Massachusetts Excise Tax

How much excise tax is your winery paying in Massachusetts?

The California Wine Institute recently confirmed with the General Counsel of the Massachusetts Department of Revenue (“DOR”) that the correct excise tax rate for table wine in the state of Massachusetts is fifty five cents ($0.55) per gallon.

As early as last spring, confusion arose as to the correct excise tax rate for wine shipped to Massachusetts. Many wineries were incorrectly told that the excise tax rate for wine in Massachusetts was one dollar and ten cents ($1.10) per gallon.  As a result, some wineries have paid a higher tax rate than required on their direct to consumer shipments.  The California Wine Institute is currently working with the DOR to determine how to reimburse wineries that were overcharged during this time.

For more information or questions, please contact a member of GVM’s Business or Wine Law Team at (707) 252-9000.

Assembly Bill 780 & 776 – Two Changes in Tied House Rules on Advertising and Communicating Through Social Media

On Monday, Governor Brown signed Assembly Bill 780 (“AB 780”) into law, effective January 1, 2016. Under AB 780, California licensed wineries, breweries, and distillers are no longer required to wait for a direct consumer inquiry to list the name, address, and other information about retailers of their product. California wineries, breweries, and distillers may now freely list that information, including through social media (such as “posting” on Facebook or “tweeting” or “retweeting” on Twitter), subject to the following limitations:

  • The listing must contain 2 or more unaffiliated on-sale (e.g. restaurants) or off-sale retailers (e.g. liquor stores).
  • The listing may not contain product pricing information.
  • The listing is the only reference to the on-sale or off-sale retailers in the direct communication.
  • The retailer cannot pay for or make the listing, neither in whole or in part.

AB 780 and its limitations will be contained in Business and Professions Code Section 25500.1.

On Tuesday, Governor Brown signed Assembly Bill 776 (“AB 776”) into law, which added Section 23355.3 to the Business and Professions Code. Under AB 776, California licensed winegrowers, breweries, and distillers are no longer in violation of tied house rules by advertising an event that is sponsored by a retailer (See ABC Considers Naming Retailer in Social Media Post a Violation of Tied House Laws). The main requirement is that the event must be conducted by, and for the benefit of, a nonprofit organization. In anticipation of an event, California licensed wineries, breweries, or distillers may freely advertise or communicate their sponsorship or participation in the event through social media, subject to the following limitations:

  • The advertisement or communication may not contain product pricing information.
  • The advertisement or communication may not promote the retailer beyond its sponsorship or participation in the event.
  • The retailer cannot pay for or reimburse the winery, brewery, or distiller for any advertisement or communication.

For more information or questions, please contact a member of GVM’s Business and Wine Law teams at (707) 252-9000.

New Rules for the Return of Wine to Bonded Wine Premises

On September 15, 2015, the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) announced that it is revising the wine regulations governing the return of wine to bonded wine premises, effective October 15, 2015. The TTB’s revisions will result in two new rules, which are summarized as follows:

  • The first rule removes the requirement that wine returned to bond must be unmerchantable.
  • The second new rule clarifies that the refund or credit of excise tax applies to any wine removed from a bonded wine cellar and subsequently returned to bond (whereas the current rule only provides the refund or credit for wine produced in the United States).

These new rules will be contained in 27 CFR Part 24.

Every winery has a bond that covers the tax value of its wine either on hand in the winery or en route to the winery. Under the new rules, wine that is removed from a bonded wine cellar may later be returned to the bonded premises for any reason (whereas the current rule only permits unmerchantable wine to be returned) for reconditioning, reformulation, or destruction and may be eligible for a tax credit or refund. The new rules should also make foreign wine eligible for the tax credit or refund. All refunds and credits must be filled with the TTB and are without interest to the owner of the bonded premises.

For more information or questions, please contact a member of GVM’s Business or Wine Law Team at (707) 252-9000.

Illinois Attorney Targeting Wineries

Beginning in the middle of 2014, Illinois attorney Stephen Diamond began suing wineries that ship wine directly to consumer in Illinois.  Mr. Diamond argues that wineries should pay sales tax on the shipping fees it charges to Illinois consumers for direct shipments of wine.  These are so called “Qui Tam” lawsuits that allow private citizens to sue on behalf of the state and collect a bounty if the state collects.

