Federal permits and state licenses, the separation of producer, wholesaler and retailer, tied-house and trade practice prohibitions, label approval and formula rules, direct shipping and delivery, and license discipline.
Direct shipment to consumers is permitted by the receiving state, not by federal law, and typically requires a direct shipper permit issued by that state. Common conditions include volume caps per household, adult signature on delivery, marking of the shipping container, remittance of the state's excise and sales taxes, periodic reporting, and use of an approved carrier. Under Granholm a state may not allow in-state producers to ship while forbidding out-of-state producers from doing the same.
Section 205(b) of Title 27 makes it unlawful for an industry member to induce a retailer to purchase its products to the exclusion, in whole or in part, of competing products, by acquiring an interest in the retailer, by furnishing things of value, by paying for advertising or display service, by guaranteeing a loan, by extending credit beyond the prescribed period, or by requiring the retailer to take a quota. Part 6 of 27 CFR implements the prohibition and lists the exceptions.
Under 27 U.S.C. 203 and 27 CFR Part 1, no person may engage in the business of importing beverage alcohol, producing or rectifying distilled spirits or wine, or purchasing beverage alcohol for resale at wholesale, except pursuant to a basic permit. Section 1.24 sets the qualifications: no disqualifying conviction, enough business experience, financial standing or trade connections to begin and maintain operations, and proposed operations that do not violate state law.
In the three-tier structure a producer or importer sells to a licensed wholesaler, the wholesaler sells to a licensed retailer, and only the retailer sells to a consumer. Separation is enforced through licensing, through ownership restrictions, and through the federal trade practice provisions of 27 U.S.C. 205 implemented in 27 CFR Parts 6 and 8. Granholm requires states to treat in-state and out-of-state producers alike.
Formula approval is required before production of specified products: certain wines under 27 CFR 24.80, fermented products made by non-traditional processes or with added flavors, colors or food materials under 27 CFR 25.55, and distilled spirits specialty products under Part 5. Standards of identity in 27 CFR 4.21 and 27 CFR Part 5 subpart I define the classes and types a label may claim, and a product that does not meet a standard may not carry that designation.
State retail licenses impose operating conditions on hours, premises, staff and sourcing, and prohibit service to visibly intoxicated persons. Sales to persons under the legal drinking age are prohibited in every state, supported federally by the highway funding condition in 23 U.S.C. 158. Most states also recognize dram shop liability, allowing a person injured by an intoxicated patron to sue the licensee that served the patron, subject to statutory elements and limits.
Under 27 U.S.C. 205(e) and 27 CFR Parts 4, 5 and 7, a certificate of label approval authorizes the bottling of wine, distilled spirits or malt beverages, or their removal from customs custody, provided the container bears labels identical to those on the face of the certificate or labels with changes TTB has authorized. Part 13 supplies the procedure for applying, for denial and appeal, and for revocation. Mandatory statements differ by beverage category.
States that permit direct shipment generally license the carrier that delivers the package and, in many states, the fulfillment house that stores, packs and ships it for the seller. Carrier obligations commonly include accepting shipments only from permitted shippers, obtaining an adult signature on delivery, and reporting deliveries to the state. Fulfillment houses are commonly required to verify the shipper's permit, keep records by shipper and report the volume handled.
State retail licenses divide into on-premise licenses, which authorize sale for consumption where the beverage is served, and off-premise licenses, which authorize sale in sealed containers for consumption elsewhere. On-premise conditions typically concern food service, hours, server training and entertainment. Off-premise conditions concern package integrity, product categories and outlet type. Federal law leaves retail licensing to the states, and 27 U.S.C. 122 supports that control.
A license case usually begins with an inspection, a compliance check or a complaint, and proceeds by citation to an administrative hearing before a board or hearing officer. The standard of proof is lower than in a criminal case and the rules of evidence are relaxed. Penalties are drawn from a schedule that escalates with repetition, and range from a fine in lieu of suspension to revocation. Judicial review is generally on the administrative record.
Section 205 of Title 27 prohibits four trade practices: exclusive outlet arrangements, tied-house inducements, commercial bribery, and consignment sales. The first three are unlawful only where the conduct induces a trade buyer to purchase to the exclusion, in whole or in part, of competing products. Consignment sales are prohibited outright, subject to stated exceptions. The practices are implemented in 27 CFR Parts 8, 6, 10 and 11 respectively, each with its own definitions and exceptions.
