Alternating Proprietorship and Participation of Host in Tenant’s Operations

If I have an alternating proprietorship, Can I use the host’s staff as independent contractors to assist me in alcoholic beverage production?

Yes, as long as the written agreement between the Host and Tenant provides for this situation and it is structured to be compliant with federal law. The key factors that the TTB will consider in evaluating the relationship include:

Authority of the “independent contractor” and

Who makes operational decisions?

The proprietor whose product is being manufactured must exercise its own decision-making authority. The Host’s employees may be consultants to the proprietor, but may not be the ultimate decision-maker. This is especially the case for day to day operational matters such as bottling, storage and management of the operations. To be compliant, the tenant producer must issue written work orders and operational guidelines. It is acceptable for the proprietor to give limited discretion and authority to the consultant, but it must retain ultimate decision-making control for itself.

Similarly, auditors and inspectors should be able to discuss all records and reports with the principals of the Tenant business. The Tenant proprietor cannot abdicate its responsibility to prepare records and reports, or to pay taxes, to an independent contractor’s employees or consultants. Doing so will be a violation for “inadequate control.”

It is important that the Tenant producer have separate records. A subaccount of the host’s records will not be adequate. The Tenant must independently have access and control of its separate records, without going through the account or records of another business. (Yes, a separate user ID is needed and will have to be purchased for internet web-based systems). Cooperation is a core value and practice within the craft beverage industry. However; the road ends here at record keeping. These duties are required of each business separately. Failure to comply is completely at the liability and responsibility of the Tenant for its operations at the altering premises. Getting caught risks the license and/or some hefty fines.

The last area of concern is with payment for the services. Many arrangements provide for a trade in product rather than a cash payment. While this is permissible, it’s a taxable payment that must be recorded on the books and all appropriate payroll and income taxes paid.

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             Tracy_JongAbout Tracy Jong

Tracy Jong has been an attorney for more than 20 years,      representing restaurants, bars, and craft beverage manufacturers in a wide array of legal matters. She is also a licensed patent attorney.

Her book Everything You Need To Know About Obtaining and Maintaining a New York Retail Liquor License: The Definitive Guide to Navigating the State Liquor Authority will be available next month on as a softcover and Kindle e-book.

Her legal column is available in The Equipped Brewer, a publication giving business advice, trends, and vendor reviews to help craft breweries, cideries, distilleries and wineries build brands and succeed financially.

She also maintains a website and blog with practical information on legal and business issues affecting the industry. Follow her, sign up for her free firm app or monthly newsletter.

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