Napa County wineries: Ready for required use permit reporting?
Posted on 2016-03-06 by Ann Reynolds

The annual reporting requirement for all Napa County winery use permit holders just took another step closer to being in effect. This reporting requirement is part of the APAC recommendations still being reviewed and finalized by the Napa County Board of supervisors and planning office.

One of the results of the supervisors meeting last week was further honing of the details behind the APAC recommendation for an annual “self certification” program for all Napa County winery use permit holders. Currently Napa County wineries are not submitting any annual reports to the county office related to their wine production numbers. (though some are already required to submit their 75% grape sourcing numbers)

The first phase of this required reporting could start being implemented in 2017. This initial reporting requirement would be on the winery’s “production” and grape sourcing numbers. The county will be reviewing their current formula for determining a winery’s “production” gallons, which are tied directly to the numbers they report on their TTB 5120.17 reports. See my earlier blog post on the specifics of this calculation.

For those reading this who are wondering about their own winery site’s compliance with their Napa County use permit a training opportunity is coming up next month on April 12th from 9 til noon at the Napa Sonoma Small Business Development offices on the Napa Valley College campus.

The course, “How to keep your winery audit safe” will address the Napa County winery use permit topics mentioned above on wine production and grape sourcing and will also address common TTB winery audit issues such as the 5120.17 report and excise tax issues related to qualifying for the small producers tax credit.  Full course info and sign up link is available here.

This required wine production and grape sourcing reporting requirement will be just the first phase of the self certification program suggested by the APAC. The second phase would address some of the other areas of a winery use permit such as tasting and marketing events.

Winery owners and staff need to also be aware that until these compliance reporting programs are in effect that the random 20 audits per year will continue to be part of the county planning office’s schedule. The results of their 2015 random audits did show that 3 wineries were out of compliance related to either their production or 75% grape sourcing numbers.





Tips for wineries on interacting with the TTB
Posted on 2016-03-01 by Ann Reynolds

I am regularly emailing or calling or hearing from staff at the TTB offices. Most of this contact is with their national revenue center office in Cincinnati. This is the office that handles all of the TTB permit applications and all of their related follow up. (with the exception of label approvals)

Back in my early days of these interactions when I was on staff at a winery hearing from the TTB offices more often than not brought on a wave of queasiness in my stomach. They would often ask me questions that I was not sure how to answer and didn’t want to sound like I didn’t know what I was talking about. Plus I was talking to a government agency that could potentially come out and audit my winery and I certainly didn’t want to be responsible for bringing that on! The chances of that occurring as a result of my emails or phone call was essentially none- but I didn’t know that.

I think that winery staff still have a sense of hesitancy about contacting the TTB because there is still that concept out there in the winemaking world that doing so will bring the TTB wrath down on them. Generally not so, however there are still “best practices” when contacting their offices that will set you up for success rather than frustration or communication breakdown and greatly improve your chances of getting a helpful answer to your question(s).

To make sure any of these interactions that you may have w/the TTB offices are as successful as possible I’ve put together a list of tips from my experiences of almost 20 years of TTB Q & A.

  1. Before you call or email the TTB do you have either signing authority or power of attorney for your winery or wine cellar?  They won’t speak to you if you don’t.
  2. Know all the necessary details about your winery to reference in your email or beginning part of your phone call.  These include your TTB BWN or BWC #, and business name as it appears on your TTB permit.
  3. Be clear about the specifics behind the reason you are contacting them, and then put those specifics as much into “TTB terms” as possible. For example, if your question is related to one of their reports such as the 5120.17 reference it in terms of the report line that it relates to.
  4. Here are a couple of examples of what I’m talking about in #3 here.  Say you’re wondering about bulk wine coming into or leaving your winery? Then you’ll use the terms wine “received in bond” (coming in) or wine “transferred in bond” (going out). Or say you’ve got a question about your loss amounts for regular day to day bulk wine activities. The term you’re looking for there is “inventory losses”.
  5. If you are contacting them by phone early in the day is the best time, considering that they are 3 hours ahead of you for example if you’re calling from a CA, WA or OR winery. If I need  to contact them by phone I put that task on my list before 9 am and will usually call as early at 7 am- which is 10 am their time.
  6. Document the answers you get from your contact w/them. This is easy if it happened via email. Simply print out the email chain and file in a “TTB Q & A” binder or some sort of compliance reference file which is something I highly recommend having. If your interactions happened over the phone take notes to include the TTB staff persons full name, the topics covered and their response.




