Compliance doesn't need to be dreadful - includes two cases illustrating the importance of compliance in wine importation - wine trade

People frequently ask me how I could possibly work in such a complicated field as government regulatory compliance. They are incredulous that someone would actually choose to do it for a living. The truth is, however, that obtaining new permits to sell wine in the U.S. is not a whole lot different from doing your taxes. You just have to be prepared with answers to a lot of questions, and as long as you have kept good personal files (or have a good memory) and have set aside some quiet time to complete the task, it doesn't have to be dreadful. Before you get started, however, it's a good idea to check with a lawyer who specializes in this kind of regulatory law just so that you can be sure you understand the process and you can receive legal advice pertaining to the permits you will need. There are quite a few law firms in the San Francisco Bay Area specializing in this field.

Generally, I have found that applicants from other countries have the most difficult time with the U.S. system, not because of language differences but because they don't have similar requirements in their home countries, and they find our regulations hard to understand. In particular, European companies are often owned by family businesses, which in turn are managed by other parent companies, making it difficult to detail the entire ownership chain. Europeans are extremely private about their holdings and are reluctant to share that information. Regrettably, the agencies that they need to deal with in the U.S. are going to want to know everything about them; yes, everything.

There's really only enough space available here to list some basic information on the overall application process. Just as well - if the article was long enough to address all possible scenarios, you'd be asleep by the second paragraph. So clear off your desk and start assembling the documents you will need...

Let's assume you are a company in another country. You want to import your wines into a California port, use a California public warehouse for storage and shipping, and sell to California wholesale distributors and retailers, as well as to wholesalers in other states at a later date. You will need to apply for permits with the Internal Revenue Service, the Federal Bureau of Alcohol, Tobacco & Firearms the California Secretary of State, the California State Board of Equalization, and the California Department of Alcoholic Beverage Control. If you actually open up a sales office in California, you will have additional licensing requirements to meet, possibly including a conditional home permit issued by the county planning commission if you live outside the city limits and if you have an office inside your home. OR you can designate the California public warehouse address your place of business in lieu of having your own staffed office. You could have your own office in another state instead, but you would need similar operating permits in that state. I'm only dealing with California in this article.

The California Secretary of State:

You first need to apply to the Secretary of State for permission for your corporation to do business in California. This is not complicated, but you have to allow enough time for processing up to three weeks, and you might want to have an attorney prepare this application for you. This is when you will pay the minimum annual franchise tax of $700 or $800, depending on your circumstances.

The Internal Revenue Service:

You will need a Federal Employer Identification Number ("FEIN") even if you are not planning on having employees or paying employer taxes. You'll need this important number for other reports, as well as the BATF application. It's a simple one-page application that doesn't cost anything, and you can even fax or call them to get it.

The BATF:

There are not very many firms to complete, but these can run to several pages when you add the required backup documents. Basically you will answer a company questionnaire as well as individual affidavits.

The company questionnaire will need to have attachments concerning your company structure, its financing, all owners of 1% or more, share certificates, corporate bylaws, articles and minutes appointing the officers. Include the certificate that the California Secretary of State issued to you which gave you permission to do business in California (make two copies of it first). You will also need to provide proof that you have filed a Fictitious Business Name statement, and had it published as a legal notice for four consecutive weeks, in the county of your business location if you have an office here, or with Sacramento County if you don't.

The personal affidavits will ask the obvious questions such as your personal description, address and telephone, date and place of birth, residence addresses for the previous ten years, and business background for the previous ten years. You will provide the names, addresses and telephone numbers of five personal references in the U.S., one of which needs to be your banker; if you have any connection at all to any other beer, wine or spirits dealer anywhere, you will need to divulge it here.

When this application is completed, make a copy for your files and a copy for ABC purposes, and send it to the BATF for processing. If all goes well and your paperwork is in order, you should receive your permit in about four to six weeks. There is no cost for the permit application, but when you begin operations, you will need to pay the BATF for a Special Tax Stamp which costs $500 per year beginning July 1st, or it can be pro-rated at $41.67 per month if you are going to apply for less than the first full year.

The California State Board of Equalization:

The application to this agency is also uncomplicated, but you need to provide either a copy of your birth certificate or the facing page from your passport (with all the information and your photograph on it), and your Social Security card if you have one. There is no fee for this application, but you will need to provide a performance and liability bond for $1,000, or alternatively a bank Certificate of Deposit of the same amount (which would save you the insurance agent's annual premium of approximately $100). You actually will not need to send all of this paperwork to them until your California ABC permit is about to be issued, but you could get started on it now so that you could be prepared to provide it when they ask for it later. I will go through that again below.

The California Department of Alcoholic Beverage Control:

The number of documents for this application may look intimidating, but don't panic - actually a lot of them just need a simple answer and a signature. One tip. go ahead and prepare the documents, but don't sign them yet - some of them need to be signed in front of a notary public, or in front of the person at the ABC who takes your application at the counter when you have your appointment with them (call ahead on a Monday to make a future appointment).

As with the BATF, you will need to fill out applications concerning your company's structure, as well as personal affidavits about your background and current information, and financial affidavits concerning your financial involvement, if any, in the applicant company. If you do have a financial interest, you will have to document how much you have invested and where that money came from. Attach copies of all your corporate documents, minutes and share certificates.

