Compliance and Tax Considerations for Cider Producers

This blog was last updated on August 15, 2022

The summer months can be ideal for enjoying a hard cider, but it’s always a good time for cider producers to brush up on three-tier compliance rules. Before expanding into new markets, you must be familiar with the specific rules of each state.

In this blog, we will cover the major regulatory and tax rules that cider producers should keep in mind as they plan to expand into different states.

How is cider defined?

A good starting point is to determine each state’s definition of cider. Because ciders are made from fermented apples or pears, they usually fall under the legal definition of “wines.” But there are places in the country where ciders are instead regulated as “beer” or are even their own distinct product type. Even where they are deemed a “wine,” ciders often receive a reduced excise tax rate based on their ABV.

Licensing

The typical first step when selling into a new state is to get licensed. A license allows the holder to sell to in-state wholesalers, but make sure to apply for the appropriate license as an out-of-state supplier of cider. The cost for a license can range from free to $1,500 and often needs to be renewed annually. Some states also require the supplier to hold a bond up to $100,000 in the state before they can apply for a license.

Registration

Labels contain critical information that identifies the contents and producers of the product, and because of this they are highly regulated by the federal and state governments. While only ciders with an ABV exceeding 7% are required to get a COLA from the TTB, all ciders must still follow each state’s individual labeling and registration requirements to be sold there. Many states also use their label registration process to govern their franchise and other wholesaler protectionist rules. As such, they may require copies of distributor agreements territory assignments to be provided during a label registration.

Distributor relationships

In the three-tier system, there may not be a more important partnership than that between suppliers and distributors. Many states have rules regarding the relationship between suppliers and distributors, including restricting the termination or even renegotiation of distributor agreements. This makes choosing the right partner a crucial decision from the get-go.

The best advice when it comes to looking for a distributor is to talk with your attorney. Direct, specific legal guidance is the best way to know your obligations as well as your distributor’s restrictions. By setting up your wholesaler agreement correctly the first time, you’re avoiding future problems that can seriously affect your business’ bottom line.

Filings

Due to the varying definitions of cider, the excise tax rate of your product may vary in some states based on the ABV. In most states, it is the responsibility of the wholesaler and not the supplier to remit the excise tax, though Maryland, Wisconsin, Pennsylvania and West Virginia are notable exceptions where it is out-of-state suppliers that remit excise taxes on cider.

Even where wholesalers remit the tax due, states stay up to date on the sales within their jurisdiction by requiring follow-up shipping reports from licensed suppliers. As with most beverage alcohol regulation, the schedules and information required varies between states. Some require a monthly occurrence and copies of all invoices sent to wholesalers in the state, others only require information regarding shipments made to military bases and a few states don’t require any follow-up reporting.