced large corporate clients used to purchase from vendors based upon open invoices.  The only way for these businesses to legally purchase beverage alcohol for holiday parties or to give as gifts was to ask one of its employees to put the purchase on a credit card and then reimburse the employee.  Effective immediately, off premise licensees are permitted to offer credit to businesses and corporations.  Please note, the change applies only to business purchases.  It is still illegal for a package store to offer credit to individuals except via a credit card.

Irony And The Federal Government

Rudy Kurniawan was convicted of fraud in 2013 and sentenced to ten years in prison. His conviction was based upon proof submitted by federal prosecutors that wine he had sold at auction was counterfeit.  The government claimed that unsuspecting consumers paid more than twenty nine million dollars for ersatz wine mixed by Mr. Kurniawan in his home.

William Koch, alone is alleged to have lost over two million dollars on counterfeit wines Mr. Kurniawan put up for auction as having been made by Chateau Petrus and Domaine de la Romanee-Conti.  Mr. Koch filed numerous lawsuits seeking to change the way many respected wine auction companies vet the wines they sell.

Now the U.S. Marshals Service (whose moto is Justice, Integrity, Service) announced it will auction approximately 4,700 bottles of wine, deemed authentic, that belonged to Rudy Kurniawan, the man convicted of fraud in federal court in 2013 for producing and selling millions of dollars of counterfeit wine.

In litigation, the various auction companies argued that it was often not always possible to say with certainty that wines received on consignment were genuine.  In fact, it was reported that representative of the wineries were present at many of the tasting dinners hosted by Rudy Kurniawan. Now a representative of the U.S. Marshals Service is quoted as saying, ““While there can be no guarantee with 100 percent certainty in any situation such as this, to the best of our knowledge the wines we are selling are genuine.”

More Than A Grain Of Salt

New York is the first city in the nation to require chain restaurants to post warning labels next to menu items that contain high levels of sodium. The proposal was passed unanimously on September 9, 2015by the New York City Board of Health and went into effect on December 1, 2015. Under the new rule, all food service establishments that are part of a chain must comply.  This includes restaurants, cafeterias, mobile food vendors and temporary food vendors.  Chain is defined as any establishment with 15 or more locations doing business in the United States under the same name and offering the same or almost the same, menu items.

An icon of a salt shaker in a warning triangle which can be downloaded from nyc.gov/health/salt must be placed directly on the menu, menu board or item tag next to any food item that has 2,300 milligrams or more of salt. That is about 1 teaspoon full.  The Icon, which must always be as wide as it is tall, must be as large as the largest letter of the food item on the menu, menu board or tag.

If the menu contains a combination meal and the entire combination or the total of any selection which a customer is permitted to make in connection with the combination contains 2,300 milligrams of sodium or more, the warning icon must be placed next to the combination meal on the menu.

For menu items which are intended to serve more than one person such as the family size bucket, you must divide the salt content by the number of servings. If a single serving has more than 2,300 milligrams of salt, the warning sign must be added.

In addition, in a clearly visible place at the point where the customers place their order at a chain food service establishment, the following warning must be posted:

Warning: indicates that the sodium (salt) content of this item is higher than the total daily recommended limit (2,300 mg). High sodium intake can increase blood pressure and risk of heart disease and stroke.

Starting March 1, 2016, a restaurant that is not following the rule may get a violation that could lead to a $200 fine.







KNOW THE LAW . Retailers May Now Conduct Tastings

June 1st, 2016

On August 14, 2015, Governor Cuomo signed Senate Bill 5333-A, expanding the way retailers may conduct tastings in their stores. Previously, retailers could conduct only wine tastings while a manufacturer or wholesaler were permitted to conduct liquor tastings at the retailer’s location.  Taking effect on September 13, 2015, the new law now permits licensed retailers to conduct liquor tastings at their licensed premise.

The following limitations apply to liquor tastings: (1) tastings must be conducted by the retail licensee or an authorized agent of the licensee who must be physically present upon the premises at all times during the tasting; (2) the licensee or agent may not provide, directly or indirectly, more than a total of three samples of liquor to a person in one calendar day; and (3) no sample of liquor for tasting may exceed one-quarter fluid ounce.  The licensee will be liable under the dram shop act for any damages resulting from the actions of a person served to the point of intoxication.

