TTB Signals Closer Scrutiny of Wineries

Federal agency, on nationwide road show, emphasizes new testing and stricter enforcement

Washington, D.C. -- Wineries should be prepared for scrutiny of their compliance with regulations from the Alcohol and Tobacco Tax and Trade Bureau (TTB) on the issues of alcohol content, fill levels in bottles and pesticide residue, among others, according to comments by TTB officials and investigators at seminars this spring.

To better assist wineries to get the information, TTB offered Compliance Seminars for Bonded Wine Premises, which in California included stops in Arroyo Grande, Monterey, Santa Rosa (two different days), Napa (also two different days) and Lodi. TTB is due to be in North Carolina for the Southeast U.S. in later April, then in Oregon and Washington on two different days each, in May. This outreach, in the form of free, eight-hour sessions, is a chance for its investigators, analysts and even a few of the head people to get out and pass along information that they need vintners and their staffs to understand, track and report to them.

The session in Santa Rosa provided a good refresher course on established practices, even for attendees who have been working in compliance for years. TTB speakers also provided insights into new items that the agency is stressing. Overview of the day’s session was provided by Ken Klein, Western II District director, Trade Investigation Division, and Fifi Goodfellow, district director, Tax Audit Division, and additional comments on the day were added by Bob Angelo, director, Trade Investigations Division, TTB, Washington, D.C.

On the refresher side, Fifi Goodfellow and Investigators Matt Levier, Sandra Chacon and Vickie Brennan provided tips for tax filings and changes to report regarding winery operations. Wineries still seem to be confused regarding the Small Producer’s Credit, they said. First of all, it is for small producers (those under 150,000 gallons for full tax credit on the first 100,000 gallons; not ones who crank out hundreds of thousands of cases a year). It is also for wineries that produce wine; which, by the large handout book from the seminar, includes producing by fermentation, sweetening, amelioration, addition of wine spirits; just receiving and blending does not necessarily count for this.

Also, if a winery makes any changes to the approved permit, once received, they need to notify TTB (of course, also using the appropriate form). This includes changes in partners, LLC members, officers, authorized signatures, change in bonded premise, and so forth. Basically, if a change has occurred, wineries need to notify TTB. If chosen for an inspection or audit, and what has been approved with TTB doesn’t match the situation at the premise, the winery would be in violation of the approved permit, and risk the consequences that go along with that.

Another tax issue is simply a record keeping one. Sandra Chacon offered insights to what TTB looks for when reviewing reports and supporting documentation. Wineries need to keep a record of tax-paid removals from bond record, through invoices to customers, accompanying bills of lading, etc., but many wineries forget it is needed to keep a daily summary of these movements (in 27CFR 24.310), and would be asked to produce this if requested by an auditor or inspector.

On excise taxes, if a winery incorrectly enters its EIN number, the winery will not get credit for submitting excise taxes in a timely manner (although TTB will cash the check). On the operations reporting side (that would be the 5120.17 Report of Wine Premise Operations), wineries need to make sure the various sections balance with each other. Examples include: the amount of gallons used for blending should equal the amount of gallons produced by blending; and, the amount of bulk wine bottled should come out to the amount bottled. What it really comes down to is a traceable check and balance system. Generally, if wineries are making sure things check and balance before sending off reports, the chances of tough phone calls or even visits later greatly decrease.

Source: TTB

Wine labeling still seems to be the major interaction most wineries have with TTB on a regular basis. On hand for this section was Nicole Burckhardt, labeling specialist with the Alcohol Label and Formulation Division. As every winery employee should know, wine needs an approved label before bottling. This comes as a Certificate of Label Approval (COLA). Since the implementation of electronic submission (through COLAs Online), this has become a much easier process.  In 2003, approximately 3% of all labels went through this manner; last year, that number was up to 74% (take into account that TTB gets over more than label applications per day, and based on a seven-day-a-week rate, the number of labels TTB deals with is staggering).

Just as important, wineries need to make sure they can back up whatever claims they have on their labels. Doreen Marin, investigator, covered mandatory, optional and prohibited label items. So, if a winery has a Sonoma Valley Chardonnay, they need to keep good track of the paperwork on the grapes or wine to support just this one item. The key thing here is a verifiable paper trail, not just a vague recollection of what transpired with any lot of wine.

From the repeated mention of certain items from a number of presenters, if a winery gets a call or visit from TTB, it might expect to be asked about some of these items:

• Fill Tests during bottling: They are required (27 CFR 24.255). If wineries use a mobile bottler, see if they perform this service, and make sure to get the records of the fill test from them. Wineries are responsible for this information, so if the mobile line does not do it, then the winery needs to do the fill tests.
 
• Bottled (or Packed) Wine Record (27 CFR 24.308): This is required for each wine bottled, each time it is bottled (if bottling the same lot at different times). Needs to include information on the wine, alcohol test, fill test, etc., and can be verified if requested.
 
• Documentation: Keep clear documentation of all wines, grapes, processes, additions, etc., so the winery can produce the information as needed.
 
The seminars are a good place to get new information. Persis Ramroth, wine industry analyst in the San Francisco office, went over new information from TTB. New Industry Circulars and other documents have been published recently, including:

• Industry Circular 2010-2, regarding verification and enforcement of unauthorized pesticide in wine during routine analysis by TTB.
 
• Industry Circular 2010-1, discussing alcohol sampling programs targeting advertising, labeling and contents compliance.
 
• TTB Guidance 2010-1, which goes over personalizing wine labels, for events.
 
Also, TTB has recently updated a lot of their forms, and some (such as the Wine Bond form) have been done as “previous editions obsolete”, so if a winery uses an older version, the form would be sent back, and the winery would not get credit as having submitted in a timely fashion.

Since no one wants to get dinged for using an older version of a form, wineries should visit the TTB site for the latest versions of the forms. Particulars are on their website, but wineries may also contact the TTB directly. Remember, the TTB has an interest in helping wineries make sure they are reporting accurately and in a timely fashion.

David Sandri has almost 20 years experience in the wine industry, and has been concentrating on compliance issues with wineries throughout the North Coast and Lodi regions during the past decade, as well as lecturing on these subjects.