Rick Perkins February 22, 2017

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1 2017 Michigan Wine Conference New Winery Development Licensing Summary of Local Government, Michigan Liquor Control Commission & U.S. Department of Treasury Alcohol and Tobacco Tax and Trade Bureau Rick Perkins February 22, 2017 Pre-Licensing Form legal entity (Limited Liability Company, Corporation, Partnership) check with Accountant Federal Employer Identification Number ( EIN ) filed with IRS Determine location of winery Licensing I. Local Government Approval City, Township or Village Because Wine Maker/Small Wine Maker can sample and sell for on-premises consumption, the Liquor Control Code requires local government approval from the city, township or village where establishment is located. Step 1 in the winery license process should always be reaching out to local government officials (city, township or village) to bring them to the table and to review any zoning or ordinance obstacles. Often times a Special Use waiver is necessary to fit a winery into a local government s zoning/ordinance structure, in particular in areas where wineries don t currently exist. Resolution of approval required from local governmental board/council where winery will be located before MLCC will initiate their investigation. You can and should apply to MLCC before obtaining local approval but MLCC will not move their investigation forward until local government body has approved the license. Some municipalities also require local license, license fee, separate application and additional fees. Inspections from various city/village/township departments normally required. Planning Commission approval is often required. Food Service Establishment License issued through Michigan Dept. of Agriculture & Rural Development, but administered through County Health Departments Liquor Control Code requires compliance with all local zoning and ordinances. Time Line local approval time schedule can vary between 1-4 months depending on whether Special Use zoning of Planning Department approval is necessary. II. Michigan Liquor Control Commission ( MLCC ) License Types: Wine Maker License license issued by MLCC authorizing the manufacture of wine, including cider, and to sell that wine to a wholesaler, to consumers from its licensed premises, to consumers through Direct Shipper license, and to a retail licensees; $ annual license fee 1

2 Small Wine Maker License defined as a Wine Maker that manufacturers or bottles not more than 50,000 gallon of wine in a calendar year; $25.00 annual license fee (The license fee and production limit are the only differences between a Wine Maker and a Small Wine Maker. A Small Wine Maker can also sell to wholesalers, to consumers from its licensed premises, to consumers through Direct Shipper License, and to retail licensees.) How to apply to MLCC: Submit Manufacturer and Wholesaler License and Permit Application (LCC-150); Report of Stockholders, Members or Partners (LCC-301); Corporation/ LLC documents, property document (Warranty Deed, Lease Agreement, Intent to Lease letter); completed Livescan Fingerprint Background Request Form (for members, stockholders, partners holding 10% or more interest); and initial license/inspection fees. Full investigation will be conducted by MLCC Enforcement Division, with field inspection: Background check Arrest/Conviction record the Commission reviews on a case-by-case basis. No interest in any retail or wholesale license (spouse okay) No law enforcement powers in jurisdiction where premises is located (spouse either) Source of Finances will examine bank statements, loan documents, etc., to ensure that funds to be used are from legitimate sources Establishment inspection establishment does not need to be completed or even started for MLCC s initial investigation. *To apply to MLCC (& TTB) you must have a definite location selected; however, you do not need to have the facility built or have control of the facility before applying for licensure. MLCC will eventually come back and conduct a final inspection before issuing their license. Church & School Because a Wine Maker/Small Wine Maker and Winery Tasting Rooms can sell for on-premises consumption, the Liquor Control Code restricts locations to 500 feet from a Church or School. However, this Church/School prohibition is not an absolute reason for denial. The Church/School will have the opportunity to object and if they do MLCC will have a Hearing where the matter will be determined. Proof of Financial Responsibility (Liquor Liability Insurance) - $50,000 minimum amount required by law for any licensee authorized to sell at retail, although you ll want much higher protection coverage. (not required upfront with application) Surety Bond - $1,000 surety bond for Wine Maker/Small Wine Maker required by MLCC. This bond is not required upfront with the application but necessary before MLCC will issue their license. Conjunctive Permits Dance, Entertainment, Outdoor Service, Sunday Sales (AM) Winery Tasting Room The Liquor Control Code allows an off-site tasting room where licensed Wine Maker/Small Wine Maker can sample and sell their wines to consumers. No production allowed at Winery Tasting Room. If wine production will be conducted at the secondary facility, apply for another Wine Maker/Small Wine Maker location. $ annual fee 2