Importantly, the gift and service laws have not changed with respect to wholesalers and manufacturers.  Wholesalers and manufacturers are still not permitted to give free goods to a package store or supply the samples that the package store uses to conduct its own tastings. Moreover, wholesalers and manufacturers cannot appoint the package store as its agent to conduct tastings on its behalf. This means that the retailer must supply the goods it uses for a tasting from its own inventory.  Of course, wholesalers and manufacturers are still permitted to conduct tastings at the retailer’s premise, in which case, it is permitted to supply the goods used in the tasting.

Illinois Department of Revenue (“IDOR) Issues Proposed Regulations Clarifying its Positing on Sales Taxes on Shipping and Handling Charges on Shipments of Wine from Out of State Retailers

Earlier this year we wrote about Stephen P. Diamond, an Illinois attorney who filed dozens of lawsuits against out-of-state retailers selling wine to Illinois consumers, alleging; (1) that the retailers shipped wine into the state without a permit; and (2) that the retailers have failed to collect sales taxes due on the shipping and handling fees. The action was based upon the Illinois’s False Claim Act (the “Act”), also known as a “Whistleblower” law, which allows private citizens to bring lawsuits on behalf of the state against a person who “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the State, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the State.” A number of the defendants were New York package stores.

Recently, the Illinois Department of Revenue (“IDOR) issued proposed regulations that clarify its position on charging sales tax on shipping charges on shipments of wine from outside the state to Illinois consumers.  The proposed regulations delineate between those who should and those who should not collect sales taxes on shipping charges in connection with wine shipped from outside the state or Illinois to consumers within the state. The regulations may also result in the dismissal of some of Mr. Diamond’s lawsuits and a portion of others.

In sum, the proposed regulation provide that no sales taxes are due in connection with shipping charges on wine under the following conditions: (1) shipping and handling charges must be stated separately from the price of wine; (2) the retailer (even if located outside the state) must provide consumers with the option to pick up their order from the retailers licensed premises; (3) the price of wine sold must be the same regardless of whether it is picked up at the licenses premises or delivered to the consumer and (4) no profit can be made on the shipping and handling fees.

While these new regulations do not make it legal for retailers to ship wine into the State of Illinois, they do demonstrate that the State does not support Mr. Diamond’s efforts to act in the place of the State’s Attorney General.

New York State Liquor Authority Confirms Trust

During A Full Board Hearing at the New York State Liquor Authority (“Authority”), the Authority approved a portion of a request for a Declaratory Ruling made by proposed investors into a winery named Empire Estates.  The Authority confirmed that a trust may have an interest in an alcohol beverage license, as long as the trust is irrevocable with a qualified and independent Trustee.  The Trust must provide that a person cannot be a trustee if he or she does not qualify to hold a license under New Yorks Alcoholic Beverage Control Law.  That means the trustee is the holder of the license and he or she cannot hold an interest in a license under a different tier than that held by the trust. No beneficiary, who is not qualified to hold the interest in the trust asset (except by reason of being a minor), may receive any distribution or the remainder interest from the trust. Language that sets forth how to select a successor trustee or beneficiary must be included. The trust may make alternate provisions in the event the Alcoholic Beverage Control Law is amended.







KNOW THE LAW

April 5th, 2016

Commercial Co-Venture Rules

Industry members frequently participate in charitable fundraising and should be apprised of the co-venture rules when engaging in certain charitable activities.

When a business advertises that a consumer’s purchase will result in a charitable contribution, the business must comply with certain state “co-venture” requirements. These requirements typically seek to ensure that the business provides the consumer with sufficient information to determine how their purchase will benefit a charitable organization. New York and approximately twenty (20) other states regulate these types of charitable campaigns.

New York defines a “commercial co-venturer” as “any person who for profit is regularly and primarily engaged in trade or commerce other than in connection with the raising of funds or any other thing of value for a charitable organization and who advertises that the purchase or use of goods, services, entertainment, or any other thing of value will benefit a charitable organization.”

