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Important Updates on Reporting Corporate Changes to Federal and New York Agencies

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With the holiday season underway and tax season on the horizon, many in the industry are planning or recently completed corporate changes to companies licensed to manufacture, wholesale, or otherwise sell alcoholic beverages. Such changes frequently involve purchasing, selling, or adding or subtracting owners to or from a licensed business.

Whatever the change, the federal Alcohol and Tobacco Tax and Trade Bureau (“TTB”) and New York State Liquor Authority (“SLA”) may need to be notified and/or grant approval. Both agencies have important corporate-change reporting requirements. Noncompliance could put a business at serious risk of being shut down or fined.

TTB: Compliance Checks and Corporate-Change Amendments

            Manufacturers and other suppliers, importers, and wholesalers are generally required to hold federal basic permits from the TTB before engaging in the sale of alcoholic beverages. Under the federal statutes and TTB’s regulations, most permittees must notify the federal agency within 30 days of a corporate change.

When permittees report these changes late, the TTB may be required by statute to notify the permittee that its permit has been suspended. TTB regulations provide that permits automatically terminate, if there is a change in control not reported within 30 days. Therefore, the TTB can declare all sales made more than 30 days after a change were illegal.

The TTB previously allowed permittees a grace period to notify the agency of unreported changes. On July 5, 2019, the agency published TTB Industry Circular 2019-2, which permitted wholesalers and importers until the end of that year to disclose previously unreported changes in control or proprietorship without fear of civil penalty.

            Now, however, multiple sources are reporting that the TTB will be stepping up enforcement of its reporting requirements. Based on these and other sources, it appears the TTB may be more forcefully exercising enforcement of these reporting rules. Wineries and distilleries should make timely reporting a priority, as the TTB, empowered by statute and regulations, may be more apt to suspend a permittee’s business until the change is approved. Unlike other manufacturers, the Internal Revenue Code requires breweries to obtain approval before any ownership change occurs, so breweries should report such changes before they take place.

Manufacturers and other permittees that put off required reporting may find themselves facing serious financial losses and other problems with such a colossal business interruption.

SLA: Corporate Changes Still Require Pre-Approval despite Recent Changes

            The Alcoholic Beverage Control Law requires New York licensees to obtain the approval of the SLA before appointing new officers, LLC managers, and owners with at least a 10-percent interest in the licensed business.

            We recently reported on various changes at the SLA to the disclosure of principals, officers, managers, and owners. Specifically, the SLA has reduced the types of officers and owners that must submit Personal Questionnaires — a prerequisite to seeking approval.

            This is a good reminder, however, that the law still requires many corporate changes to be pre-approved by the SLA. Failure to obtain such approval carries the risk of civil penalties and charges of more serious violations, including availing. Availing occurs when a person who was not disclosed to the SLA has an ownership or other financial or controlling interest in a licensed business. Availing is a serious violation of the ABC Law. It carries the risk of substantial financial penalty, license cancellation, or license revocation.

            Giving proper notice to the TTB and/or SLA and obtaining needed approval is not difficult. Dealing with the consequences that may arise from the failure to do so may be!

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.

Written by

Keven Danow

Founding and Senior Partner
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