TTB clarifies when retailers may return out-of-code beer to wholesalers

ttb logoNoteworthy TTB news update for those in the trade…
The Alcohol and Tobacco Tax and Trade Bureau (TTB) has been asked to clarify the
circumstances under which retailers may return to wholesalers, and under which
wholesalers may receive, malt beverage products that have been deemed unsuitable
for sale because of freshness concerns without violating the consignment sales
provision of the Federal Alcohol Administration Act (FAA Act) and TTB regulations.
TTB Rul. 2012-4
Background
Some brewers assign a coded “pull date” to their products to prevent stale or outdated
products from remaining in the market. Brewers who assign pull date coding ask that
distributors remove malt beverage products based on the pull date and replace them
with fresh product. These brewers believe that relying on the wholesaler to monitor the
pull date will ensure that only fresh products are in the retail market and that consumers
do not purchase stale or spoiled malt beverages.
Brewers who include a “freshness date” on their products believe that such statements
allow consumers to make purchasing decisions based on the freshness date. These
brewers also assert that freshness dating is a quality control tool that offers some
assurance that if the consumer purchases a malt beverage before that date, the product
will not be deteriorated or spoiled.
Industry members who use freshness dating requested that TTB consider whether
retailers may return to wholesalers malt beverage products past their freshness date as
an allowable circumstance under the consignment sales provisions of the FAA Act.
Authority
The Secretary of the Treasury is authorized to prescribe regulations regarding unfair
competition and unlawful trade practices involving the sale of wine, distilled spirits, and
malt beverage products under 27 U.S.C. 205. In the case of malt beverages, trade
practice provisions of the FAA Act apply only if the laws of the State into which the malt
beverage products are sold or shipped impose similar requirements. TTB uses rulings and industry circulars to clarify the provisions of the FAA Act and implementing regulations, when appropriate.
Discussion
The consignment sales provision of the FAA Act, 27 U.S.C. § 205(d), makes 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) if any part of
the sale involves, directly or indirectly, the acquisition by such person of products from
the trade buyer or the agreement to acquire other products from the trade buyer.
However, section 205(d) does not prohibit transactions involving the bona fide return of
products for “ordinary and usual commercial reasons arising after the merchandise has
been sold”.
TTB regulations promulgating allowable (that is, ordinary and usual) reasons for returns
under § 205(d) are found in 27 CFR part 11, Subpart D – Rules for the Return of
11.32 – 11.39) of this subpart specify what are considered “ordinary and usual
commercial reasons” for the return of products, and outline the conditions and
limitations for such returns. The ordinary and usual commercial reasons listed under งง
11.32-11.39 include:
• Defective product;
• Shipment error;
• A change in the law preventing sale of the product;
• Termination of the buyer’s business or franchise;
• Change in product from that in inventory;
• Product in inventory is discontinued; or
• Possible spoilage of product during the off-season of a seasonal retail dealer.
While industry members have the option to accept exchanges and returns for the
ordinary and usual commercial reasons listed in งง 11.32 through 11.39, they are under
no obligation to do so.
As found under TTB regulations (27 CFR 11.45 – 11.46), returns or exchanges of
products that are merely overstocked, slow moving, or are seasonal in nature, such as
holiday decanters, and certain distinctive bottles do not constitute returns for ordinary
and usual commercial reasons.
TTB Determination
Under the following conditions, TTB will consider the return of malt beverages for cash
or credit against outstanding indebtedness or exchange of such malt beverages for
freshness reasons as a return by a retailer for ordinary or commercial reasons under 27
• The brewer has policies and procedures in place that specify the date the
retailer must pull the product;
• Such brewer’s freshness return/exchange policies and procedures are readily
verifiable and consistently followed by the brewer;
• The container has identifying markings that correspond with this date; and
• The malt beverage product pulled by the retailer may not re-enter the retail
marketplace.
TTB believes this policy addresses the realities of modern marketing practices while
minimizing the possibility that the industry will use freshness dating returns as a
subterfuge for disposing of slow-moving products.
However, if TTB determines that a wholesaler is requiring or forcing a retailer to
overstock its products under the pretext that the retailer may exchange the product
based upon freshness, TTB may investigate the wholesaler for violating the
consignment sales and/or tied house provisions(See 27 U.S.C. 205(b)(7) and (d) as
implemented under 27 CFR 6.71 and § 11.45.) Moreover, if industry members re-
introduce into the marketplace malt beverages that were returned or exchanged for
freshness purposes, TTB may investigate whether the purported freshness purpose
was a mere subterfuge to violate these same consignment sales and/or tied house
provisions.
Held, subject to the conditions described above, TTB considers the exchange of an
identical quantity of the same brand or the return for cash or credit against outstanding
indebtedness for freshness concerns as a return by a retailer for ordinary or commercial
reason under 27 CFR 11.32.

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