New Excise Tax Structure on the Horizon?

Most alcoholic beverage producers would agree taxes rank low on the list of their favorite things about their job. And it isn’t just the payments that stink; it’s figuring out who to pay, how much to pay, and when. New legislation introduced last week in the Senate is touting promises of reduced rates of excise tax on wine, and simplification of rules regarding records, statements, and returns.

Senate Bill 1562, informally called The Craft Beverage Modernization and Tax Reform Act, is an evolution of a number of similar pitches floating around throughout the alcohol industry. Bill 1562 would attempt to solve issues across the alcohol industry by covering taxpaying brewery, distillery, cidery, and winery operators.

In the winery world, the Bill would make the following notable changes:

  • Alcohol content for “table wine” would increase from 7-14% alcohol by volume to 7- 14.25%.
  • The Small Producers Tax Credit eligibility would increase in availability to wineries producing up to 250,000 gallons annually to 2,000,000 gallons produced annually.
  • A credit of $1.00 per gallon on the first 30,000 gallons of wine for all producers, excluding sparkling or carbonated wines.
  • A $.90 per gallon credit for all wine produced beyond 30,000 gallons and up to 100,000 gallons, if total production is less than 2,000,000 gallons per year. If production is between 1,000,000 and 2,000,000 gallons the credit is reduced 1% for every 10,000 gallons produced in excess of 1,000,000.

Bill 1562 would also allow wineries with tax liability of $50,000.00 or less to file their taxes on a quarterly basis, and would remove the bonding requirement. An additional change would allow annual tax filing for wineries expecting to owe less than $1,000.00 in excise tax.


2015 Grape Escape – Cancelled After Vendors Refuse to Participate in Event Sponsored by Retailer

We recently posted about how social media is advertising, and the care wine manufacturers need to take to ensure they do not run afoul of state tied-house laws.

The impact of those laws is being felt locally here in Sacramento, where organizers of the “Grape Escape” – an annual showcasing of local food and wines – have canceled this year’s event which was to be held in early June. Articles about the cancellation indicate that only four wineries signed up to participate this year, down from 47 a year ago. The primary reason appears to be fears over potential citations from the ABC. Last year, eight participants were investigated and put on probation (but not fined) for mentioning the event’s retail sponsor, Save Mart, in their social media postings, or directing consumers to the retailer to purchase tickets. Because manufacturers may not give anything of value to a retailer without violating tied-house restrictions, and because advertising constitutes a thing of value, social media mentions of a retailer by a manufacturer (i.e. “advertising”) runs afoul of the law.

Wine and food events such as the Grape Escape have a long and wonderful history. It’s a shame that retail sponsorship of such events can make vendors so nervous they choose not to participate, rather than develop specific guidelines or practices to ensure their promotion of the event does not run afoul of ABC advertising restrictions. Wineries should view the ABC as a resource for ensuring their own compliance with the law, rather than an adversary, and where questions arise, seek out guidance rather than pulling the plug completely.


Going Green: Labeling Organic Wine

Labeling of wine is subject to regulation by the TTB, and requires a certificate of label approval (COLA). Basic information that must be included on all labels include the brand name, class or type of wine, alcohol content, appellation, the bottler’s name and address, contents by volume, a sulfite declaration, and the government health warning. Previously, Uncorked ran a post about font and sizing requirements, accessible here.

If you want include “organic” claims on your label, you must satisfy USDA organic regulations for production and handling of your wine. Those requirements are beyond the scope of this post, but suffice it to say they are extensive. And, the type of “organic” claims you can make on your label are dependent upon a few key factors.

To label your wine “Organic” and to use the USDA Organic seal on your label, your wine-making operations must be overseen by a third-party accredited certifying agent (ACA) to ensure compliance with organic production and handling requirements. The yeast used in your wine, and all agricultural ingredients (i.e., grapes) must be certified organic, with the exception of those ingredients on the National List of Allowed and Prohibited Substances, information about which can be found here. Non-agricultural ingredients must be on the National List, and are limited to a certain percentage of the total product. Finally, only naturally occurring sulfites are allowed in wines with an “Organic” label. If you want to include a statement on the label that your wine contains only naturally occurring sulfites, you will need a lab analysis to back that up.

Wines with added sulfites (up to 100 ppm of sulfur dioxide) may not be labeled “Organic” or use the USDA Organic seal, but they may be labeled as “Made with Organic Grapes.” Only the grapes must be certified organic, the remaining agricultural ingredients need not be.

Labels for both “Organic” and “Made with Organic Grapes” must include the name of the certifier/ACA: “Certified organic by ***.”

If your wine doesn’t meet the criteria for “Organic” or “Made with Organic Grapes” labeling, you may still be able to list certain  ingredients as organic, but will have to submit proof of certification for each ingredient with your COLA application.

Setting your wine apart from the crowd with an organic label is great marketing. Just make sure you are current on USDA and TTB regulations before you send those labels to print!


