Wine & Vineyard Law: Federal and New York State Licenses, Permits & Regulations

Wine & Vineyard Law: Federal and New York State Licenses, Permits &

Regulations

National Business Institute (“NBI”)November 10, 2015

By Cari B. Rincker, Esq.

My Background• Grew up on a beef cattle farm

in Central Illinois• Education– A.S. in Agriculture from Lake Land

College– B.S. in Animal Science from Texas

A & M– M.S. in Ruminant (Beef Cattle)

Nutrition from University of Illinois

– J.D. from Pace Law School (2007)

My Background

• Chair of the American Bar Association, General Practice, Solo & Small Firm Division’s Agriculture Law Committee

• My food and agriculture client base– Farmers to ranchers– Small to mid-size agri-business– Food entrepreneurs

And I Also Love Wine

Overview The Players

Types of Wineries

Licenses, Permits & Other Paperwork

Where Wine Can Be Sold

Excise Tax

Wine Labeling

Wine Trade

Record Keeping

Misc. Issues

The Players

The Players

•Permit•Labeling and advertising•Fair trade practices

Federal Alcohol

Administration Act (“FAAA”)

•Qualification of premises•Production•Payment of taxes

Internal Revenue Code (“IRC”)

The Players: Federal Level

Alcohol and Tobacco Tax and Trade Bureau (“TTB”)

• Administers laws imposed by laws set by FAAA and IRC concerning:• Alcohol production and distribution• Wholesale businesses• Alcohol advertising and labeling

• Not responsible for retail sale of alcohol or alcohol abuse programs

The Players: New York State Level

• Alcoholic Beverage Act (“ABC”)– Governs licenses and regulations

within New York State• New York State Liquor

Authority• New York Licensing Bureaus

– Located in New York City, Albany, & Buffalo

– Receives, examines, & investigates license and permit applications

Types of Wineries

Types of Wineries

•Typical commercial winery that produces and stores its own wine•Responsible for keeping own records, reports, wine labeling, and paying taxes•Requires establishing a premises, obtaining a bond, and receiving permission from TTB

“Stand Alone

” Bonde

d Winer

y

Types of Wineries

•Two or more wineries share use of a bonded winery’s facility•Bonded winery is host & only one required to obtain a bond•Other wineries must qualify on their own as a winery

Alternati

ng Proprieto

r

Types of Wineries

•Makes wine that is ordered by customers, who then resell it•Producer must qualify as a fully bonded winery•Crushes grapes, ferments, & bottles

•Client is a wholesaler who provides grapes for crushing

Custom

Crush

Types of Wineries

•Solely responsible for storing, blending, and bottling of wine•No fermentation takes place•Requires bond similar to bonded winery

Bonded Win

e Cellar

Licenses, Permits & Other Paperwork

Licenses, Permits & Other Paperwork

Being in the wine business is considered a privilege by the government and this privilege can be revoked.

• For this reason, it is highly regulated at the both the state and federal level.

Licenses, Permits & Other Paperwork

TTB must approve all applications for wineries before business operations can begin.• Keep in mind the type of

operation (e.g., bonded winery, alternating proprietorship)

New York has a Tied House Law where a

licensed wine retailer cannot also be a manufacturer or

wholesaler of alcohol (or vice versa)

Licenses, Permits & Other Paperwork

•There is no fee at the federal level to apply for or maintain approval to operate TTB-regulated alcohol and tobacco businesses.•Applications are reviewed by the TTB Wine Applications Unit Specialist•In some cases, it is referred to the TTB Trade Investigations Division (“TID”) Field Office for on-site inspection

Required TBB

Documentation

Licenses, Permits & Other Paperwork

• For operation of bonded winery, wine cellar, or wine bottling house

• Form must be sent in duplicate to Director of TBB, National Revenue Center, Alcohol and Tobacco Tax and Trade Bureau

• No cost associated with application

Application to

Establish & Operate

Wine Premises

Licenses, Permits & Other Paperwork

•Necessary to engage in business of producing or processing wine, or importing or wholesale of alcohol•Application must be sent in duplicate to TBB and Alcohol and Tobacco Tax and Trade Bureau

Basic

Permit

In New York, an Alcohol Permit must be obtained ($38)

