A TTB bond, or alcohol tax bond, is a type of surety bond required by the Alcohol and Tobacco Tax and Trade Bureau (TTB) for alcohol professionals who were liable for more than $50,000 in excise tax during their previous calendar year.
There are three types of TTB bonds depending on the type of alcohol you deal with:
The bond exists to ensure that the alcohol professionals comply with industry regulations and pay their taxes in a timely manner. If an alcohol professional fails to comply with regulation or pay required taxes, the TTB can make a claim against the bond to recoup their losses.
There are three factors that go into determining the price of the TTB bond:
The cost of a TTB bond will be a percentage of the bond amount required (we get more into how to calculate bond amount below). The percentage can range from 1%-10% of the bond amount, depending on your credit score and the type of bond you need. Generally speaking, the better the credit score, the better the price you will receive.
The answer to this question is pretty much in the name of the bonds! A brewer bond is meant for breweries, a distilled spirits bond is meant for distilled spirits manufacturers, and a wine bond is meant for wineries. One caveat to note is that if you manufacture multiple type of alcohol, then you will need multiple bonds. For example, if your business produces both beer and wine, then you will need a brewer bond and a wine bond. The bond amount/coverage for each should be based on the amount of wine and beer that your business manufactures/distributes respectively.
Determining the bond amount or bond coverage required for your alcohol business is the first step towards getting a TTB bond. The method varies based on the type of bond you need (brewer vs. distilled spirits vs. wine).
For a brewer, the bond coverage required is based on your tax payment schedule.
For brewers who pay taxes quarterly or annually, a $1,000 brewer bond is required.
For brewers who pay taxes semimonthly, the bond amount is equal to 10% of the tax that a brewer is liable to pay during a calendar year. Taxes are calculated using TTB rates.
For import brewers, tax rates are calculated at $18.00 per barrel. For domestic producers, the tax rate varies based on the amount you produce. For brewers that produce less than 2,000,000 barrels in a year, it’s $3.50 for the first 60,000 barrels, then $16.00 for barrels thereafter. For brewers that produce over 2,000,000 barrels a year, tax rate is calculated at $16.00 per barrel. Formulas are listed below:
Bond amount for import brewers = 10% x [Barrels produced] x [$18.00/barrel]
Bond amount for domestic brewers with less than 2,000,000 barrels = 10% x [Barrels produced] x [$3.50/Barrel or $16.00/Barrel beyond 60,000 barrels]
Bond amount of domestic brewers with over 2,000,000 barrels = 10% x [Barrels produced] x [$18/barrel]
Let’s illustrate this with an example. Let’s say a brewery produces 80,000 barrels of beer in a given year. Then they would require a brewer bond in the amount of (60,000 x $3.50) + (20,000 x $16) = $530,000. If we break down the $530,000 coverage, $210,000 covers the first 60,000 barrel (60,000 x $3.50), and $320,000 covers the remaining 20,000 barrel (20,000 x $16.00). The specific rules for brew bond amount/coverage is listed in §25.93, Title 27 of the Code of Federal Regulations. Our information is up to date as of March, 2022.
Distilled Spirits Bond
The bond amount for a distilled spirits bond is based on the amount of federal excise tax that is due on distilled spirits removed for consumption or sale. The federal excise tax rate is $13.50 per proof gallon, where a proof gallon is a gallon of liquid that is 50% alcohol at 60 degrees F. For example, a gallon of liquid at 40% alcohol would be 0.8 proof gallon per gallon of liquid.
Let’s go through an example. Let’s say that a distilled spirits plant produces and distributes 100,000 gallons of 40% whisky for the year. This would be 80,000 proof gallons. At the federal excise rate of $13.50 per proof gallon, the amount of excise tax that the business is required to pay would be 80,000 x $13.50 = $1,080,000. Once the proper tax amount has been determined, you can use this table from here to determine your bond amount needed based on your business type and the minimum/maximum bond amount required.
Note here that this is not a comprehensive guide to distilled spirits bond coverage. We’ve only explained how to calculate excise tax based on proof gallons. The calculations for determining a distilled spirits bond bond amount is complicated and unique to each business - a lot of it is dependent on the type of plant you run and how you run your plants. We plan to release more content related to this topic in the near future, but for now, you can give us a call to help you determine the bond amount you need. The specific rules for distilled spirits bond amount/coverage is written in §19.166, Title 27 of the Code of Federal Regulations.
The bond amount for a wine bond is based on the tax on all wine or spirits in transit or stored in your winery at any one time. You can use this table to calculate the appropriate excise tax amount for your wine business.