Update June 24, 2020: Updated to reflect extended TTB waiver deadline of September 1, 2020.
Closures of restaurants, bars, and taprooms in the wake of COVID-19 have resulted in beer becoming out-of-date or unmerchantable because it cannot be sold quickly enough. As a result, breweries, wholesalers, and alcohol retailers are grappling with how to dispose of this unmerchantable beer.
Fortunately, the OLCC and TTB recently issued guidance to address this problem, allowing retailers to return alcohol to wholesalers or manufacturers for cancelled events or for becoming unmerchantable/unsalable. In addition, the OLCC and TTB published guidance for the disposition of such unsalable beer, and issued guidelines for the recovery of alcohol taxes on destroyed or repurposed product. Recent TTB and OLCC guidance is summarized below.
Federal rules allow the disposition of unmerchantable beer on and off brewery premises, subject to certain conditions. In response to the hardships caused by COVID-19, on June 23, 2020, the TTB released revised guidance for the destruction or donation of unmerchantable beer.
The TTB is temporarily waiving the requirement that brewers submit a Notice of Intent to destroy taxpaid, unmerchantable beer that is out in the marketplace (at a retailer's or wholesaler's premises), eliminating the usual 12-day prior notice period required under TTB regulations to destroy beer. As of June 23, 2020, TTB extended this waiver through September 1, 2020.
Disposal of beer that is not returned to the brewer is considered a destruction off brewery premises and is authorized under existing federal regulations. This includes beer in kegs that may be destroyed by a wholesaler on the brewer's behalf, as well as the transfer of taxpaid beer to a distilled spirits plant, which the distillery may use in the production of hand sanitizer.
In order to recover taxes paid on unmerchantable beer used to produce hand sanitizer or that is destroyed, the brewer may file a claim for a refund on TTB Form 5620.8. The deadline for filing a claim has been extended by the TTB beyond the regulatory six-month window.
Brewers can also claim a credit by making an adjustment (without interest) to the brewer's next excise tax return on TTB Form 5000.24. If taxes have not yet been paid on the beer, then the brewery is relieved from excise tax liability.
On April 30, 2020, OLCC issued its own guidance for the destruction or donation of unsalable or unmerchantable beer. OLCC expressed a preference that the beer be donated to a distillery to manufacture hand sanitizer, and OLCC staff will even "match" licensees that have unsalable beer with distilleries that want beer to produce hand sanitizer. Interested licensees can coordinate directly with a distillery or can email OLCC.PrivilegeTax@oregon.gov to be matched with an interested distillery.
Unmerchantable malt beverage products can also be destroyed by OLCC licensees or by third parties at the licensee's direction. On May 1, 2020, the OLCC published additional guidance on Oregon privilege tax refunds or credits for destruction or donation of unmerchantable product.
Per the guidance, licensees need to email all the following claim documentation to OLCC in order to recover privilege taxes paid on unmerchantable beer:
- "Bad Order Claim" Form 434.
- Affidavit of Destruction/Donation, detailing quantity, volume, type, and ABV of product donated or destroyed, and reason for such destruction or donation.
- Invoice/Credit memo for the destruction or donation.
- Bill of Ladings to verify a shipment of product for destruction or donation, if any.
Waste Water Considerations
Parties that dispose of beer through the sewer system should carefully follow all proper waste water disposal requirements, typically by notifying and receiving permission from their local government or waste water treatment agency.
Davis Wright Tremaine's beverage practice group advises alcoholic beverage producers on all areas of law and remains committed to helping you in any way we can during this time.
The facts, laws, and regulations regarding COVID-19 are developing rapidly. Since the date of publication, there may be new or additional information not referenced in this advisory. Please consult with your legal counsel for guidance.
DWT will continue to provide up-to-date insights and virtual events regarding COVID-19 concerns. Our most recent insights, as well as information about recorded and upcoming virtual events, are available at www.dwt.com/COVID-19.