Who Must Hold a Federal Alcohol Permit

Federal law does not license everyone who touches beverage alcohol. It licenses three activities, and a business that performs none of them needs no federal basic permit at all. Section 203 of Title 27 makes it unlawful to engage in those activities except pursuant to a basic permit issued by the Treasury, and 27 CFR Part 1 implements the requirement.

The three covered activities

The first is importing. Section 1.20 provides that no person may engage in the business of importing distilled spirits, wine or malt beverages into the United States, or while so engaged sell, offer, ship or contract to sell what was imported, except pursuant to a basic permit. The permit attaches to the business of importing, not to a single shipment.

The second is domestic production and processing. Section 1.21 covers distillers, rectifiers, blenders, warehousemen and wine producers. The third is wholesale distribution: section 1.22 prohibits engaging in the business of purchasing distilled spirits, wine or malt beverages for resale at wholesale without a permit, and prohibits selling or shipping what was so purchased.

Two categories sit outside the requirement. A retailer selling to consumers is not covered by the basic permit statute, and is regulated instead by the state. A brewer is qualified through a brewer's notice under the Internal Revenue Code rather than through a basic permit, though a brewery that imports or wholesales enters the permit regime for those activities.

What a federal permit is not

The basic permit is not permission to sell anything to anyone. It establishes that the holder may lawfully conduct the covered business under federal law. Every state separately requires its own license for activity within its borders, and the two systems have different applications, different fees and different conditions, as set out in the comparison of on-premise and off-premise state licenses.

Nor does it substitute for the tax-side qualification of premises. A distilled spirits plant or a bonded wine premises must be qualified under the Internal Revenue Code provisions governing those operations, with bonds, registrations and recordkeeping of their own. A producer therefore holds two authorizations covering overlapping activity for different purposes.

Applying and what must be shown

Section 1.24 sets three conditions and all must be satisfied. The applicant, and in the case of a corporation its officers, directors or principal stockholders, must not have been convicted of a felony under federal or state law within five years of the application, nor of a misdemeanor under any federal liquor law within three years.

The applicant must show that by reason of business experience, financial standing or trade connections it is likely to commence operations within a reasonable period and to maintain them in conformity with federal law. And the proposed operations must not violate the law of the state in which they are to be conducted, which is why state licensing and federal permitting are usually pursued in parallel.

An incomplete or incorrectly executed application is not acted upon, and the applicant may complete it or file a new one without prejudice. Where the agency proposes to refuse, the statute provides for notice and an opportunity for a hearing before the application is denied.

Duration, changes and automatic termination

A basic permit continues in effect until it is suspended, revoked, annulled, voluntarily surrendered or automatically terminated. There is no renewal cycle in the federal system, which is one of the sharpest differences from state licensing, where periodic renewal is the norm.

What does require attention is change. The regulations address change of name, change of address, and change in ownership, management or control of the business, each with its own filing. A permit is not transferable, and it terminates automatically when the business is transferred, unless the successor takes the steps the rules allow within the period they specify.

These provisions catch ordinary corporate events. A reorganization, an equity sale that shifts control, or the addition of a new principal stockholder can all implicate the qualification requirements that were assessed when the permit issued. Businesses planning a transaction should treat the permit as a scheduled item rather than as something to reconcile afterward.

Suspension, revocation and annulment

The statute allows suspension or revocation after notice and an opportunity for a hearing, where the permittee has willfully violated a condition of the permit, has not commenced operations within a reasonable period, or has not been operating for a continuous period the statute defines. Annulment addresses a different problem: a permit procured through fraud or misrepresentation, which is treated as void rather than merely withdrawn.

Loss of the federal permit does not by itself end a state license, and loss of a state license does not automatically revoke a federal permit, though each is likely to trigger scrutiny of the other. The parallel state process is described in the citation, hearing and penalty structure for state licenses. Permittees also face the trade practice rules in the prohibitions on inducements between tiers and the labeling obligations described in the certificate of label approval and its mandatory statements.