Best Practices in Winery Tasting Rooms

If you have a tasting room, you know that following the letter of the law is the best way to stay under the radar (and off the naughty list) of the ABC. Violations, including serving minors or obviously intoxicated patrons, can have serious consequences, including jail time, criminal fines, administrative penalties, and civil liability. And you, as the owner, will always be held accountable for the actions of your employees, even if you were not present when a violation occurred. While insurance can cover general business liability, it never covers gross negligence, which is why it is so important to make sure that you and your team are trained in the best practices to avoid violations. In addition to or as a part of your employee training and handbook, here are a few things to keep in mind:

Do all of your employees know where your license is? The ABC requires you not only to be validly licensed, but to have your license posted. Every employee of your tasting room must know where that license is, and be ready to point it out to anyone who asks for it. If your business cannot produce a license, then the person serving alcohol is subject to arrest, and you as the owner are subject to an administrative penalty. In reality, the ABC is not likely to make an arrest until they have sufficient reason to believe that no valid license exists, but, even with a valid license, the posting is required, and the consequences are potentially severe.

Do your employees know where people can and cannot consume alcohol on your premises? All permanent ABC licensees have submitted defined spaces for alcohol consumption to the ABC. Consumption of alcohol outside that defined space is a violation. For this reason, you should make sure that all of your employees know and enforce these limits. If your defined space does not include your parking lot, for example, then it is up to you and your employees to ensure that people are not walking out of the permitted area with a glass of wine. Even a bus stop on a public sidewalk in front of your tasting room may be your responsibility. It is important to remember that consumption outside the allowed boundaries, even if the alcohol was not provided by you, is a violation, and you can be cited. That means no tailgaters.

Do your employees follow a policy of checking identification? Serving alcohol to minors is the most common ABC violation. As a classy tasting room owner, the idea of teenagers trying to crash your business to get a sip of wine might sound absurd, but the truth is that it happens every day. Each employee should be required to check the identification of anyone who appears to be under 35 years old. You may want to take this a step further and require that all customer identification be checked before they can taste. Employees should be trained to look for six items in order to validate an ID: 1) the ID must be issued by the government; 2) name of ID owner; 3) date of birth corresponding to an age of 21; 4) description matching the person presenting the ID; 5) photograph matching the person presenting the ID; and 6) the ID must not be expired.

Do your employees know when to cut someone off? It is an ABC violation to serve alcohol to someone who is obviously intoxicated. For ABC’s purposes, “obviously intoxicated” has nothing to do with a 0.08% blood alcohol level, and has much more to do with common sense. While this description leaves some wiggle room, it is best to have in place policies so that you and your employees never have to worry about infringing. Train your employees to observe your customers. If someone appears to have had one too many, make sure that your employees have a game plan. For example, tell your employees to let another coworker or manager know about the customer so that there is backup. Employees should be courteous to the customer, and explain that the ABC won’t let the employee serve any more drinks. If the customer is rude or belligerent, the employee should be encouraged to contact authorities. The employee should never bargain with the customer or back down. If possible, the employee should provide water and arrange for a ride for the customer. Any incident where a customer is cut off or has their drink taken away should be documented.

Remember, nothing prohibits you from doing more than is required by the ABC. In order to avoid violations and keep the ABC at bay, the best tasting room policies and practices go above and beyond the compulsory conditions.


Certified Farmers’ Market Permits: Wine Tastings Included

California winegrowers holding a Type 02 license have been able to sell their wine at farmers’ markets under a special permit (Certified Farmers’ Market Sales Permit) for some time. For a relatively nominal fee, now $50, a licensed winegrower may sell wine at a certified farmers’ market so long as the wine is (a) “produced entirely from grapes or other agricultural products grown by the winegrower” and (b) bottled by the winegrower. The permit is good for an entire year, but the winegrower may only sell wine one day a week at any given farmers’ market. A separate license is required for each certified farmers’ market at which the winegrower’s product is to be sold, but there is no limit on the number of licenses that may be held.

Annual sales for wine sold under all certified farmers’ market sales permits held by any one winegrower are limited to 5,000 gallons, and are to be reported to the ABC.

As of July 2014, the ABC also allows instructional tasting events to be held at certified farmers’ markets under this license, “subject to the authorization and managerial control” of the particular farmers’ market operator. Restrictions on instructional tasting events are as follows: (1) the event area must be separated from the rest of the market by some type of physical barrier (chain, rope, wall), with only one licensee conducting the event; (2) consumers may not leave the instructional tasting area with an open container; and (3) tastings are limited to 3 ounces per person per day.

Winegrowers undoubtedly welcome this expansion of their rights under this particular license, as it allows them to provide their potential consumers with the full farmers’ market experience of sampling the product prior to purchase.

Interestingly, as of January 1, 2015 licensed beer manufacturers are also allowed to sell their products at certified farmers’ markets, but the ABC restrictions differ from those applicable to licensed winegrowers. Most notably, tastings are not permitted, and the licensee can only sell at farmers’ markets located in the same county or an immediately adjacent county to that in which the beer manufacturer is located.


