By Michael Kaiser, Vice President

3.19.18

Background

A two- year version of the Craft Beverage Modernization and Tax Reform Act (CBMTRA) was passed as part of the Tax Cuts and Jobs Act. The President signed the bill into law on December 22, 2017, and the new excise tax reforms were implemented on January 1, 2018.

TTB has been gradually issuing guidance on the reforms, including a proposal on March 2 concerning  the tax credits being taken on bonded wine cellars (BWC). Under the existing small producer tax credit, bonded wine cellars were eligible to take the credit for the specific wineries they were storing the wine for, and would bill the wineries based on the taxes paid. TTB has ruled that the temporary tax credits are a suspension of the previous tax credits, and the new credits cannot be applied by a bonded wine cellar.  

Issue

Under the new ruling from TTB, only wine that is produced by the taxpayer and is removed by the same taxpayer is eligible for the new tax credits. Any wine that is removed in bond from a winery and transferred to a bonded wine cellar or another winery is not eligible for the credits. Many small wine brands use what is known as a custom crush facility. That is, a wine brand will make their wine at another winery’s facilities because they do not have their own production space. Without the ability of a bond to bond transfer the smallest wineries in the country will face a substantial tax increase.

As mentioned above, the TTB will no longer allow bonded wine cellars to take tax credits on behalf of other wineries that are storing their wine at their respective facilities. This arrangement was previously allowed in the currently suspended Small Producer Tax Credit. The language of the two -year bill that was passed as part of the Tax Cuts and Jobs Act does not state that the Small Producer Credit was to be eliminated altogether. The original version of the Craft Beverage Modernization and Tax Reform Act stipulated this, and that all bonded wine cellars would be allowed to apply the new tax credits on behalf of wineries. The TTB is applying a strict interpretation of the law’s language, which led to this decision. TTB has permitted wineries to continue to allow bonded wine cellars to take the credits on their behalf until June 30, 2018 using “on paper” transfers of wine in bond (pre-tax).

Implications for Wineries

If this is not fixed regulatorily or legislatively, many wine producers will face sharp tax increases, rather than receive new tax savings as intended by the Craft Beverage Modernization and Tax Reform Act. There are several serious implications for wineries:

• Not all of the wine sold by a winery may be eligible for the new tax credits because it was produced at another facility, then transferred to and bottled at the winery that sells the wine.
• Many wineries store significant amounts of wine at bonded wine cellars. Many producers simply do not have the space to store all of their wine produced at that particular production facility. With bonded wine cellars no longer allowed to take credits on the stored wine, many wineries will face significant tax increases.
• Many wineries will face significant recordkeeping costs if a portion of their wine  production does not qualify for tax credits.
• Small wineries that qualified for the Small Producer Credit who do not produce their own wine at their own facility will no longer qualify for any tax credits and will pay the full tax rate on their wine. A significant tax increase for many small businesses that was not anticipated and the exact opposite of the intention of the bill.
• A preliminary survey of wineries indicated that the vast majority intend to use their projected savings from the CBMTRA to invest in their businesses by hiring new people, investing in new facilities, purchasing new equipment, and expanding their marketing. If the current TTB guidelines were implemented, these investments would almost certainly disappear.
• A major economic impact study sponsored by WineAmerica showed that in 2017 the American wine industry generated $220 billion in economic benefits to the American economy. The vast majority of the roughly 10,000 American wineries in all 50 states are small, family businesses which would be severely hurt by implementation of these guidelines, as would the industry’s overall contribution to the U.S. economy.

Action

WineAmerica is working with industry colleagues, the TTB and Congressional staff to remedy this situation. The first step is to request that TTB either reverse their decision or to extend the “alternative procedure” beyond June 30. They have the regulatory authority to do this.

Secondly, WineAmerica urges the House Ways and Means Committee and the Senate Finance Committee to pass a technical corrections bill as soon as possible. A legislative fix would negate TTB’s decision and would remedy the situation.