Whether shipping charges are taxable in Illinois is not clear.  Wineries have historically relied on individual facts and circumstances to determine whether sales taxes are due on shipping charges.  Some of these include whether shipping is listed separately on invoices, whether the consumer has an option to pick-up wine ordered online at the winery or whether the winery has marked up shipping charges.  After the Illinois Supreme Court’s decision in Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351 (2009), the Illinois Department of Revenue appears to have taken the position that all shipping charges on internet purchases are taxable.

Mr. Diamond appears to be proceeding against wineries in descending order of size in waves.  His first wave of lawsuits against some of the largest wineries in the industry began in the middle of 2014 and his second wave against somewhat smaller wineries began in late 2014.  We are now hearing from mid-size wineries that Mr. Diamond has begun a third wave of lawsuits in the spring of 2015.  The Wine Institute has been lobbying the Illinois legislature to clarify when sales tax is due on shipping charges, but that process will take some time.

We have two immediate recommendations for our winery clients: Recommendation # 1: Do not accept any orders from, or ship wine to, Stephen Diamond or his associates Matthew S. Burns and Matthew Martin, in Illinois; Recommendation # 2: Until the rounds of lawsuits cease, or the Wine Institute succeeds in finding a legislative solution, or both, charge sales tax on shipping charges for internet orders in Illinois.

If you have any questions, or if you have received a complaint from Mr. Diamond, please feel free to contact Erik Lawrence at (707) 252-9000 or


Custom Crush and AP Agreements – Contract Shortfalls

With the amount of available land for wineries diminishing, more and more wine businesses are turning to custom crush and alternating proprietor (“AP”) arrangements to make their wine.  The contracts that spell out the rights, duties and obligations of each party in these arrangements become paramount in the event of loss or damage to the wine.

We have all heard nightmare stories of a pump over gone wrong or a bad addition in the winery, causing a partial or total loss to a whole vintage’s labor.  Once the dust settles, the question becomes who is liable for the loss and is it covered by insurance?  Liability and insurance provisions in custom crush and AP agreements are often vague and ambiguous.  At the outset of the arrangement, each party should ensure that responsibility for loss and/or damage is adequately addressed.

For the host winery:

When GVM develops form custom crush and AP agreements for its clients, we emphasize the importance of detailed liability provisions to help our clients understand the extent of their potential exposure while making other people’s wine.

For the custom crush client:

To the extent possible, the custom crush client will want to ensure the agreement imposes liability on the host winery for negligence or willful misconduct in the production of the wine which results in damage to or loss of its product.

For both parties:

The devil is in the details.  It is crucial for both parties to understand their insurance policies and exclusion from coverage, as well as the type of insurance, if any, required under the agreement.

For example, does the custom crush client’s policy cover work performed by the host winery?  Does the host winery’s policy cover loss or damage to wine that doesn’t belong to them?  Does the insurance policy cover negligence?  As a practical matter, make sure your broker understands the custom crush or AP arrangement and the risks associated with it.

The use of detailed liability and insurance provisions, on both sides, will ensure that the parties understand their respective rights and responsibilities, will encourage proper insurance coverage, and will incentivize the host winery to maintain a high level of training and supervision in the winery.

Please contact Katy Barfield of GVM’s Wine Law Team at for further discussion of your circumstances.

Interns and Volunteers – When are they Employees?

Wineries and various for-profit businesses often hire interns or solicit the help of volunteers for certain aspects of their business operations as a way to minimize costs and provide opportunities to unemployed individuals.  Recently, however, a question has arisen as to whether these individuals are legally considered employees.  Unless the relationship falls within the below-listed six-factor test, an “intern” or “volunteer” who works without pay for the purpose of gaining work experience is an employee.

According to the Department of Labor, in order for an “intern” or “volunteer” to be considered an unpaid worker, six factors must be established: (1) the training is similar to vocational school, (2) the training is for the benefit of the trainee, (3) the trainee is not replacing normal employees and works under supervision, (4) the sponsor of the trainee does not derive any immediate benefit from the trainee, (5) the trainee is not entitled to a job after completion of training, and (6) the sponsor and the trainee understand that the trainee is not entitled to wages .

