Susan M. Johnson of Graham & Dunn PC
BONDING PROCESSES AND
STRATEGIES
Winery & Wine Distribution Law Conference
August 4-5, 2008
By Susan M. Johnson
Graham & Dunn PC
WHAT IS A WINE BOND?
• A legal guarantee that federal excise
taxes will be paid
• For wine produced and/or stored
• At a specific physical location
• For a specific winery
A WINE BOND DOES NOT…
• Cover multiple locations or multiple
wineries operating at one location
• Authorize production of wine
• Negate the need for state licensing
Law Seminars International | Winery & Wine Distribution Law | 08/04/08 in Quincy, WA
Speaker 6c: 1
Susan M. Johnson of Graham & Dunn PC
WHAT IS THE BOND AMOUNT?
• Depends on volume, type and alcohol
content of the wine produced
• $1,000 minimum
• Use TTB Wine Bond Worksheet
• Remember Small Producer Credit
THREE TYPES OF WINE BONDS
A. Surety Bonds
B. Cash Bonds
C Treasury Note/Treasury Bond
C.
Bonds
SURETY BONDS
• Insurance Company’s guarantee that it
will pay a winery’s federal excise tax
liability on wine if the winery fails to pay
its own taxes
• Can be challenging to obtain on short
notice
• Corrections can be a problem
Law Seminars International | Winery & Wine Distribution Law | 08/04/08 in Quincy, WA
Speaker 6c: 2
Susan M. Johnson of Graham & Dunn PC
CASH BONDS
• Check the box labeled “CASH” and
include:
• Personal Check
• Cashier’s Check
• Money Order
• Payable to Alcohol Tax and Trade
Bureau
TREASURY BONDS
• Treasury Note or Treasury Bond
• Fill in:
- Note or Bond #
- Interest Rate
- Issue Date
- Maturity Date
BOND TIPS
• Duplicate originals are required
• Submit with TTB Basic Permit and/or
/
Permission to Conduct Wine Operations
application
• Use cash bond if you are short on time
Law Seminars International | Winery & Wine Distribution Law | 08/04/08 in Quincy, WA
Speaker 6c: 3
Susan M. Johnson of Graham & Dunn PC
BOND RESOURCES
• Wine Bond Form
http://www.ttb.gov/formsf512036.pdf
• Approved Sureties
http://www.fms.treas.gov/c570/c570.ht
ml#certified
STATE BONDS
• Washington: None, unless….
• Oregon:
g
Required
q
• Idaho:
Required
• California:
Required
A WINE BOND DOES NOT…
A wine bond does not provide
authorization to:
- make wine
- purchase wine
- sell wine
Law Seminars International | Winery & Wine Distribution Law | 08/04/08 in Quincy, WA
Speaker 6c: 4
Susan M. Johnson of Graham & Dunn PC
A WINE BOND DOES…
• Secure payment of excise taxes
It is just one necessary component of
extensive
t
i documentation
d
t ti th
thatt mustt b
be
submitted to the TTB in order to gain
approval to establish and operate a
winery or other type of wine premises
such as a bonded wine warehouse
OPTIONS FOR ENTERING THE WINE
INDUSTRY
• Stand Alone or Alternating
Proprietor Winery
• Bonded Wine Cellar
• Custom Crush or Grape Grower
Client
• Tax Paid Wine Bottling House
WINERY REQUIREMENTS
To legally engage in the business of
making wine that will be sold there are
numerous requirements above
b
and
d
beyond obtaining a bond
Law Seminars International | Winery & Wine Distribution Law | 08/04/08 in Quincy, WA
Speaker 6c: 5
Susan M. Johnson of Graham & Dunn PC
STAND ALONE WINERY
Traditional Winery
• Lease or own premises
p
• Lease or own winemaking equipment
• No one else is allowed to use your
location or equipment to make wine
ALTERNATING PROPRIETORSHIP
Two or more individually bonded,
licensed and permitted wineries:
• One physical premises
• Two or more dedicated areas with in
the premises
• Shared areas
• Shared equipment
STAND ALONE/ALTERNATING
PROPRIETOR REQUIREMENTS
• TTB Bond
• TTB Basic Permit
• TTB Approval
pp
to Establish and Operate
p
• Approved Alternation Agreement (Only
for Alternating Proprietors)
• State License
Law Seminars International | Winery & Wine Distribution Law | 08/04/08 in Quincy, WA
Speaker 6c: 6
Susan M. Johnson of Graham & Dunn PC
BONDED WINE CELLAR
A Bonded Wine Cellar is a location where:
• Untaxpaid bulk wine is stored, blended,
and/or
d/ bottled
b ttl d
• No wine is produced by fermentation
• Appropriate where business model is to
purchase bulk wine and bottle and sell
under own label
BONDED WINE CELLAR
REQUIREMENTS
• TTB Bond
• TTB Approval to Establish and Operate
• State License ((most states will grant
g
winery license if blending and bottling
will occur on-site)
CUSTOM CRUSH OR GROWER
ARRANGEMENTS
Custom Crush: Bonded licensed winery
makes completely finished wine to custom
crush client specification and sells to client
who then sells the wine as its own
Grower Wine: Grape grower provides unsold
grapes to a winery to process into wine
Law Seminars International | Winery & Wine Distribution Law | 08/04/08 in Quincy, WA
Speaker 6c: 7
Susan M. Johnson of Graham & Dunn PC
CUSTOM CRUSH/GROWER
REQUIREMENTS
If Custom Crush or Grower client will market,
sell, or arrange sale of the wine:
• TTB Wholesaler’s Basic Permit
• State wholesale licensing
• Generally no license if producing winery
markets and sells the custom wine and
merely returns portion of sale proceeds to
client
TAX PAID BOTTLING HOUSE
Necessary for bottling bulk wine on
which tax has already been paid, i.e.
imported wine or wine dumped for
rebottling
g
Can be stand alone facility or bottling
line set up in unbonded area of a
bonded winery
TAX PAID BOTTLING HOUSE
REQUIREMENTS
• TTB Importer or Wholesaler Basic
Permit
• TTB approval to establish and operate
tax paid
d bottling
b l
house
h
• State approval
Law Seminars International | Winery & Wine Distribution Law | 08/04/08 in Quincy, WA
Speaker 6c: 8
Susan M. Johnson of Graham & Dunn PC
ACTIVITIES NOT REQUIRING A BOND,
PERMIT OR LICENSE
WINE FOR PERSONAL OR FAMILY USE
•
100 gallons per year 1 adult household
•
200 g
gallons per
p year
y
2 adult household
•
No taxes
•
Never can be sold
THANK YOU!
Please enjoy the remainder of the
Winery & Wine Distribution Law Conference
Susan M. Johnson
Graham & Dunn PC
Pier 70
2801 Alaskan Way ~ Suite 300
Seattle, WA 98121-1128
[email protected]
206.340.8769
Law Seminars International | Winery & Wine Distribution Law | 08/04/08 in Quincy, WA
Speaker 6c: 9