The Aloha Laws: Figure It Out

So I'm on Active Duty in the Army, so I volunteer my time where I can to help my husband with his brewery bent on doing good. I don't usually have much time to give, like most service members, due to heavy operation tempos. However, I had surgery and was home on convalescent leave and couldn't sleep from the pain so of course I:

1) Helped them join the Brewer's Association ($195 for a 'Brewery in Development)
2) Dug into the beer license laws in Hawaii (they appear to be county specific)
3) Found out Sampling is officially permitted
4) Downloaded the Independent Craft Label which we are authorized to use once we get our TTB Brewer's Notice and Sign the Brewer's Association Licensing Agreement that we meet their definition of a craft brewery.
5) Signed us both up for the Cicerone Beer Server study course: Beer Savvy ($199); you can take the in person boot camp if you are on the mainland or other big cities but that's not an option in Hawaii.
6) I researched the 25th ID On Post Business Regulations just in case; my neighbor has a successful wordworking business so she pointed me in the right direction. Turns out we are not doing business on post, so we do not need that license at this time.

Here are the local beer laws for Honolulu County that may apply to us:

HRS § 281-31 (r) Class 18. Small craft producer pub license. A small craft producer pub licensee: (1) Shall manufacture not more than: (A) Sixty thousand barrels of malt beverages; … (2) May sell malt beverages, wine, or alcohol manufactured on the licensee’s premises for consumption on the premises; (3) May sell malt beverages, wine, or alcohol manufactured by the licensee in producer-sealed packages to class 3 wholesale dealer licensees pursuant to conditions imposed by the county by ordinance or rule; (9) May conduct the activities under paragraphs (1) to (8) at one location other than the licensee’s premises; provided that: (A) The manufacturing takes place in Hawaii; and (B) The other location is properly licensed under the same ownership.

Figuring out Contract Brewing - 

Ownership
A brewer under Section 5092 of the Internal Revenue Code is a person who brews or produces beer for sale. The position taken by the TTB is that the brewer must have title to the ingredients in the beer to create the beer, and therefore the brewer also has title to the beer itself once produced. In a contract brewing relationship, then, the contract brewer possesses title to the ingredients and the beer until after production, payment of taxes and removal of the beer from the contract brewery. What this means is that the brewer that contracts with the contract brewery is not considered to be a brewer at all under federal law. In fact, the contracting party may need to be permitted as a wholesaler or retailer to receive and then sell the beer to others. - Great news for us! No TTB yet

Taxes
So much of alcohol production law is focused on taxation, and the question of which entity pays taxes is a vital one. In the case of ownership, the contract brewer is responsible for paying the appropriate amount of tax on the beer when it is removed from the brewery. As such, the brewer contracting with the contract brewer is not liable for any taxes directly. However, the brewing contract may contain a clause calling for the contract brewer to be compensated for the amount of tax paid.

Recordkeeping
Once again, the contract brewer keeps all records of production and provides operation reports to TTB. Any record-keeping required of the other brewer will be related to that brewer acting as a wholesaler or retailer under federal law.  However, we still have to keep good records as we are going to apply to the IRS as a nonprofit when we can logistically open our first taproom or brick and mortar brewery.

In a contract brewing arrangement, the focus of compliance with federal regulations falls mainly on the brewer actually producing the beer, which is why contract brewing is seen as a simple way for brewers to launch their business and grow their brand even before they build their brewery.

Thanks to McBrayer McGinnis Leslie & Kirkland PLLC - Masten Childers for several of these concise explanations. The setback a brewery can have contract brewing is a lack of local buy in and community support. I hope our mission and ministry speaks for itself and we are able to gain some traction with our adopted Hawaii Ohana.

We are counting on the wisdom we derived regarding how much this will all cost, "For $5,000, startups can launch a beer brand, says Page Buchanan, owner and founder of House of Brews in Madison, Wisconsin, which offers contract brewing services.  Once they start, owners need to think hard about marketing their beer and building a following, Buchanan says." Yes Ma'am!