In regards to (3), the Department of Labor Standards Enforcement (“DLSE”) considers the actual role of the “intern” or “volunteer” to be one which necessarily requires close supervision, offsetting any advantage perceived to be received by the employer.

A simple way to address some of these issues is with a written agreement, signed by the “intern” or “volunteer,” that makes it clear that the individual, among other things, will not receive benefits or wages and that the training received will be for the educational benefit of the intern, who will be closely supervised by an employee.  If the tasks that the “intern” or “volunteer” are to perform would otherwise be performed by an employee, an employer should consider hiring and paying the individual for risk mitigation purposes.

For more information, please contact one of GVM’s Labor and Employment law specialists.

ABC Considers Naming Retailer in Social Media Post a Violation of Tied House Laws

According to an article published by the Sacramento Bee, eight California wineries and breweries were recently investigated by the California Department of Alcoholic Beverage Control (“ABC”) for “tweeting” or “retweeting” messages on social media that included the name of the retail sponsor of the Grape Escape event held in downtown Sacramento in June.

ABC alleged violations of state tied house laws and threatened to suspend the producers’ licenses for posting social media messages such as: “Two days till @SaveMart Grape Escape in Downtown #Sacramento! Get tickets and info here:”  ABC considered these messages a promotion of a retailer by a producer.

Under California’s tied house laws (see California Business & Professions Code Section 25502), producers are prohibited from giving anything of value to a retailer, including free advertising.  Tied house laws were developed after Prohibition in order to create independence between producers, wholesalers, and retailers of alcoholic beverages.  Much of the concern associated with the overlap between the three tiers arose from producer-owned saloons that offered “free lunch” to patrons so long as they ordered a drink.  The “teetotalers” of the post-Prohibition era felt that these offers encouraged people to drink.

As the use of social media becomes more and more important to the wine, beer, and spirits industries, producers must educate themselves and their staffs on tied house laws to avoid possible suspension of their licenses.  For more information, please contact a member of GVM’s Business and Wine Law teams.

GVM Hosts Wine Export Seminar at City Winery

On November 12, 2014, GVM hosted a Wine Export Seminar at City Winery.  Representatives of numerous wineries in the valley came to hear presentations by the U.S. Commercial Service, the U.S. Small Business Administration, and the Wine Institute.

Elizabeth Krauth, the Director of the U.S. Commercial Service’s North Bay U.S. Export Assistance Center discussed a variety of services offered by the U.S. Commercial Service to businesses seeking to enter foreign markets and create relationships with local partners.  Some of these services include trade counseling, market intelligence, business matchmaking, due diligence, trade events, and in-country promotion of products.

Jeff Deiss, the Regional Export Finance Manager of the SBA Office of International Trade detailed various options for structuring overseas transactions and the various pros and cons of each.  Some of these structures include asking the buyer for cash in advance, seeking a letter of credit from the buyer’s bank, or maintaining an open account with the buyer.  Because the “open account” structure has become the most frequently employed by U.S. businesses exporting their products, Mr. Deiss also discussed Export Credit Insurance and how to obtain such insurance to cover products shipped overseas.

Finally, Linsey Gallagher, Vice President of International Marketing at the Wine Institute described various efforts by the Wine Institute to promote California wines abroad and several international tools available to their members.  These tools include a global social media campaign, a website translation project, and an educational PowerPoint presentation on California wines that is available for download by wineries that want to share information on the state’s winemaking history, geography, climate, soils, American Viticultural Areas, and wine varietals with international buyers.

If you were unable to attend GVM’s Wine Export Seminar and would like further information on these topics, please contact a member of GVM’s Wine Law Team.

TTB to Grant Tax Breaks to Wineries with Earthquake Damage

On August 29, 2014, the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) published an announcement entitled “Napa Earthquake: Frequently Asked Questions,” which addresses many questions and concerns raised by wineries in the wake of the August 24th earthquake.

TTB announced that retailers, wholesalers and importers of wine [Read more…]

California Legislature Adopts Sustainable Groundwater Management Act

For the first time in California’s history, groundwater extraction and usage will be comprehensively regulated.  At the end of August, the California legislature adopted a package of bills (SB 1168, SB 1319 and AB 1739), collectively known as the “Sustainable Groundwater Management Act.”  On September 16th, Governor Brown [Read more…]