The Wine Industry has taken root in California and has grown to have a significant number of wineries in the greater San Diego region. Wineries, Wine Warehousing, Wine Brokers, Wholesalers, Distributers, and Retailers have special legal issues from permits, licensing, regulation, COLA’s to contracts. Mirowski & Associates is dedicated to providing businesses in alcohol related industries with legal guidance and representation to overcome bureaucratic obstacles and cement solid business relationships. This is not only because we here at Mirowski & Associates love a glass of wine, but because Paul Mirowski has been personally making wine in California for over seven years.
WINE LAW TOPICS
The Personal Use Exemption
Under Federal law, any adult may, without payment of tax, produce wine for personal or family use under regulations in 27 CFR § 24.75, which provide the following:
- The individual must follow applicable State and local laws.
- The individual must be 18 years of age or the legal age to purchase wine in the locality, whichever is older.
- The individual may produce, without payment of tax, per household, up to 100 gallons of wine per calendar year if there is one adult residing in the household, or 200 gallons if there are two or more adults residing in the household.
- The individual may remove wine from the place where it is made for personal or family use, including use in contests or tastings.
- The individual may not produce wine for sale or offer wine for sale.
The following are the three most recognized business models for operation of a winery in California.
Stand-Alone Bonded Winery
Defined: This is the traditional fully “Bonded Winery” wherein the owner establishes and operates the premises on which wine production operations are conducted. The owner obtains all the proper permits and registrations from all federal, state and local entities, a process which may take many months and possibly a year or more to complete.
Defined: When two or more wineries are approved by TTB to share the use of portions of the same bonded wine premises on an alternating basis, they are known as Alternating Proprietors (AP). The Alternating Proprietor business model may consist of a small winery operation located within an existing winery facility or two or more smaller wineries sharing a common facility. The wine company which owns or controls the building is known as the “Host,” and the other wineries which share the premises are referred to as “Tenants” or “Alternators.” The Host and the Tenant wineries are each fully qualified as bonded wineries independent of one another. Each AP is a separately bonded winery and is responsible for its own production, record keeping, labeling and taxes. Separate bonded area are demarcated in the premises. The tenant proprietor must direct and be fully responsible for those things that are usual and customary for the production, bottling, and storage of the wine (as applicable), and the managing of the business. In most situations, the Host agrees to rent space and equipment to the Tenant proprietor. This allows existing wineries to use excess space and capacity and gives new entrants to the wine business an opportunity to begin on a small scale without investing in a winery building and all of the necessary wine making equipment. See TTB Industry Circular 2003-7 for more information.
Historically: Based upon the European “Negociant” model where a wine merchant assembles the produce of other growers and producers and sells the results under its own name. Historically, the Negociant buys grapes in bulk from the grower, produces, bottles and sells the wine under the Negociant’s name.
Defined: The custom wine producer must be fully qualified as a bonded winery. The winery is responsible for all production, records, reports, labeling, and taxes, even though it is producing the wine for a customer. The wine premises that bottles the wine obtains approval for the wine’s label, and the wine premises that removes the wine from bond pays the Federal excise tax on the wine, regardless of who owns the wine. The producing winery incurs the expenses for wine making equipment and winery premises. Depending upon the Client’s purpose, the custom crush client may need to qualify for a Federal Basic Permit as a Wholesale Liquor Dealer (Wholesaler) under the Federal Alcohol Administration Act. A custom crush client wholesaler has record keeping requirements. Yet, the custom crush client wholesaler has no production, labeling, tax, or reporting responsibilities. All of these matters are the responsibility of the bonded winery or wineries with whom the customer is working to have the wine produced, labeled, and tax paid.
The regulation of alcohol extends from the Federal to the local level. Anytime any business intends to do any act involving the manufacture, transportation, distribution, marketing and sale of an alcoholic beverage, they can expect a daunting gauntlet of laws and regulating agencies to have a say in how it is done.
Transportation and importation of alcoholic beverages into any state, territory, or possession of the United States in violation of the local laws of those entities is prohibited by U.S. Const., amend. XXI, § 2. Interstate transportation of alcoholic beverages for possession, use, or sale in violation of state or territorial laws is prohibited by 27 U.S.C. § 122. Intoxicating liquors transported into any state or territory become subject to the laws of that state or territory under 27 U.S.C. § 121. Interstate commerce laws affecting alcoholic beverages are contained in 27 U.S.C. §§ 201-211. Laws governing customs inspection and branding of imported liquors are contained in 19 U.S.C. §§ 467, 468.
The State of California has the exclusive power, subject to the United States internal revenue laws, to license and regulate the manufacture, sale, purchase, possession, and transportation of alcoholic beverages within the state under Cal. Const., art. XX, § 22. That provision also establishes the Department of Alcoholic Beverage Control as the agency authorized to license the manufacture, importation, and sale of alcoholic beverages in the state, and to collect license fees in accordance with laws enacted by the state Legislature. Legislation providing for licensing and regulation of alcoholic beverages is contained in the Alcoholic Beverage Control Act (Bus. & Prof. Code § 23000 et seq.) Statutory provisions that govern the transfer or exchange of liquor licenses are contained in Bus. & Prof. Code §§ 24070-24082 . Provisions regarding transferability of licenses for certain purposes and between certain parties are set forth in Bus. & Prof. Code §§ 24070.1-24071.1. Statutes applying to administrative proceedings generally are contained in Gov. Code § 11500 et seq. Administrative regulations governing those licenses and proceedings are set forth in 4 Cal. Code Reg. §§ 1-145, 178 et seq.
The following are some of the Federal and California agencies involved in the regulation and licensing of wineries and business involved in the production, distribution and sale of alcohol.
Alcohol & Tobacco Tax and Trade Bureau
The Alcohol & Tobacco Tax and Trade Bureau (TTB) licenses and conducts several types of investigations and audits of companies after approval of the original applications.
Alcohol and Tobacco Tax and Trade Bureau (TTB)
National Revenue Center
John Weld Peck Federal Building
550 Main St., Suite 8002
Cincinnati, OH 45202
Toll Free: 1-877-TTB-FAQS
The Department of Alcoholic Beverage Control (ABC)
3927 Lennane Drive, Suite 100
Sacramento, CA 95834
Phone: (916) 419-2500
71 Stevenson St., Suite 1500
San Francisco, CA 94105