Starting in November of last year I began seeing blog posts talking about the TTB (alcohol and tobacco tax and trade bureau) starting to crack down on US wineries that haven’t updated the ownership details on their basic permit. First there was this one posted by a law firm. I found that one, which was rather dramatic in its language, to be odd because it didn’t reference any links to the TTB’s site or any other sources for their doomsday statements. (“the TTB will force a business to shut down” “the TTB will terminate a business’ existing permits”) The TTB shared a reminder about the topic in their November 10th email. Then in an email sent by the Wine Institute in December, it stated the TTB is taking the stance that if a change of ownership or control has occurred and is not reported to the TTB within 30 days, that winery would not be eligible to deduct the CBMA tax credits when filing their excise taxes.
The ownership issue the TTB is concerned about falls into two categories. The first is when a winery is sold from one business to another. For example, ABC winery LLC sells its winery to Acme Inc. In TTB language this is called a change of proprietorship. (ownership)
The second category is ABC winery LLC makes changes on the ownership listed on its LLC. For example, it originally had two members holding 50% ownership each, both of whom were individuals. (John and Jane Doe) Then one of those 50% members was replaced with a new individual, Jake Doe. The TTB calls this a change in control.
In both of these scenarios filings are required to the TTB (within 30 days) to update the full ownership details on their basic permit, specifically to what the TTB calls their entity file.
The TTB is more concerned with the first scenario here, when an entirely new business entity takes over the ownership of an existing TTB basic permit. This is because if the ownership change application is not filed within the required 30 day period, and meanwhile the TTB excise tax reports continue to be filed by the NEW owner of the winery, the TTB has no way of verifying that they qualify for deducting tax credits off the excise taxes they pay, or are paid for them by a warehouse. (fulfillment center)
ABC winery LLC may have qualified for the tax credits, but Acme Inc. may or may not, depending, in part on their ownership details. There are also other key parts that determine how wines qualify for the CBMA tax credits, but ownership details come into play when a specific business, such as Acme Inc, if it owns multiple winery sites. The tax credits can only be applied on up to a total of 750K gallons per year. For any businesses that hold more than one winery site they have to sum that amount across all of the winery sites they own.
In this scenario, like many others when it comes to winery compliance tracking and reporting, there’s potentially a lot going on here with many layers to be aware of. In the event of a change of proprietorship when a winery is being sold, both parties must file applications to the TTB. The new entity is filing the change of proprietorship application and the old entity (seller) will file an application to terminate their basic permit.
In part 2 of this blog post series I’ll go into more detail about how and when wineries file ownership updates to the TTB. Wineries also need to be aware that at the same time they file these updates to the TTB, they must also be filing them for their home state license, and to all of the states where they hold shipping licenses.