Wine making is serious business here in California. As the owner of one of the region’s numerous wineries, you might even consider the wine making process a fine art.
And it is, but in the eyes of the IRS the process of wine making is also considered a manufacturing process. It’s subject to certain record keeping requirements, as well as specific rules and regulations of the TTB (Alcohol and Tobacco Tax and Trade Bureau) and CA ABC (California Department of Alcoholic Beverage Control), and the IRS.
With so many wineries operating in the Sacramento Valley alone, the TTB and CA ABC has plenty to do, but don’t make the mistake of thinking that an audit couldn’t happen to your winery…Because it could.
If you’re one of our clients here at Cook CPA Group in Roseville, chances are pretty good that if you were audited you’d probably sail right through. After all, with Cook CPA Group on your side you’d already be up-to-date with report filing and tax payments. You’d also have a cost accounting and inventory system in place that meets TTB and CA ABC requirements, as well as a cost accounting system that meets IRS requirements under UNICAP.
Cook CPA Group has the expertise you need.
If you’re just starting out in the wine making business you might not realize how many requirements there are to comply with or how many records you must keep track of daily, weekly, monthly, quarterly or annually.
Centrally located, Cook CPA Group in Roseville helps wineries just like yours successfully avoid audits, whether you operate an established or are just starting out. If you’re looking for an accounting firm that specializes in wineries, we have the expertise you need. And we like to think of ourselves as your partner in success and think it’s important to educate our clients on tax and accounting issues that affect their businesses.
There are two types of audits wineries might face, an IRS compliance review of both winery and vineyard operations and a TTB excise tax audit. In this post, we are going to discuss common compliance issues related to a TTB excise audit that vineyard owners with wineries and distilleries operations in the Sacramento Valley might find helpful.
Recordkeeping that supports wine making operations on premises is the most common compliance issue for wineries and distilleries. Not only is this documentation time consuming, but the regulations are specific.
For instance, you must keep track of items like bills of lading, invoices, pick slips, export documentation, inventory documentation, and lab results that are used as source records when preparing the Report of Wine Premises Operations submitted to the TTB. Breakage reports or records of incidents of breakage must also be reported.
Many wineries—maybe even yours–don’t have a record keeping system in place that meets these regulations. If that’s the case, then Cook CPA Group can help you.
When it comes to inventory, timing is everything. Then again, so is accuracy. TTB requires that the annual inventory be taken on June 30; however, many winery owners aren’t always aware of this. They also might not know that they must notify TTB if the annual inventory is performed at a time other than June 30. There is one exception: Proprietors who file annual report Forms 5120.17 are required to take their annual inventory on December 31.
Typical compliance issues associated with inventory records include failing to consecutively number inventory pages and not signing the inventory document or acknowledging the perjury statement at the end of the inventory document.
The biggest compliance issue according to TTB is maintaining inventory summaries of the counts for bulk wine, cased goods, and spirits. The volume of bulk and bottled, or packed wine must be totaled separately in wine gallons or liters, by tax class. If you need assistance setting up an inventory system, we can help you.
Reporting and Tax Payment
Most wineries are required to file the Report of Wine Premises monthly, but some are allowed to file quarterly or annually. Again, timing and accuracy is everything, and the most common compliance issues are not filing the Report of Wine Premises on time and incorrect information in the Report.
Wineries are required to pay tax on wine and file an Excise Tax Return and penalties, and interest may be assessed the tax is calculated incorrectly. Generally, this occurs because the data used to calculate the tax is not correct. As with most businesses, tax laws are complicated, and one mistake can be costly. That’s why it pays to have an accounting firm like Cook CPA Group who specializes in wineries on your side.
Basic Permit, Registration, and Bond
If your winery business is growing, that’s good news. The bad news is that there’s more paperwork to file; specifically an amended Application to Establish and Operate Wine Premises and Application for Amended Basic Permit under the Federal Alcohol Administration Act.
You may also need to increase your bond coverage for wine operations as well as tax deferral bond coverage. The wine operations coverage is calculated using the tax value of all untaxpaid wine and spirits on the bonded premises, in transit to the bonded premises and unaccounted for at any given time. The tax deferral cerage must be not less than the taxes due but not yet paid on wine removed from the bonded premises for consumption or sale.
If it seems complicated, it is. But don’t worry. We can calculate the tax liability as well as calculate your tax deferral bond coverage needs.