Placer County Considering Amending Winery Ordinance

Wine regulations can get complicated. Federal and state regulations must be followed, but one must also be aware that mandatory local ordinances can vary from county to county and city to city, adding further hurdles to the success of winemakers and wineries. Localized winery ordinances often regulate the size of tasting rooms, the number of events allowed, and other activities. One such ordinance affecting wineries that host events in Placer County is causing a stir.

As it currently exists, Placer County’s Ordinance 17.56.330 of the Planning and Zoning ordinances, adopted in 2008, is designed to “provide for the orderly development of wineries… encourage the economic development of the local agricultural industry, provide for the sampling and sales of value-added products, and protect the agricultural character and long-term agricultural production of agricultural lands.”  It includes provisions that keep special events and crowds to a minimum. All wineries are required to have a permit for up to six promotional events per year. Promotional events are limited to those that are related to producing wine at the facility, i.e. barrel tastings or relase parties of the host winery’s wines.

Recently, the Placer County Vintner’s Association has expressed concern that the ordinance is too restrictive, and has requested from the Planning Commission changes that would allow more leeway in holding larger and more diverse events.  According to the Association (and a County staff report on the issue), the current ordinance is more restrictive than the ordinances in neighboring Sacramento and Amador counties, and is the only ordinance in these three counties that requires promotional events to be specifically related to promoting the winery or its products. The Association’s goal is to have the ordinance amended to define promotional events more broadly to include private functions such as fundraisers and weddings, and to allow wineries to have more than six promotional events throughout the year. In addition, the Association would have any event with less than 75 people present labeled a “routine activity,” which would need no special permit. The Association argues that the proposed amendment will “help support the 20 wineries located on the Placer County Wine Trail, create local jobs, provide tax revenue to the city and county and keep our landscapes beautiful.”

Not everyone is on board with the potential changes. Some local residents fear that additional events will cause more traffic, which can be especially scary on Placer County’s winding country roads. This fear increases with the idea that people will be consuming wine at the events.  Increased traffic also means increased road maintenance, and some residents are not interested in footing that bill. Increased noise from events is also a factor that the opposition wants considered. Marilyn Jasper, who represents the Sierra Club and Public Interest Coalition, said that current protections safeguard against “de facto conversion (of farmlands) to commercial uses,” and opposes the proposed amendments.

At the end of February, the Planning Commission decided to send the proposed amendments to municipal advisory councils for comments before revisiting the issue later in 2015. We will be looking out for final word later in the year.


Craft Beverages: Where Can Wine Fit In?

It’s no secret that the craft beverage industry is booming. In the past few years, hundreds of craft breweries have opened across the state, with over 40 now in the Sacramento region alone. The liquor industry is also getting on board, with specialty flavors, blends, and other creative concoctions designed to woo the growing number of consumers who have expressed a desire for smaller, more artistic beverages. The craft industry has gotten so popular that one beer industry giant paid millions of dollars to address the issue head-on in a Super Bowl ad. With all of the hype (and, naturally, dollars) involved with “craft,” why hasn’t wine joined the movement?

On January 29, 2015, I attended a seminar titled, “Understand the Marketing of ‘Craft’ and the Opportunities for the Wine Industry” at the Unified Symposium. The panel consisted of J.E. Paino, general manager of Ruhstaller Brewery in Sacramento (you may have seen their hops being grown on the side of Highway 80 in Dixon), Kellie Shevlin of the Craft Beverage Expo (Suzanne and I will be exhibitors this year), Adam Johnson from the Kentucky Bourbon Trail, and Cindy Molchany of Craft Beverage Media. The first point that was made involved the definition of craft itself– everyone on the panel agreed that there was no set definition (or a need for a set definition), but that authenticity, lack of pretentiousness, and transparency about methodology were foundations.

The panel discussed some of the challenges that wine faces in fitting in to the “craft” scene, the first being that wine is perceived as a very traditional, stuffy, established beverage. This is contrary to the modern, younger image often marketed in the craft world. Being creative with wine also comes with some regulatory hurdles. Although ingredient regulations also exist in the beer and liquor worlds, wine regulations are the most stringent. A list of allowable and prohibited additives to wine can be found here. As one frustrated commenter at the panel stated, “Wine isn’t like beer. I can’t just dump a bunch of honey and vanilla into my wine and call it craft!”

The panel offered some alternative methods to attract craft consumers, including the finishing of wine, and advertising and marketing strategies. First, the idea of using alternative barrels was presented. For example, used bourbon or whiskey barrels can create a unique flavor profile to wine, and offer the consumer something unexpected. In addition, the panel suggested that, contrary to the traditional, customary, ahem, boring(!), labels that we’re used to see plastered on wine bottles, labeling can be a little bit more fun and creative. If the winemaker is also an artist, for example, have them render an original work for the label, or, if there is a special method that the winemaker uses, showcase that on the label! If you have a tasting room, consider adding a tour, or other special service aimed at giving the consumer a more personal experience with your wine. When consumers are able to experience the wine making process from the soil to the glass, the transparency of the process, as well as the consumer’s association of your product with the craft of the industry, increases.

If you’re in the wine business, you know that wine making is certainly a craft, in addition to being a labor of love. It’s time that the industry showcase this artistry to consumers.