When is a red blend not a red wine? In the TTB label approval process!
Posted on 2016-02-22 by Ann Reynolds

This week’s blog post comes to you courtesy of a recent contact I had with a  winery compliance colleague. Their request was for a post on a topic related to wine label requirements, and specifically what the TTB calls a wine’s “class and type”. This is a required item on all wine labels but many wineries were getting it wrong on the label files that they sent to my colleagues office.

One of the common services that offices like mine and others provide to winery clients is to submit their labels for TTB approval. (COLAs)  As a part of that process we regularly need to request the wineries to make edits to their label files before they meet the requirements for submitting them to the TTB.

The issue my colleague was having:  wineries that list “red blend” (as their class & type) on their wine’s front label. The winery’s intent is to use “red blend” instead of listing a single varietal name (pinot noir, cabernet sauvignon, etc) which is the other most commonly used class & type on wine labels. The problem with this is “red blend” is not on the TTB’s approved class & type list. A wine label that is submitted to the TTB for label approval that only lists “red blend” on it would come back marked “correction requested”, specific to the “red blend” class & type being insufficient.

What term is on the TTB’s approved class & type list?

Red wine. (along with white wine and rose wine by the way!)

Wineries - you can't leave out the wine in your red, white or rose blends! Click To Tweet

As winery compliance consultants when we receive label files that list “red blend” or “white blend” or “Rose” we have to get back to the winery and request them to edit their wine label to instead list “red wine” or “red wine blend” or “white wine blend” or “white wine” or “rose wine” before he can go ahead and submit for TTB label approval. By the way if your wine is below 14% alcohol you can also list “red table wine” or “white table wine” or “rose table wine” on the label as the class and type & you would NOT need to list an alcohol percent.

While we’re on the topic of wine blends and their labels- there are two options that wineries have if they desire to elaborate a bit further about the varietals that make up their “red wine blend”. (or white wine or rose wine)

Option 1. They may list the varietals in the blend on the wine’s front (brand) label. They list the varietals along with their percentage in descending order and the percentages must total to 100%. 

Option 2. A winery can list “red wine blend” (or white wine or rose wine) on their front (brand) label and then elaborate on that further by listing the varietals in the wine’s blend in the back label text. If a winery chooses this option they must list in descending order any varietals in the blend that account for 5% or more. There is no requirement to list their percentages with this option. This option fits if your wine blend has several varietals in it and they won’t all fit on your front label along with their percentages but  you’d like to be able to share all those details with your wine drinking public.





US wineries: Does your winery qualify for the Small Producers Tax Credit? (part 1)
Posted on 2016-02-08 by Ann Reynolds

My most recent blog posts have been about the currently hot topic of TTB wine bonds. In today’s post I’m covering some in depth specifics on what the purpose of a TTB wine bond is all about: excise taxes. Within the topic of TTB excise taxes I’ll review the first part behind qualifying to pay those required TTB taxes under the Small Producer’s Tax Credit, or SPC. The majority of US wineries qualify for the SPC, however this credit is also very misunderstood and commonly misused on TTB excise tax returns. So this part 1 post is focused on “how to walk your winery permit” through determining the first step in qualifying for the SPC, which is whether or not your winery ownership qualifies.

This is a multi part question and answer process to determine if your answer is yes.

To start you first need to take a look at your TTB permit application file for your winery. If the ownership of your winery also owns other winery sites (this includes as an alternating proprietor at another site) you’ll need to reference those TTB permit application files as well. You will also need to make sure you reference the most current TTB permit application file (for all sites if applicable) that matches your current ownership details. (i.e. If you’ve changed from one entity type to another or if you’ve changed the ownership on your LLC for example) What you are looking at specifically in your TTB application file is all the individuals listed as the owners/officers. This is because the first qualification for filing under the SPC is that if any owner or officer above 50% ownership on your TTB permit is also listed as an owner/officer above 50% ownership on another TTB winery permit then the annual wine production gallons and the amount of tax paid wine removals per year must be summed together for both sites. This is what the IRS refers to as a control group The total amount of annual production for all sites cannot be more than 150,000 gallons in order to qualify for the tax credit at the full 0.90 per gallon amount, and the credit can only be taken on up to 100,000 gallons for a year’s worth of wine removals from all sites on your TTB excise tax reports.

In layman’s terms what could this look like you ask? For example, if Sue Z. is listed as the CEO with 60% ownership of  ABC Cellars LLC at a winery site in Napa, CA and ABC Cellars LLC also has a second TTB permit as an alternating proprietor (AP) at a site in Sonoma CA then they would need to be summing their wine production gallons and their wine removal amounts together each year to determine whether or not they qualify to file and pay their TTB excise taxes under the SPC.

