Every year approximately one million American hobbyists make beer at home. These home brewers may wonder how to start a home brewery business. A number of home brewers have subsequently become successful commercial brewing businesses, such as Samuel Adams beer. The number of craft breweries is increasing and capturing more of the beer market. As of July 1, 2013, home beer brewing is legal in all fifty states under state laws and has been permissible under changes in federal tax laws since 1979. Yet there are numerous state and federal legal restrictions on home breweries for both personal consumption and commercial purposes.
Aside from the typical steps you must take to start any business, here are several major issues to consider before turning your beer brewing hobby into a commercial enterprise.
Distinguish between Personal and Commercial Uses
Under federal law, adults may produce beer at home for their personal consumption without a required license or payment of taxes on their batches of beer. The Internal Revenue Code states that home brewers can make up to 100 gallons per year for homes with one adult and up to 200 gallons per year for households of two or more adults. Federal regulations also allow homemade beer to be transported out of one’s home for beer competitions, exhibits, tastings, and organized meetings.
However, some states place added legal restrictions on personal consumption including whether or not your home brew may be shared with guests in your home, transported outside of your home, and offered for consumption in displays, contests, or demonstrations. However, once a home brewer wishes to offer their products for sale, then numerous federal, state, and local laws will apply to their activities, including federal excise taxes, state sales taxes, licensing rules, bonding obligations, and labelling requirements.
Identify the Nature of Your Brewing Operations
There are various types of brewing operations and different laws and licensing requirements apply depending on the nature of your brewing activities. Some typical brewing businesses include breweries, brew pubs, pilot brewing plants, and brew-on-premises (BOP) establishments. Breweries and brew pubs produce and sell beer on- and off-premises. Pilot brewing plants focus on beer research, development and experimentation either on- or off-premises.
In addition, brew-on-premises (BOP) businesses offer physical space, supplies, brewing equipment and expert advice to individuals making and bottling their own beer brands. Identifying the nature of your brewing operations will guide your initial application steps for turning your home brewing hobby into a commercial business.
Apply to Qualify as a Brewing Business
Before starting your business operations, you must apply to the U.S. Department of the Treasury’s Alcohol and Tobacco Tax and Trade Bureau (TTB) for original qualification. You can start your application online, called a Brewer’s Notice, through the TTB’s Permits Online website. To meet IRS requirements, the TTB’s application requires information about your business contact information, your business structure, your facility’s size and location, your trade name, and the nature of your brewing activities signed by an authorized representative.
Your qualification process also includes providing labelling, advertising, environmental, and water quality information in compliance with federal laws. Along with your Brewer’s Notice, you will need to file a Brewer’s Bond to show that you have obtained insurance from a surety company to underwrite your payment of federal taxes on your beer sales.
Participate in the TTB’s Screening Process
Once you have filed an application, the TTB reviews your Brewer’s Notice and supporting documentation. A TTB representative will convene a telephone interview to verify or correct application information and to discuss supplemental documents. In addition, the TTB’s Trade Investigations Division may conduct an on-site investigation of your brewing premises. The TTB will then make a recommendation as to whether or not you are eligible to operate a commercial beer-making enterprise.
Register with the FDA
Under federal law, brew businesses produce beverages for human consumption and must register as a food facility with the US Food and Drug Administration (FDA). This registration process is in place to allow food facilities to report instances of adulterated or food-borne illnesses to the Reported Food Registry. In turn, the FDA can notify the public and other impacted parties about these food security issues.
Your brewing business can register online at the FDA and registrations and renewals are free. The FDA has created a What You Need to Know about Registration of Food Facilities: Small Entity Compliance Guide to assist in this registration process.
Comply with Appropriate State Laws and Regulations
Once you are federally-authorized to run a brew business, you must also comply with relevant state statutes and licensing requirements. You may need a general business license to operate locally along with relevant beverage licenses, such as wholesaler, distributor, retailer, or on-premises tap room licenses. You may also need to obtain a Certificate of Label Approvals (COLA) for your product branding. Typically, states place additional legal obligations on your brewery dealing with cleanliness, health and safety, zoning, and environmental mandates.
For further assistance on converting your home brewing activities into a commercial enterprise, check out the TTB’s Getting Started in the Brewing Industry and the Brewer’s Association website for recent legal and market news of interest to craft breweries.