For example, a retailer that offers to contribute two dollars from a consumer’s purchase to a charitable organization is a “commercial co-venturer.” These businesses must comply with Section 171-a of the New York Executive Law which sets forth certain reporting and registration requirements. The businesses are also encouraged to comply the Attorney General’s Five Best Practices for Transparent Cause Marketing. The “Five Best Practices” include (1) clearly describing the promotion to the consumer; (2) providing a way for the consumer to easily calculate the donation amount and avoiding terms like “profits” or “proceeds” without providing an actual amount; (3) being transparent about the amount to be donated and how and when a purchase triggers are donation; (4) ensuring transparency on social media by disclosing all the terms of conditions of the promotion online and (5) telling the public how much was raised.

It is incumbent upon any industry member that engages in a commercial co-venture to review the reporting and registration requirements provided by the New York State Department of Law on its website at http://www.charitiesnys.com/pdfs/char009.pdf as well as the “Five Best Practices” provided at http://www.charitiesnys.com/cause_marketing.jsp.

Delinquent (COD) List Reminder Letter to Wholesalers

The New York State Liquor Authority (“SLA”) recently sent letters to all licensed wholesalers that have not utilized the SLA’s online Wholesale Delinquent Management System (COD list), reminding the wholesalers that they are obligated to report retailers who are delinquent in making payment for alcoholic beverages.  This is part of the SLA’s effort to “ensure a level playing field for all New York retailers.”

The SLA implemented the online system to make it easier for wholesalers to comply with ABC §§101-aa and 101-aaa.Under to New York Alcoholic Beverage Control Law (ABC) Sections 101-aa and 101-aaa, all wholesalers must notify the SLA of all retailers that are delinquent in payment.

Regarding spirits and wine, a retailer must tender payment to the wholesaler no less than thirty (30) days from the date of delivery.  If the retailer does not pay an invoice within this timeframe, the wholesaler must notify the SLA commensurate with the following notification timetable: (1) for deliveries on Monday, the Monday immediately following a final payment date; (2) for deliveries on Tuesday, the Tuesday immediately following the final payment date; (3) for deliveries on Wednesday, the Wednesday immediately following the final payment date; (4) for deliveries on Thursday, the Thursday immediately following the final payment date and (5) for deliveries on Friday, the Friday immediately following the final payment date.

The notification timetable for beer is different. For beer, the payment periods are every two weeks and the wholesaler must provide the SLA notice of a retailer’s failure to tender payment no more than 30 days after any delivery. .”

To ensure that wholesalers provide proper notification of delinquent retailers, the SLA publishes a credit calendar on its website.  Additionally, the SLA permits spirits and wine wholesalers to email delinquency notifications for retailers.

Louisiana Direct Shipping Registration

Currently, all wine producers, manufacturers, or out-of-state retailers selling and shipping wine directly to a Louisiana consumer must file statements regarding the number of bottles sold and shipped with the Louisiana Department of Revenue. Effective January 1, 2016, this statutory requirement will be repealed.

The new law states that, beginning on January 1, 2016, all wine producers, manufacturers, or retailers domiciled outside Louisiana must register as a Direct Shipper before shipping sparkling wine or still wine directly to any Louisiana consumer. To register, the shipper must submit an application to the Louisiana Office of Alcohol and Tobacco Control  and pay the proscribed registration fees.  The shipper must renew its registration annually and update the registration within thirty (30) days of any deviation from the information provided on their initial registration form.

In addition, any person transporting sparkling wine or still wine for direct shipment into or out of Louisiana must register with the commissioner of the Louisiana Office of Alcohol and Tobacco Control.  The commissioner of may waive the application fees or provide an equal credit to an applicant’s account “when a permit is not issued within three business days after receipt of a fully and properly completed application.”  Such waivers or credits will only be provided prior to August 1, 2016.






Danow, McMullan & Panoff, P.C.      275 Madison Avenue, Suite 1711  NYC, NY  10016          Tel: (212) 370-3744          info@dmppc.com
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