Be aware this is just one example of a multi site ownership that is an example of a control group. There are other types as well so if you are wondering about your site please feel free to contact my office to discuss further.

If you are reading this and you know that your winery is owned by an individual, partnership, LLC or corporation and that none of the owners or officers are listed on any other TTB winery or wine cellar permits then you pass this first small producer’s tax credit qualification test. (Congratulations!)  

Stay tuned next week for part 2: Does your wine qualify for the small producer’s tax credit?

 





Does your winery qualify to cancel your TTB wine bond?
Posted on 2016-02-02 by Ann Reynolds

This is post number three following up on the TTB’s announcement related to updates in their wine bond requirements. This post is designed to help answer the question, will my winery qualify to no longer need a TTB wine bond? As is the case with winery compliance each TTB winery permit holder has their own details that determine how their TTB compliance works, in this instance specific to their TTB wine bond.

Here is a path to follow to determine whether your winery will qualify. 

  1. TTB excise tax payments are made on cased wines. (In almost all situations) Does your winery use an off site wine storage warehouse for your cased wines? If yes then your first step is to refer to one or two years of invoices from them, specifically looking for all the TTB excise tax payments they billed you back for. Sum those up (ideally 2 years worth is best for comparison) and if the total for either year is not more than $50,000 your winery likely qualifies to cancel your wine bond come the end of 2016.
  2. If you ship your cased wines directly from your winery this means you are responsible for filing and paying your TTB excise taxes under your own bonded winery permit. Here again reference your TTB excise tax reports for at least 2 years worth and compare each year’s total amounts to determine whether or not you’re over the $50,000  per year amount.

To give you an idea on what these excise tax calculations look like here are some examples of amounts of wine shipments per year that would be less than $50,000 due in TTB excise taxes.

  1. Up to 13,390 cases of over 14% wine @ $1.57/gallon (the full tax rate)
  2. Up to 6,700 cases of over 14% wines @ $1.57/gallon and 9,300 cases of below 14% wine @ $1.07/gallon
  3. Up to 21,030 cases of over 14% wine & 21,030 cases of below 14% wine both @ 0.90/gallon (under the small producers tax credit)
  4. Up to 42,060 cases of below 14% wines @ 0.90/gallon 

As you see the excise taxes that your winery owes per year are based for one on the alcohol content (tax class) of the wines you ship out to customers each year. This ratio may or may not be a steady one year to year for your winery. However the majority (79%) of US wineries make less than 5,000 cases per year and the next group up from that (18%) makes less than 50,000 cases per year. See chart here.  As long as your winery and your wines qualify for the small producers tax credit, your winery can ship out up to 42,060 cases of wine per year and owe less than $50,000 in excise taxes. (more details to come on this in a future blog)  Based on the above, more than likely the majority of US wineries will qualify to cancel their TTB wine bond come the end of 2016.





TTB wine bond update part 2: No wine bond does not mean no TTB permit
Posted on 2016-01-26 by Ann Reynolds

In last week’s blog post I explained the details behind the TTB’s recent announcement that starting in January of 2017 many US wineries will no longer be required to maintain their TTB wine bond. Not surprisingly I received a lot of follow up questions. There is no shortage of confusion around just this one topic of winery compliance. So I’ll be continuing to follow up with additional blog posts to explain exactly what a TTB wine bond is and how to determine whether or not your winery will qualify to no longer need one. Today’s post however is meant to clarify a possible misunderstanding. Simply because your winery may no longer need to maintain a TTB wine bond does NOT mean that you won’t still need your TTB basic permit as a winery.

All businesses that desire to make and sell wine in the US will still be required to obtain (or maintain) a TTB basic permit as a winery. I underlined make in that sentence because as a “producing and blending” TTB winery permit holder that means your winery must actually ferment either grapes or juice (Or both) on a regular basis. TTB code breaker: ferment = make or produce! I always suggest to winery clients that they ferment at least some gallons every year. (Which would then show up on their TTB 5120.17 report as “produced by fermentation”) If your winery has not or is not showing some “produced by fermentation” gallons on this required TTB report then in the eyes of the TTB your site is not “acting like a winery” and your TTB permit can be downgraded from a winery type to a wine cellar type. I also remind my clients that qualify to file under the small producers tax credit for their TTB excise taxes that they must show “produced by fermentation” gallons every year in order to file for this credit on their TTB excise tax reports. 

