March 4, 2022
Number: 2022 – 1
PAYMENT TERMS UNDER CONSIGNMENT SALES PROVISIONS
To: Proprietors of Bonded Wineries, Bonded Wine Cellars, Taxpaid Wine Bottling Houses, Distilled Spirits Plants, Brewers, Importers, Wholesalers, and Others Concerned
1. Purpose.
This industry circular clarifies how TTB views extended payment terms under the consignment sales provisions of the Federal Alcohol Administration Act (FAA Act).
2. Authority.
The consignment sales provisions of the FAA Act, 27 U.S.C. 205(d), make it unlawful for an industry member (such as a producer, importer, or wholesaler of malt beverages, wines, or distilled spirits) to sell, offer for sale, or contract to sell to any trade buyer (a wholesaler or retailer), or for a trade buyer to purchase, offer to purchase, or contract to purchase any products:
(a) on consignment; or
(b) under conditional sale; or
(c) with privilege of return; or
(d) on any basis other than a bona fide sale; or
(e) where any part of the sale involves, directly or indirectly, the acquisition by the industry member of other products from the trade buyer or the agreement to accept other products from the trade buyer.
Sales “on consignment,” as that term is used above, are arrangements in which the trade buyer (i.e., a wholesaler or retailer) is under no obligation to pay for distilled spirits, wine, or malt beverages until they are sold by the trade buyer. See 27 CFR 11.22.
3. Analysis
Although TTB’s consignment sales regulations generally prohibit arrangements in which a trade buyer is not obligated to pay an industry member for distilled spirits, wine, or malt beverages until after the trade buyer sells such products, the regulations do not specifically impose payment term limitations for sales between industry members and trade buyers.
However, this does not mean all payment terms are beyond scrutiny as potential sales on consignment. In the absence of explicit terms that violate the consignment sale regulations, payment terms of up to 30 days1 are unlikely to constitute consignment sales.
On the other hand, payment terms exceeding 30 days for sales between industry members and trade buyers may invite scrutiny from TTB to determine whether the payment terms were merely a subterfuge to sell on consignment because the trade buyer is effectively under no obligation to pay for the product until such trade buyer sells it.
4. Questions.
If you have any questions concerning this circular, please contact our Trade Investigations Division through our trade practices inbox at TradePractices@ttb.gov.
Mary G. Ryan
Administrator
Alcohol and Tobacco Tax and Trade Bureau
1The consignment sales regulations do not specifically address payment term limitations for sales between industry members and trade buyers. However, the tied house regulations deem payment terms exceeding 30 days for sales by industry members to retailers as an inducement. See 27 CFR 6.65. Consistent with that approach and the overall prevalence of 30-day payment terms for beverage alcohol transactions, TTB will generally consider payment terms of up to 30 days as being insulated from a consignment sale allegation unless otherwise prohibited under 27 U.S.C. 205(d).