Senate Bill 99, Appropriations Act of 2018

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NCWA 2017 President's Award

Dr. Seth Cohen was the recipient of the NCWA 2017 President's Award for his years of dedication to the NC Wine & Grape Industry.

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TTB Extends Exise-Tax Credits Procedure

The Alcohol and Tobacco Tax and Trade Bureau (TTB) has extended a temporary procedure for small wineries trying to collect excise-tax credits, relieving many vintners who would have faced massive tax hikes come July 1.

A decrease in federal excise taxes on alcohol was included in last year's Tax Cuts and Jobs Act, but a drafting error led to many small wineries losing out on their credits instead. (For more details on how the new credits are meant to work, see our companion coverage of the bill.)

On March 2, the TTB announced that a business has to have complete control over the wine production in order to receive the tax credit. Many wineries use bonded wine cellars and custom-crush facilities to store their wine, and this strict interpretation of the bill prohibits them from receiving tax credits on the winery's behalf. Many of these wineries qualified for the Small Producer Tax Credit (SPTC), which was scrapped with the new code; without it and with this new regulation, they faced significant tax hikes.

But the TTB included a temporary solution in its March ruling: Vintners could file "on-paper" transfers to virtually move their wine in bond to their winery, and then out again, taxes paid, from the bonded wine cellar, until June 30. After that, they had to physically move their wine or lose the tax credits.

Many winemakers and lobbyists worked to extend the deadline to give them more time to come up with a more permanent solution, by meeting with members of Congress and their staff, who in turn convinced the TTB and the Treasury Department to allow the "alternate procedure," as the TTB called the paper transfers, to be used until Dec. 31, 2019—when the new excise-tax credits expire.

"WineAmerica worked non-stop on this issue since March 5. That included reaching out to a great deal of Congressional offices," said WineAmerica vice president Michael Kaiser. "I do believe that the week things really started to progress on this issue was the week that the Oregon Winegrowers Association, the Washington Wine Institute and WineAmerica all held joint meetings with the Oregon and Washington Congressional Delegations."

“I’m pleased that Treasury answered my calls to provide administrative relief to Oregon winegrowers who found themselves in harm’s way," said Sen. Ron Wyden, Democrat of Oregon.

“This announcement is great news for the wine community, ensuring producers won’t face huge and unintended tax increases as part of the Republican-led tax bill," said Rep. Mike Thompson, a Democrat who represents Napa County and parts of Sonoma. "I am pleased that TTB offered this extension as I urged them to do last month after this problem was brought to my attention.”

While the virtual transfers allow wineries to keep receiving the tax credits, the amount of paperwork involved, as well as the difficulty in determining how much tax must be paid before the wine is removed, has been a burden for affected wineries, and will continue to be until a fix is made, or the credits sunset, whichever happens first.

"The problem is that small wineries do not have a person solely dedicated to compliance—that is usually folded into another position. So there could be some costs some wineries did not expect," said Kaiser. But he prefers it to the alternative. "It is certainly not perfect, but it prevents tax increases."

The deadline extension gives lobbyists more breathing room to work on corrected language that would be more inclusive of who qualifies for the tax credits. "We are looking at getting a legislative fix on the bonded wine cellar issue attached to some piece of legislation possibly before the August recess," said Kaiser. Getting the new excise tax rates made permanent is another important priority for the industry.

There's a possibility that a fix and an extension could happen together. Most likely, says Kaiser, the fix will come this year and the extension next year, closer to when the credits sunset.

If neither gets done, small wineries will get their SPTC back when the cuts expire at the end of 2019.