Here are some other thoughts on the TTB’s elimination of the wine bond for qualifying wineries. What will happen to the use of the phrase “bonded winery” for example? We love that phrase, and it is often used incorrectly from my readings in the winery compliance world. For example I’ve often seen the phrase “virtual winery” used to describe what are technically a “bonded winery” type of business, something that is an ongoing annoyance. Plain and simple a bonded winery is a business that holds a basic permit with the TTB as a winery. Who holds this type of TTB basic permit? Stand alone winery sites are one group, alternating proprietors or APs are another, and then sites which house more than one type of alcohol beverage production facility, such as a brewery which also makes cider on the same site will hold both a TTB brewery permit as well as a TTB winery basic permit. (for the cider production)

Also a “bonded winery” has a “BWN” number. We often refer to this as the TTB permit number, which is also inaccurate. If you look at your winery’s TTB permit up in the top right corner you’ll see 4 numbered boxes. Box # 1 is titled “permit number” and will list your state TTB permit number. Such as CA-W-12345. This is NOT your “bonded winery” number. Your winery’s “bonded winery” number is the one listed in box #3. This is your BWN #, such as BWN-CA-54321. The TTB calls this your registry number. That however is the correct number to use on all your TTB reports, what is required to be listed on the bill of lading for a shipment of bulk wine, and is also listed on any TTB label approvals that are submitted for wines bottled at your winery site. 





US wineries: Will you need a TTB wine bond starting in 2017?
Posted on 2016-01-19 by Ann Reynolds

As a winery compliance consultant it makes sense that I’m signed up for the TTB’s email updates. Some of these announcements are useful, while some have no effect on me at all. Yesterday’s was a rare breed in that I was surprised by what I read. What was so surprising? Starting in Q1 of 2017 holders of a TTB winery basic permit that meet the requirements to file their TTB excise taxes on either an annual or a quarterly basis will no longer be required to maintain a TTB wine bond. 

That’s big news! What does that mean for thousands of US wineries? (& for those about to start a new TTB winery application) They will no longer need to apply for or maintain their TTB wine bond, which for most businesses is an annual insurance policy. All wineries that owe up to $50,000 per year in TTB excise taxes can qualify for this “no TTB wine bond necessary” status. 

Next question, do you know what your winery’s current TTB wine bond amount is? This is the form that you are looking for in your records OR you can call your winery’s insurance office as they are likely who the TTB wine bond was set up through, as well as who you’ll contact come the end of 2016 to cancel the policy if your winery qualifies. 

Their are currently well over 8,000 wineries in the US and closer to 80% of those produce less than 5,000 cases of wine per year. That means they likely qualify to cancel their TTB wine bond. (as long as their winery isn’t part of a larger winery “portfolio” held by the same umbrella ownership) By the way if your winery ships out up to 23,000 cases of wine per year & qualifies for the small producers tax credit than you also likely qualify for this “No TTB wine bond necessary” status. 

If you are still wondering about your winery’s TTB wine bond status and whether you’ll qualify to cancel it come the end of this year please reach out to my office here to discuss further.

See the full text of the TTB’s announcement here.

 





California wineries: Have you filed your 2015 reports?
Posted on 2016-01-12 by Ann Reynolds

It’s the beginning of a new year and with that in the world of winery compliance it also means for many wineries the required filing of one federal (TTB) and one state (CA BOE) report related to their 2015 winemaking activities. Has your winery filed? They are both due by Friday, January 15th. Does your winery qualify to file each of these reports on an annual basis? See my previous blog post here about qualifying to file the TTB report, the 5120.17 on an annual basis. For the CA BOE Winegrower tax return if your winery qualifies to file the report annually it will be mailed to you on an annual basis and be filled in with the full calendar year as the reporting period.  See an example here of the CA BOE report. You also need to be aware that the CA BOE report is required to be sent in even if you list all zeros on the first page. There is a late fee and your CA ABC license can be suspended if this report is not sent in.

If you’re reading this and wondering about how to complete either of these reports for your winery I invite you to sign up for a brief “Compliance check in” call. 

There are a lot of what I refer to as moving parts in any winery’s compliance systems. And each of those moving parts are connected in one way or another to the others, but if you or someone at your winery isn’t aware of these connections it can lead to issues such as audits, fines, and in some cases permit cancellation. To further clarify some of these moving parts I discuss some of them in another recent blog post. A summary I called “year end compliance wrap up” tips. See that post here.

For all you annual filers out there, here’s hoping you’ve already checked these two report filings off your to do list.

