I’ve recently read some articles about random audits here in Napa county conducted by the planning office. These random audits occur annually on 5% of Napa’s wineries which hold use permits with the county planning office. One of the key items they are looking at during these audits is a winery’s production gallons. The term production gets tossed around a lot in the wine business. It means different things to the different people and different agencies connceted to it, and in my world of compliance it has very specific definitions given to it by government agencies such as the county planning office in this case. It is also a specifically defined term used by the Alcohol Tobacco Tax & Trade Bureau (TTB). Do you know the difference in definition between those two agencies and how it can impact your winery?
If you are a winery that holds a use permit in Napa county it lists a gallonge amount. This amount is an annual gallonage you are allowed to “produce”. Their definition of the term “production” is tied to two different sets of numbers- both of which they verify by accessing the winery’s TTB report, the still commonly called “702”.
Calculating the first set involves some math. The county first takes a look at your gallons “produced by fermentation”, which is line #2 on the TTB report. They total these numbers from a calendar year’s worth of reports. Next they add to that the difference in your gallons of bulk wine received onto your site minus the gallons of bulk wine shipped out from your site. (Again on a calendar year basis) These received and shipped sets of numbers appear on lines 7 & 15 of the TTB report form. After reaching the final number of this first calculation they then take a look at one other number from the TTB report, line 13, gallons bottled. They compare the first calculation number to the total gallons bottled number and whichever is higher is what the county will use to base whether or not your winery is in compliance with the number of gallons listed on your use permit.
Wineries are more typically used to thinking of wine production only in relation to the first number, gallons produced by fermentation. However since it has become a very common practice to move wine around to different sites come bottling time these two additional sets of numbers (bulk wine received and bottled) are ones that they also need to be paying attention to.
I realize that the above description of how to calculate the county’s production number may have sounded a bit gibberish-like so for those of you who prefer a “real world” example here you go:
Let’s use fictional winery ABC Cellars. Here is their fictional summary for a year’s worth of TTB 702 reports.
They produced by fermentation (line 2’s totals) 8,540 gallons
They received in bond (line 7) 3,400 gallons and transfered in bond (line 15) 1,890 gallons for a net of 1,510.
Adding this to their produced by fermentation number we get 10,050 gallons. (8,540 + 1,510) This is the first calculation number.
Lastly their Bottled (line 13) number for the year was 9,640. The number the county would have compared to the number on their use permit is 10,050, since it is the higher of the two. So as long as ABC Cellars has a use permit above 10,050 gallons they would be in compliance as part of this county audit.
Wineries have plenty of moving parts to keep on top of when it comes to managing their compliance records and reporting. Ideally taking what I call a big picture view, which ties in all permits and licenses held at the federal (TTB), state (CA ABC) and local (county or city) levels is what makes the most sense for keeping them in the good graces of each agency.
Here is a link to the page on the county planning department’s site where you can access their summary “Winery Production Process”