Shipyard Brewing pays federal fine
Portland-based Shipyard Brewing paid a $175,000 fine this summer after the federal government alleged the company altered some labels on its beer bottles.
Shipyard Brewing LLC and Pugsley Brewing LLC -- the name under which Shipyard brews non-Shipyard beer brands -- each paid $87,500 in July in a settlement with the Alcohol and Tobacco Tax and Trade Bureau. The offer in compromise, or OIC, is an agreement between the bureau and alleged violators in lieu of civil proceedings or criminal prosecution.
The agency, known as TTB, says it accepted the offer from Shipyard and Pugsley after it claimed the brewery had altered government-approved labels and sold malt beverages without valid labels, in violation of the Federal Alcohol Administration Act and Internal Revenue Code. The bureau also cited the brewer for having inaccurate information about the producer and/or place of production on certain labels and cartons. The alleged infractions occurred between May of 2005 and July 2008 at the company's Newbury Street facility.
Tom Hogue, a spokesman for the TTB, says every alcoholic beverage sold in the United States has a government-approved label, containing facts like its alcoholic content, brand name, a health warning and where the drink was made. These labels must be officially sanctioned before a company can sell its products in the market.
Fred Forsley, Shipyard's founder and co-owner with Alan Pugsley, wouldn't comment on the settlement. He started Shipyard Brewing Co., the largest brewery in Maine, in 1992.
Paul Gatza, the director of the Brewers Association, a national trade group for small and independent beer makers, says it's common for the government to reject labels submitted by beer makers early in the process. But it's less common to see companies accused of labeling infractions after a label has been approved. "[The TTB will] turn it down if it doesn't meet regulations, such as if you don't use the right point size in the government warning label. They can reject the label if there isn't a clear delineation of what the product is," he says. "But [the Shipyard case] looks like they found something more serious than that."
Hogue says, "The heart of the violation is whether something [on the label] is misleading," adding, "I can't go into specifics about companies or violations." A press release about the fine was issued this summer; a Freedom of Information Act request filed by Mainebiz produced no additional details on the case.
Hogue says the bureau receives upwards of 132,000 applications a year for what's known in the industry as certificates of label approval for wine, beer and distilled spirits. "With wine, for example, if I were to claim that I had a Zinfandel from Sonoma from 1999, the vintage date, type of grape and cultural area would be on the label. There are standards you must meet to make those claims," he says.
Once the TTB finds that a business may not be compliant with its regulations, the company has the option of making a settlement offer to help avoid a permit action that could put it out of business. The TTB then enters into negotiations with the company. "If you can get someone to become voluntarily compliant after this -- they're still in business, there are still jobs in the community. It's a cleaner way to do this," Hogue says.
To check on inaccurate, altered or missing labels, Hogue says bureau officials either randomly pull samples from shelves or act on tips. "It's like any enforcement operation; if you have a reason to believe there's a problem, you look at it. Or you do a sample," he says.
Beyond the press release, the TTB would not divulge any more details about the Shipyard case, citing protective provisions in the Internal Revenue Code that limit public disclosure of taxpayer information. The TTB, as part of the U.S. Treasury, regulates and collects taxes related to alcohol, tobacco, firearms and ammunition. The TTB also oversees industry tax breaks, including one designed to help small brewers compete against larger brewers. If a small brewer makes fewer than 2 million barrels of beer a year, it pays a tax of $7 per barrel -- instead of $18 per barrel -- on the first 60,000 barrels made per calendar year.
Gatza says the TTB investigates brewers under suspicion of exploiting this tax break by brewing beer under different labels.
Forsley says the tax issue is not relevant to the case.
"The take-away is that this is a rare circumstance," says Gatza.
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