There is no shortage of terminology used in the wine industry and that tends to go double when talking specifically about winery compliance subjects. One of those commonly used terms is bond. Some common phrases you might hear are, “What’s your bond number?” “The wine is still in bond” or “What is your bond coverage?”. What does it all mean?
The term bond for the wine industry is all about the ever popular topic of taxes. Probably no surprise there. At the federal level when a winery is established with the TTB (Alcohol & Tobacco Tax and Trade Bureau) part of the process is establishing their bond coverage. This is essentially taking out an insurance policy which will cover their excise tax liability due to the feds. A winery has to calculate out what their total tax liability will be in order to know what level of bond coverage they need.
How do they calculate this? They are basically taking a look at the total volume in gallons of wine that they may potentially have stored on their site during any given month of the year. This total volume must also be broken out by tax class, which is determined by the wine’s alcohol content. They then multiply the gallons of wine in each tax class by the excise tax rates and sum the totals together to get what their potential tax liability would be. That total liability dollar figure is then what determines the amount of bond coverage the TTB would require them to maintain.
One of the problems that wineries can often run into in this area is that when they first start out in business they are at the smaller production size, so their gallonage totals are hundreds or a few thousands at the most and their bond coverage is set up for that amount. But then over time business progresses, their popularity grows and then so does their wine production. They basically “out-grow” their original bond coverage amount but nobody is paying attention to know to update their policy to the new level.
Where wineries can run into trouble with this is if they have an accident involving some of the wine on their site. (or en-route to or from) In the event an accident occurs and hundreds or more of gallons are lost of finished wine a winery would normally then file a claim to the TTB explaining what had occurred so they wouldn’t be red-flagged when their next monthly report showed up with a big difference in the gallons in their physical inventory. In the event that they had not updated their bond coverage to the appropriate level the TTB may take dispute with their claim and say the loss was not covered and the winery would be liable for the taxes due on wine they had lost.
If you’d like to reference a form provided by the TTB for calculating what your bond coverage should be you can locate it at their site: www.ttb.gov/wine Once there look under their “Quick Links” section on the right side and select the “TTB Wine Seminar Handout Packet”. You will find it on page 29 in this helpful packet.