@bitnervineyards      @bitnervineyards

Established in 1981, Ron and Mary Bitner opened Bitner Vineyards in Snake River Valley, ID. While Mary tends to handle the business side, Ron uses his knowledge in entomology to tend to the grapes in their vineyards. Since the beginning, they have sought to be “sustainably grown, patiently crafted, and innovatively driven.” They have taken various measures to ensure their goals. First, Ron and Mary use only LIVE (Low Input Vineyard and Enology) vines. LIVE vines are exposed to few chemicals to protect the soil and water for the people and animals of Idaho. Mary and Ron are avid believers in integrated pest management, to create a more holistic environment for their vines as well. In their vineyard, bees are protected and loved; Crops are planted between vines to encourage bee pollination and population growth. Their inclusion of natural wildlife and limited use of pesticides has led to the creation of amazing wines. Their wines have achieved notable awards from the Tasters Guild international, the Idaho Wine Competition, the Denver International Competition and Great Northwest Wine. Besides these accolades, Bitner Vineyards received the Governor’s Award for Excellence in Agriculture for their sustainable practices in 2016. Through their actions now, Ron and Mary will be able to leave their vineyards to one of their ten grandchildren in the future.

 

 

Excise Tax Reform: A Stimulus for Growth

For the past three years, WineAmerica has worked with a broad coalition of other beverage commodity trade associations to secure passage of a two year version of the Craft Beverage Modernization and Tax Reform Act (CBMTRA), which occurred in late 2017. WineAmerica’s government affairs team partnered closely with our wine, beer and spirits counterparts to secure passage of this landmark piece of legislation.

The new tax credits are due to expire on December 31, 2019. WineAmerica and our beverage trade association partners have begun advocating for a longer extension and/or permanence of the new credits. To help in our advocacy, WineAmerica needs to hear directly from the wine industry about the benefits of excise tax reform. Congress needs to hear the story of how our industry benefits from the long overdue reform of federal alcohol excise taxes.

How are you going to reinvest in your business and communities? Please take this short five-question survey to let us know your plans for the future of your business. We are interested in specific testimonials that we can take to Members of Congress when we are up on the Hill working this issue. If you are willing to be identified, please provide us with your winery name and address. If you wish to remain anonymous, let us know but please still provide your intentions verbally, and we will not reveal the source.

The survey can be found here: http://wineamerica.org/taxsurvey

It will remain open until March 31, please pass it along to your peers.

Thank you

 

@BBranchWinery   @bendingbranchwinery

While the property was originally built in the 1840s, Bending Branch Winery was founded by Dr. Robert W. Young, M.D., and his family in 2009. Upon the opening of the winery, Dr. Young became a member of the Renaud Society, an international society of medical professionals using wine to improve the health of individuals. At the same time, he pioneered the use of cryomaceration and thermoflash fermentation in the state of Texas. However, it is equally important to note that his wife, Brenda, and his daughter, Allison, are founders as well. While Dr. Young makes the wine, Brenda and Allison run the rest of the show from tastings to wine club membership.

At present time, the vineyard stretches across fourteen of the fifty-six total acres of the estate. The Caliche soil of the region creates a unique Hill Country terroir, clearly tasted in the Bending Branch’s popular Tannat. Since the development of its first vintage, Bending Branch has been winning awards for its wine every year. Its various awards include being named one of the Top Texas Wineries by the 2018 Houston Rodeo Uncorked! International Wine Competition and Top Texas Wineries from San Antonio Express News Reader’s Choice for three straight years. If you live in the area, the tasting room is open Thursdays to Sundays every week. If not, the winery ships to all fifty states and the District of Columbia. While everything might not be better in Texas, Bending Branch’s wine is reason enough to visit.

 

 

 

 

 

 

 

 

 

@rabbitvineyards

Winemaking was first a hobby for Roy Albin, then a business. Thirty-five years ago, he started making fruit wines and honey wines for fun. In 2007, he and his wife, Linda, turned their joint passion into a business; they planted the first vines at their own winery, Royal Rabbit Vineyards in Parkton, MD.  At its heart, the winery showcases the region’s mid-Atlantic flavors. Located thirty minutes outside Baltimore, their wine has won numerous awards including, the Comptroller’s Cup and the Governor’s Cup. In November 2011, Royal Rabbit officially opened to the public. Now, Roy and Linda’s hobby has turned into a family business; Roy’s parents, affectionately known as Mom and Pop, can be seen around the vineyards and winery crafting wine as well. In the seven years since its officially opening, Royal Rabbit now ships to thirty-five states and the District of Columbia. If you are in the area, the tasting room is opened Thursdays to Mondays 11am- 5pm.