Licenses, Permits & Other Paperwork

Personnel Questionnaire for TBB

• The business name and contact information• Personal and contact information for all business owners,

officers, directors, members, partners, etc.• Questions regarding each individual’s arrest, criminal and

business background history• Bank references’ and personal references’ contact

information

Licenses, Permits & Other Paperwork

Wine Bond

• Worksheet from TTB used to determine appropriate amount of bond required for specific establishments

• Required for every operation that produces or stores untaxed wine• Also need to include

• Personal contact information for the obligor or all partners if it is a partnership

• Bond coverage and category

Licenses, Permits & Other Paperwork

•This form is filled out with the TBB to determine the winery’s impact on the environment in terms of waste and pollution•Application requires descriptions of:•Heat and power to be used and its purpose•Air pollution control equipment proposed •Types of wastes, amount of those wastes, & methods of disposal

Environmental Information

Licenses, Permits & Other Paperwork

Supplemental Information on Water Quality Consideration• This form is to determine if a

certificate or waiver by the State Water Quality Agency is required

• Sent to the TBB and the National Revenue Center

Licenses, Permits & Other Paperwork

Power of Attorney

• This is a signing authority for Corporate and LLC officials

• Allows winery to have their appointed attorney represent the principal with the TTB

Licenses, Permits & Other Paperwork

•Required before any business activity can take place•Requires information regarding:•Type of dealer•Subclass•Business information

Special

Tax Registratio

n

Licenses, Permits & Other Paperwork

Required in some cases

• Alternating Proprietor Agreement or Contract

• Lease agreement• Organizational documents for LLC,

Corp, or LP

Corporate Formality Paperwork For TBBType of Entity Documents RequestedCorporations or limited liability companies

(a) Charter or certificate of existence, incorporation, or organization. (b) Names and addresses of officers, directors, members and

managers. (c) Certified extracts of minutes authorizing certain individuals to

sign. (d) Statement showing the number of shares/ownership of each class

of stock/interest authorized and outstanding, and the voting rights of the respective owners or holders.

(e) Statement of interest: Names and addresses of the 10 persons having the largest ownership or other interest and nature and amount of the stockholding or other interest of each, whether the interest appears in the name of the interested party or in the name of another party. The Director, National Revenue Center may request the names of interested persons if the applicant corporation or LLC is wholly owned or controlled by another corporation or LLC.

Corporate Formality Paperwork For TBBType of Entity Documents RequestedPartnerships

(a) True copies of articles or partnership agreement, if any, and of the certificate of partnership where required to be filed by local authority.

(b) Description of the wine premises.(c) Whether, if the application is not for a bonded wine premises

where production of wine will take place, the applicant agrees to having his or her name listed in a TTB publication to be distributed to the public.

(d) Any trade names.(e) Any basic permits and bonds (include the present one).(f) If the applicant is a volatile fruit-flavored concentrate operation, he

or she must follow additional instructions found at the end of the form.

(g) If there are any other operations occurring on the wine premises, these must be disclosed.

Licenses, Permits & Other Paperwork

Suggested documents for TBB• Trade name registrations• Diagram of bonded wine premises

New York Paperwork

Requirements

• Requirements for individuals• Over 21 and• US Citizen, permanent resident, or citizen of country who is able to obtain visa to enter US to engage in trade

• Requirements for LLC or Corp• Officer must be over 21 and• US Citizen, permanent resident, or citizen of country who is able to obtain visa to enter US to engage in trade

Person who is convicted felon, a police officer, or whose license to sell alcoholic beverages was suspended within last 2 years cannot obtain license

New York Paperwork• Two categories of

licenses under ABC:– Retail

• On premises – Customer drinks wine at retailer’s location

• Off premises – Store where wine is sold

• Both types are required to have $1,000.00 bond at all times

– Wholesaler/ manufacturer

New York Paperwork• Farm License

Winery– Farm grows fruit on

premises where wine is produced

– Can be sold to dealers, distributors, and individuals who visit the farm

New York Paperwork

Wine Tasting Licenses

• Anyone licensed to sell wine is permitted to conduct wine tastings on their premises

• Winery can conduct tastings of NY labeled wine at establishments that have licenses to sell wine at retail for on-site consumption

• Tasting must occur under supervision of winery owner, wholesaler, importer, or agent

• Farm wineries can also conduct tastings at the New York State Fair, county fairs, and farmers markets

Where Wine Can Be Sold

Where Wine Can Be SoldLicense Class Description Wine Product A "wine product" is defined as a beverage containing wine with added

juice, flavoring, water, citric acid, sugar and carbon dioxide, not containing more than six percent alcohol by volume (typically referred to as "wine coolers").