It's always wise to make a "preapplication" appointment with the ABC to obtain your application documents and get some advice regarding your proposed operation. First, because there are some restrictions on licenses that you can hold concurrently due to tied-house restrictions (for instance, having an interest in a wholesale as well as a retail business), and secondly because you will get up-to-date forms to use - they change every once in a while. Also you will find out how much your permits are going to cost, possibly a few hundred dollars. You will need to pay this at the time they accept your application, but don't take cash - they want a check or money order. The people at this agency are there to help you with the process, and as with any other business dealing you will find them friendly and helpful if you treat them with respect. This is not the place to yell and scream and complain about the government.

You will be given fingerprint cards for United States residents, but they are not required for officers who live in another country. (The prints can be taken by the ABC person, or you can get them done at any police station or DMV.) The other forms relate to company structure and your personal information, as well as the County Planning Commission's zoning information, a diagram of the premises, and several other affidavits to sign about the proposed operations. Also you will need to give the ABC a copy of the certificate from the Secretary of State, and a complete copy of the application that you sent to the BATF, as well as a copy of the real BATF permit as soon as it is issued (you can send that later).

Naturally, every company requires different things - the above pertains to a very fundamental application for a company in another country; requirements are slightly different for a company domiciled in California and different again for a company in another state, and each individual company's unique needs will dictate how many, if any, additional forms you might need to provide. There are very many factors to consider with each situation; that's why I suggest that you avail yourself of a pre-application interview.

When your application paperwork is completed and has been taken at the ABC counter, you will receive a posting notice for the place of business. That's either your office, or the warehouse location, or both. It needs to be placed in the window of the premises for 30 days. When that time is up, the application will be sent by the local ABC office to the head office in Sacramento for issuance, at which time you will receive a letter saying that you need to apply at the California State Board of Equalization and post a $1,000 bond prior to the ABC issuing your permit. You should have that application ready to go because you started on it earlier (remember?), along with the bond that you hopefully have received from your insurance agent, or the bank CD ready to enclose. Having that application and the bond ready to go at this point has just saved you a fair amount of waiting time. If this has all gone according to schedule, you should receive your permit within two weeks.

Got all that? Good, because now you will need to get prepared to do your monthly compliance upkeep - the sales and use tax report to the California State Board of Equalization, and filing documents for any changes you make to your corporation, officers, agents, or share ownership. If you add an officer you will need to provide a personal/financial affidavit and fingerprint card for each person (unless he/she doesn't live in the U.S., at which time you will only need to provide the affidavits, no fingerprints), along with corporate minutes addressing the appointment. And of course you probably want to sell to states outside of California, comprising about 48 different sets of regulations, some of which are state-controlled systems...but that's another article for another time. For now, you should be on your way with a hot new Federal BATF permit and a California ABC permit in your hands, so good luck and good selling!

What They Say:

Between two evils, I always pick the one I never tried before. Mae West.

Important Resources

Internal Revenue Service For Employer Identification Number Entity Control, Mail Stop 6271-T, P.O. Box 9950 Ogden, Ut. 84409 Telephone: (801) 620-7645

California Secretary of State Business Filings 1500-11th Street Sacramento, Calif. 95814 Telephone: (916) 653-2318

Federal Bureau of Alcohol, Tobacco & Firearms (head office) 550 Main Street, #6525 Cincinnati, Ohio 45202 Telephone: (513) 684-3335

Federal Bureau of Alcohol, Tobacco & Firearms Special Tax Stamp Registration and Returns P.O. Box 371962 Pittsburgh, Pa. 15260-7962

Federal Bureau of Alcohol, Tobacco & Firearms 221 Main Street, 11th Floor San Francisco, Calif. 94105 Telephone: (415) 744-7011

California State Board of Equalization 450 N Street, P.O. Box 942879 Sacramento, Calif. 94279-0056 Telephone: (916)324-2152

California Department of Alcoholic Beverage Control (head office) 3810 Rosin Court, #150 Sacramento, Calif. 95814 Telephone: (916) 263-6844

California Department of Alcoholic Beverage Control 50 D Street, #400 Santa Rosa, Calif. 95404 Telephone: (707)576-2165

RELATED ARTICLE: From the Compliance Crypt

A container of 1,200 cases of wine arrived at the Port of Oakland, and the man who wants to sell it in California goes down to the Port to claim it, only to be asked for his importer permit. Astonished, he asks "Permits? What permits? I didn't know I needed any permits to bring wine here!" He only had two choices: leave the wine there accumulating demurrage charges while he applied for the necessary permits, a process that would take at least two months, or else ship the container back. If only he had asked the right questions when he was planning to become a wine marketer...

A wine importer in California struck a deal with a South African winery; they agreed to the terms, the wines and the label design. The importer did all the right things - obtained all the correct permits and label approval from the BATF. The container arrived and all the wines were in good shape - except that the winery at the last minute changed the label text without telling the importer. They thought it was a great idea to add the word "healthy" to the description! The wines go straight into the customs warehouse. The importer's choice is to relabel 14,400 bottles of wine to match the Federal Label Approval, send the container back, or (the one he chose), strike out the word in black marker pen on every single battle. The BATF gave him a use-up of the altered labels.

J.L.

(Jackie Lee has operated Compliance International in Sonoma, for more than 15 years. She can be reached via e-mail at lee4wine@metro.net)

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