If not and you’d like some guidance feel free to reach out:

Send an email

707-266-1946

 





Wineries: How to electronically file your TTB Report of wine premise operations
Posted on 2015-12-29 by Ann Reynolds

This post is part 3 of a series on the most common TTB required report that all US wineries must file, the 5120.17 (or 702) Report of wine premise operations. The last two blog posts have both been building up to this one. The first told you about qualifying to file this report on an annual basis and the second detailed specific wine production numbers all wineries are required to be reporting on an annual basis.

This week’s post is about the actual filing of this TTB report, and specifically on filing it using their online system, Pay.gov. I’ve been using this online system since 2009 for clients and continually recommend it. The primary advantages of using Pay.gov are: 

(1) You know the TTB received your report! (No snail mail issues)

(2) The system won’t allow you to send in an incomplete or out of balance report. I will clarify that when I mention incomplete by that I mean for example, if you list gallons on line 2, “produced by fermentation” it then requires that numbers are also listed in part 4, Summary of materials received and used, specifically line 5. 

Want to know more about how to file your winery’s TTB reports?

Here are the details for getting started with filing this TTB report on the Pay.gov site.

  1. Sign up for an account. The person who signs up for the account MUST have either signing authority or power of attorney for the winery’s TTB permit. 
  2. Once your account is set up you’ll receive your logon and initial password and can begin submitting reports. The Pay.gov system is available for submitting the 5120.17 Report of wine premise operations as well as 5000.24 Excise tax report and payments.
  3. All your reports submitted online will be available moving forward, and any necessary amendment filings that come up for your winery down the road can also be submitted on your Pay.gov account. 

This required TTB report is often the source of audit issues for US wineries, some of which are that they are filed late, incorrectly or not at all. By having and using the Pay.gov system on the filing schedule that best matches their wine making numbers winery staff can gain some peace of mind that they are covered.

Not sure that your winery is covered for required TTB reporting?





Wineries: Requirements for showing wine production numbers on your TTB report
Posted on 2015-12-22 by Ann Reynolds

This week’s blog post is the 2nd in a series I’m posting for winery staff to help them understand and be aware of how they need to be reporting some specific numbers annually (at least) on their required TTB Report of wine premise operations, or 5120.17 (702) filing(s). In assisting wineries with this report I regularly see that they are either completed incorrectly or are missing numbers on specific lines that any US bonded winery must list per TTB regulations. If these numbers are not listed on these required reports it can lead to issues such as TTB audits, wine label issues, and potentially loss of your permit.

The specific report numbers I’m referring to are lines 2 & 5 in part 4, Summary of material received and used, and line 2 in part 1, section A, Bulk wines.  (See TTB report template here)

Part 4, summary of materials received and used is the “harvest” section of a winery’s report. This is where your wine making numbers will start on this report for all grapes or juice you receive and process at your site. Line 2 is for the pounds of all grapes or gallons of juice (if they came onto your site as juice not grapes) received at your site and line 5 is for when those pounds or gallons have finished fermentation (either alcoholic and/or malo-lactic) and your winery thus “declares” them finished wine which is when they “graduate” to line 2 of part 1 section A, “produced by fermentation”.

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The problems I commonly see with this report specific to the above report lines are:

  1. Numbers are listed on line 2 “produced by fermentation” but no numbers listed in part 4
  2. No numbers listed in either part 4 or on line 2, “produced by fermentation”
  3. Numbers listed in part 4 are listed incorrectly or are incomplete

What are the potential end results that can come from sending your TTB reports with the above issues:

  1. If like #2 above your reports never list numbers in part 4 or on line 2 in part 1 of section A then your winery would not qualify to file your TTB excise taxes under the small producers tax credit AND in the event of a TTB audit your basic permit could be in jeopardy because in the TTB’s eyes you are not acting like a winery. What does that mean? As part of holding a TTB basic permit as a winery (you know, that BWN # we’re always referring to?) you are actually required to conduct some amount of fermentation activity. At a minimum that would show up on your TTB report as some juice gallons received (line 2, column C in part 4), then the resulting finished wine gallons from fermenting that juice on line 4, column C in part 4 and lastly those finished wine gallons on line 2, produced by fermentation in either column a or b depending on the wine’s alcohol content.
  2. Wine labeling issues. If your wine label lists “produced and bottled by” on it, then per TTB requirements at least 75% of the wine blend must have at least finished fermentation at your winery site. Meeting this requirement backs directly into gallons that appear on line 2, produced by fermentation of the TTB report. 

 Still feeling lost or concerned about this TTB report for your winery?

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