Restaurant Wine License for on-premises consumption of wine and beer in a place where food is prepared in such quantities that the sale of wine and beer is not the prime source of revenue.

Hotel Wine Allows on-premises sale of wine and beer in both a restaurant in the hotel as well as room service.

Club Wine Does NOT mean "nightclub" or "private bar" designed to restrict admission to a specific group of persons, or class of people. See "Club Beer" for definition of "Club." Allows for on-premises sale of wine or beer for club members and guests. The club must appoint an ABC officer.

Where Wine Can Be SoldLicense Class Description Tavern Wine Allows sale for on-premises consumption of wine and beer.

Liquor Store For the sale of liquor and wine (no beer) for consumption off the premises. The only additional items allowed to be sold, such as ice and corkscrews, are listed in the ABC Law. Only one license is allowed per person (corporation, partnership, etc.).

Wine Store Not to be confused with the Retail Wine Outlet for a Farm Winery. License to sell WINE ONLY (not liquor or beer) for off-premises consumption, under the same basic conditions as a Liquor Store.

Excise Tax

Excise Tax

• Tax paid on purchases made on a specific good, such as wine

• Tax increases as alcohol level increasesAmount of Alcohol Excise TaxIf ½ of 1% to less than 14% alcohol $1.07

If more than 14% but less than 21% alcohol $1.57

If more than 21% but less than 24% alcohol $3.15

Artificially carbonated $3.30

Sparkling $3.40

Excise Tax

•Up to $0.90 per gallon on part of the small domestic producer’s annual taxable removals, other than sparkling wine•Theory is to make tax rates for small wineries to what they were before 1991 when tax on wine was increased to $0.90 per gallon

Credit for

small dome

stic producers

Wine Labeling

Wine LabelingTTB Pre-Approval

Components of a Wine Label

Standards of Identity

Varietal Labeling

Type Designations

Geography & Winemaking

Organic Labeling

Wine Labeling• TBB Preapproval – Wine labels must be pre-approved by TTB if

entering into interstate commerce. • To comply with the TTB, the party responsible for

bottling the wine must obtain a Certificate of Label Approval (“COLA”) from the TTB after the approval. • However, if the label is made strictly for sample usage,

it does not need a COLA. – The turn-around time for currently processing a

label application is 23 days for wines.

Wine Labeling: Components of a Wine Label

Wine Labeling: Components of a Wine Label

• Vintage Date– When the grapes

were harvested– #1 shows the

Vintage Date– If shown 95% of

grapes must have been harvested by that year

Wine Labeling: Components of a Wine Label

• Estate Bottled– This means that 100%

of the grapes used in the wine came from land by that winery (“estate”).

Wine Labeling: Components of a Wine Label

• Appellation of Origin or Wine Region– This is included on a label if

75% of the grapes used to make the wine were grown in whatever location is named.

– Appellation of Origin provides the geographic origin of where the grapes were grown.

Wine Labeling: Components of a Wine Label

• Varietal Designation– This is the grape

variety that is used to make the wine

– This isn’t required – could just say “red wine” “white wine” “rose wine”

Wine Labeling: Components of a Wine Label

• County-of-Origin (“COOL” or “mCOOL”)– Although this might change

due to WTO issues, COOL is still the law in the U.S. (as of October 25, 2015)

– This is required by the U.S. Customs and Border Protection for containers of imported wine.

Wine Labeling: Components of a Wine Label

• Name of Winery or Brand Name– #2 on this Label– Must not mislead the

consumer about the age, identity, origin or other character of the wine

Wine Labeling: Components of a Wine Label

• Alcohol content– Must include

percent by volume of alcohol

– Can be labeled “table wine” or “red wine” if content between 7% and 14%

– Dessert wine if over 14%

Wine labeling:Components of a Wine Label

• Declaration of Sulfites– If there is 10 or more

parts per million of sulfur dioxide, this must be indicated if the wine is intended for interstate commerce

– #7 on this label

Wine Labeling: Components of a Wine Label

• Name and address of Bottler or Importer– Must appear on

bottle/container– Can be operating

name of winery or trade name

– #4 on this label

Wine Labeling: Components of a Wine Label

• Net contents– Must be

indicated in metric units

– #5 on this label

Wine Labeling: Components of a Wine Label

• Health Statement– 2 required statements:

• “According to the surgeon general, women should not drink alcoholic beverages during pregnancy because of the risk of birth defects”

• “Consumption of alcoholic beverages impairs your ability to drive a car or operate machinery, and may cause health problems.”

