Anyone wanting to import foreign wine into the United States needs to hold an importer’s basic permit under the Federal Alcohol Administration Act (FAA Act). The holder of the permit has various obligations and responsibilities including paying all applicable taxes and duties for the alcoholic beverages, obtaining Certificates of Label Approval (COLA) for the products imported, and fulfilling all other statutory and regulatory requirements applicable to importers under the FAA Act, the Alcoholic Beverage Labeling Act of 1988, and the Internal Revenue Code of 1986.
Beyond these basic duties and responsibilities, one important question is if the federal importer has to buy and sell the products it imports. Two federal agencies are involved in regulating imports and wine sales in the United States.
United States Customs and Border Protection (CBP)
Quality Brand Imports recently requested a ruling from CBP to clarify if QBI can act as an importer of record without taking title to the products imported into the United States – in other words without buying and selling the products imported.
The Tariff Act of 1930 provides that only parties qualifying as the “importer of record” may make an entry. Those qualified parties are identified as the “owner” or “purchaser” of the goods or a broker appointed on behalf of an owner, purchaser, or consignee.
Owner and purchaser are further defined in Customs Directive, (“C.D.”), 3530-002A, dated June 27, 2001. Section 5.3.1 of the directive explains:
The terms “owner” and “purchaser” include any party with a financial interest in a transaction, including, but not limited to, the actual owner of the goods, the actual purchaser of the goods, a buying or selling agent, a person or firm who imports on consignment, a person or firm who imports under loan or lease, a person or firm who imports for exhibition at a trade fair, a person or firm who imports goods for repair or alteration or further fabrication, etc.
Any such owner or purchaser may make an entry on his own behalf or may designate a licensed Customs broker to make an entry on his behalf and may be shown as the importer of record on the CF 7501. The terms “owner” or “purchaser” would not include a “nominal consignee” who effectively possesses no other right, title, or interest in the goods except as he possessed under a bill of lading, air waybill, or another shipping document.
“Financial interest” is defined as a nexus between the financial welfare of the owner or purchaser and the imported goods. Per the CBP ruling, “…as a selling agent, Quality Brand Imports has a financial interest in the wine at the time of entry, sufficient to constitute a nexus between its financial welfare and the imported goods, it may serve as the importer of record.”
The financial interest Quality Brand Imports has in the imported goods is based on the flat, per bottle fee that QBI charges wineries as a selling agent.
Alcohol and Tobacco Tax and Trade Bureau (TTB)
According to 27 Code of Federal Regulations 1.20, no person, except pursuant to a basic permit issued under the Act, shall:
(a) Engage in the business of importing into the United States distilled spirits, wine, or malt beverages; or
(b) While so engaged, sell, offer or deliver for sale, contract to sell, or ship, in interstate or foreign commerce, directly or indirectly or through an affiliate, distilled spirits, wine, or malt beverages so imported.
Per TTB, “any person who is engaged in the business of importing into the United States distilled spirits, wine, or malt beverages would be considered an importer and therefore must obtain an importer’s permit regardless of whether it is also engaged in purchasing or selling such beverages. Therefore, it is not relevant as to whether the importer holds title to the products it imports.”
TTB Ruling 2010-2 explains why it is not relevant whether an importer holds title to the alcohol beverages being imported:
“The importer service business is engaged in the business of importing distilled spirits, wine, or malt beverages into the United States because it is performing these importations on a recurring and continuing basis. Such business activity requires a basic permit as an importer. This importation service is provided as part of a commercial arrangement under which the business is paid a fee for its services. The fact that the importer service never holds title to the products does not change the commercial purpose or character of the transaction. At the time the importer service is removing the products from customs custody, it is doing so as part of its commercial arrangement with the foreign seller and the purchaser using its independent expertise and business experience to effectuate the commercial release from customs custody. Under these circumstances, the importer service is required to have a COLA because the release is in furtherance of a commercial purpose.”
Accordingly, under TTB regulations, an importer need not hold title to the products it imports; however, such an importer must be covered by a Federal Basic Permit and comply with all applicable TTB regulations.
Based on the above, it is permissible under federal regulations for an importer to import wine into the United States without buying and selling the wine. Subsequently, it allows foreign wineries to sell directly to US entities that hold a necessary license or permit.
Of course, doing so is also subject to US state law. Some US state alcohol boards do permit entities licensed in their state to purchase directly from foreign-based wineries, some do not. Quality Brand Imports understands the rules and regulations in all 48 continental US states and can advise wineries accordingly.
For European wineries, selling their wines directly to wholesalers can reduce the cost of their wine within the supply chain.
Interested to learn more? Join us for our upcoming series of webinars about regulatory, legal, and procedural issues about wine import, sales, and marketing in the US market.