3 Direct Shipper License required for Wine Maker/Small Wine Maker to ship wine to Michigan residents. $ annual fee; strict requirement to verify age of person placing order; requires verification by delivery agent of the person accepting the order; strict labeling requirements for the container. Similar license from other states may be required for Michigan wineries to ship directly to out-of-state consumers. Label Registration All wine products sold in Michigan are required to be registered with MLCC. Registration is free, requires filing a copy of label with MLCC if wine sales are limited to within Michigan, or filing copy of TTB Certificate of Label Approval ( COLA ) if wine sold outside of Michigan. Wine Franchise Act/Territory Agreements Liquor Control Code requires written territory agreements with wholesalers designating sales territory (no overlapping territories allowed). However, Wine Maker/Small Wine Maker licensees are also allowed to self-distribute and sell directly to retail licensees. Michigan Wine Excise Taxes liability is incurred when wine is sold, however, for record keeping purposes some wineries opt to pay the state tax when federal tax liability is incurred which is when it s removed from federal bonded premises. Michigan Wine Tax Report (LCC-3890) is filed monthly whether any tax liability has been incurred or not. o 16% or less alcohol by volume (including hard cider) = $0.135 per liter o 16% - 21% alcohol by volume = $0.20 per liter Tied-House Michigan law prohibits manufacturers having any direct or indirect with retail and/or wholesaler licenses. However, wineries can have an ownership interest in other winery or other manufacturer licenses. Time line varies tremendously but generally there is a 3-6 month MLCC licensing process, which begins after the local governmental body provides a recommendation of approval for the license. Issuance of TTB Basic Permit required before MLCC will issue their license. You should apply to TTB & MLCC as soon as you know location. Purchasing Wine from other wineries Michigan rules allow a Michigan Wine Maker/Small Wine Maker to manufacturer finished wine for another Michigan Wine Maker/Small Wine Maker. A Wine Maker/Small Wine Maker can also purchase bulk wine from any winery (Michigan or out-of-state located) and further process and bottle the wine as their own. Server Training MLCC requires a minimum of one supervisory person to be on site during all times that alcohol is served to be server trained by a company certified by MLCC. It is recommended that all serving staff is server trained certified. MLCC certified programs: TAM, TIPS, C.A.R.E., ServSale Alcohol, AIM Neither the Liquor Control Code of Administrative Rules has specific manufacturing, equipment or labeling requirements for distillers or brewers. The TTB regulations are cited by Michigan law and therefore regulate the manufacturing and labeling requirements of alcoholic beverages MLCC Website 3

4 III. U.S. Department of Treasury - Alcohol and Tobacco Tax and Trade Bureau ( TTB ) Bonded Winery Basic Permit from TTB is required for a commercial winery or hard cider operation. There are also Taxpaid Bottling House and Bonded Wine Cellar Basic Permits available to businesses that are not actually producing wine. There is no initial or annual fee for the TTB Basic Permit. How to apply: o Personal Questionnaire (TTB Form ) for manual submission or Owner Officer Information ( OOI ) application for online submission is required for all members/stockholders with 10% or more interest - provides basic background info including name, address, phone, , DOB, SS#, arrest/conviction, previous TTB license history & residence history. Additional information is required for brewer and distillery applicants. o Application to Establish & Operate Wine Premises (TTB Form ) & Application for Basic Permit (TTB Form ) submitted (manually or electronically via Permits Online where the forms are integrated in the online application questionnaire). Additional information: water discharge, environmental impact, premises description, equipment details, storage details, detailed diagram, property document, cost & source of finances, Wine Bond (if applicable), Power of Attorney, and Signing Authority form are required. TTB Basic Permit approval process is independent of MLCC investigation and approval. However, MLCC will not issue their license until TTB has issued their Basic Permit. No field investigation by TTB - follow-up compliance investigations can occur if red flags are raised from abnormal report filings. Wine Bond requires surety bonds with insurance companies for winery ($1,000 minimum, 1-yr. bond). This is separate from MLCC $1,000 Surety Bond. Effective 1/1/17, TTB does not require a Wine Bond for wineries whose annual federal excise tax liability is less than $50, Time line TTB processing time has slowed to a crawl the last couple years and now can take 4-6 months for review and approval. Bonded Premises TTB requires a specifically area to be designated as bonded premises, where production, bottling and untaxpaid wine is stored; production can only be done on bonded premises; all wine located on bonded premises must be untaxpaid; taxpaid wine cannot be stored on bonded premises so you must designate an area for taxpaid wine storage off the bonded premises. Contiguous or alternating premises allows for same entity to operate multiple alcoholic beverage manufacturing operations such as a Distilled Spirit Plant ( DSP ) and/or brewery along with the winery on the same premises. Alternating Proprietorship allows the sharing of space/equipment with other wineries. Report of Wine Premises Operations (TTB F ) Report summarizing winery operations; filed monthly, quarterly or annually depending on production level. 4

5 Excise Tax Report (TTB F ) Federal Excise Tax Report is filed semi-monthly, quarterly, or annually depending on excise tax liability. Federal Wine Tax tax liability is incurred when wine is removed from bond. o 14% or less = $1.07 per wine gallon ($.021 for 750 ml bottle) there is a $0.90 tax credit for first 100,000 gallons removed from bond o 14% - 21% = $1.57 per wine gallon ($0.31 for 750 ml bottle) there is a $0.90 tax credit for the first 100,000 gallons removed from bond o Sparkling wine = $3.40 per wine gallon ($0.65 for 750 ml bottle) o Hard Cider = $0.226 per wine gallon ($0.04 for 75 ml bottle) there is a $0.056 tax credit for the first 100,000 gallons removed from bond Bond-to Bond transfers wine allowed to be transferred between bonded wineries Label and Formula Registration Federal label approval is required for all wine products that will be sold interstate. TTB has a COLA Online system as well as a Formula Online system for registration. Obtaining COLA and Formula approvals can be a complicated process. There are many compliance companies that are well versed in providing expertise in TTB label approvals. TTB Website: 5

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