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US Wineries: Do your wines qualify for the small producers tax credit: Part 2

In last week’s post I wrote about how to determine if your winery qualifies to file and pay your TTB excise taxes under the small producers tax credit (SPC). There are two main areas that need to be understood related to qualifying for the SPC, the first is whether your winery qualifies (the focus of last week’s post) and second (if the answer to the first part is yes) whether your wines themselves qualify. That is the focus of this week’s post.

Even though your winery may meet the requirements for the SPC that doesn’t mean that all of the wines you bottle will. Here is where you need to be keeping a close tab on the individual winemaking details behind each final blend of wine you bottle for sale. Before clarifying what I mean by this I also need to point out that from a winemaking perspective one of the other main requirements of the SPC is showing wine production every year. Not sure what is meant by “wine production”? See my earlier post here

In taking a look at any of your individual wines that TTB excise taxes are due to be paid on here is the question flow to walk through:

  1. Did we produce all of this wine at our winery? Translation: Were all of the gallons in this wine blend once listed on line 2, Produced by fermentation of our TTB 5120.17 reports? If the answer is definitely yes then the wine will qualify for the SPC.
  2. If your answer is part yes and part no then you’ll need to dig into the details of the “no” gallons. For those gallons that were not “produced by fermentation” at your winery site where were they produced?
  3. Were they produced for your winery by another winery site as a custom crush client? If the answer is yes then they can qualify for the SPC but ONLY if you remove their gallons from your winery site as taxpaid, then file and pay the TTB excise taxes due. This is especially important to point out for all wineries that follow the very common route of sending their cased wines “in bond” to a wine storage warehouse and have them file and pay their TTB excise taxes.  I refer you to a good article on a case from 2015 where this very scenario was the issue that caused a winery a 6 figure late tax bill.
  4. Were the “no” gallons a purchase from the bulk wine market? If this is the scenario then those gallons may or may not be eligible for the SPC. Here again you’d have to dig deeper into the details of the bulk purchased wine. If the winery you are purchasing the wine from also qualifies for the SPC and they produced the wine then yes all of those bulk purchased gallons would qualify for the SPC. However in order to keep in compliance with filing your TTB excise taxes correctly for a wine blend that contains those bulk purchased gallons you would need to file and pay the TTB excise taxes for them from your winery bonded site and thus send them to your wine storage warehouse “taxpaid”.  If on the other hand the selling winery does NOT qualify for the SPC, or did NOT produce the wine then the purchased gallons would Not qualify for the SPC. For any bulk wine purchases that do not qualify for the SPC means that you’d need to inform your wine storage warehouse of the percent of your wine blend that does qualify for the SPC. Here’s an example with some math to show what I mean by this.  Your winery bottles 5,500 gallons of a blend that 3,465 gallons is wine you produced and 2,035 gallons is wine that was purchased from the bulk market. That would mean when you send this cased wine in bond to your wine storage warehouse you’d need to include in the documentation that only 63% of it qualifies for the SPC. So when they then file and pay the TTB excise taxes on it they’ll pay them on 63% of the amount of wine shipped. By the way you always have the option to send your cased wines to your warehouse as “taxpaid” which means that you file and pay the TTB excise taxes on them, not your warehouse.  Certainly for a wine blend like this one I’d recommend it.

As you can see following all the ins and outs of the SPC is no simple task. US Wineries need to be familiar with it however, as it can either save them or cost them a significant amount.

Questions about your winery’s TTB excise taxes? Full contact info for my office is here.