– #7 on this label

Wine Labeling: Standards of Identity With Wine

Wine Labeling: Standards of Identity of Wines

Divided into 9 classes to describe taste, production, method & composition of waste

Wine Labeling: Standards of Identity of Wines

• Grape wine– This includes table and

dessert wine as well and refers to wine produced by the normal alcoholic fermentation of grapes.

Wine Labeling: Standards of Identity of Wines

• Sparkling Wine– Includes sparkling wine

and champagne– Sparkling wine is grape

wine made “sparkling” with carbon dioxide that results directly from the fermentation of the wine within a closed container.

Wine Labeling: Standards of Identity of Wines

• Carbonated Grape Wine– This is made effervescent

by carbon dioxide other than that resulting from the second fermentation of the wine in a closed container.

Wine Labeling: Standards of Identity of Wines

• Citrus Wine– This is similar to grape

wine, but uses different fruits.

• Fruit Wine– This is similar to grape and

citrus wines, but using other fruits, such as berries.

Wine Labeling: Standards of Identity of Wines

• Wine from other agricultural products– Uses other agricultural

products besides fruit– Ex: raisin wine and sake

(rice wine)

Wine Labeling: Standards of Identity of Wines

• Aperitif Wine– An example of this is

Vermouth; it is a wine with an alcohol content more than 15% and is grape wine with added brandy or other alcohol, and flavoring.

Wine Labeling: Standards of Identity of Wines

• Imitation– Wine containing any

synthetic materials (such as wine made from mixing water with residue that remains after pressing grapes) and must state “imitation” wine on the bottle.

Wine Labeling: Standards of Identity of Wines

• Substandard– “Substandard” wine

must be listed as well if it is substandard wine (which is too acidic to meet the standard of other wine).

Wine Labeling: Standards of Identity of Wines

• Retsina Wine– This is grape wine with

(tree) resin added, usually pine resin.

– This wine is popular in Greece

Wine Labeling: Varietal Labeling

Wine Labeling: Varietal Labeling

Display of single type of grape used in that wine

Can be used rather than stating a class

Variety grape name must be approved by TTB

Origin of grape must appear on label if using varietal labeling

Wine Labeling:Type Designations of Varietal Significance

Type Designation DescriptionMuscadine

This is an American wine that derives at least 75% of its volume from Muscadinia rotundifolia grapes.

Muscatel

This is an American wine that derives its predominant taste, aroma, characteristics and at least 75 percent of its volume from any Muscat grape source.

Muscat or Moscato

This is American wine that derives at least 75% of its volume from any Muscat grape source. Moscato is the Italian name for Muscat.

Scuppernong

This is an American wine which derives at least 75% of its volume from bronze Muscadinia rotundifolia grapes. Large variety of Muscadine.

Gamay Beaujolais

An American wine which derives at least 75% of its volume from Pinot noir grapes, Valdiguié grapes, or a combination of both.

27 CFR § 4.25

Wine Labeling: Geography

Wine Labeling:Geography & Winemaking

Generic

e.g., Sake, Vermouth

Wines can be known by region fromwhich they come from and fit into 3 categories

Wine Labeling: “Organic”

Wine Labeling:Organic Labeling

• Organic wine is overseen by USDA’s Agriculture Marketing Service’s (“AMS”) National Organic Program (“NOP”) & TBB

• NOP regulations are found in 7 CFR §205– These regulations address the

production, processing, handling, labeling, and marketing of organic products.

Wine Labeling:Organic Labeling

• Prior approval from USDA required to make organic claim on “principal display panel” and use USDA organic seal

• Informational panel can have certified organic ingredients listed– Organic certificate of ingredient

must be submitted to TTB

Wine Labeling: Organic Labeling

Prior to selling organic alcohol, a manufacturer’s label must be approved

through the following steps:•Certifying agent reviews the alcohol label(s) to assess compliance with USDA organic regulations. •Certifying agent stamps/signs label(s), verifying compliance with USDA organic regulations. •TTB permitee (organic operation) completes the Certificate of Label Approval (“COLA”) application. •TTB permitee submits COLA application and label(s) approved by the certifying agent to TTB. No longer requires a copy of the organic certificate.

Wine Labeling: Organic Labeling

If the wine is not certified organic,

there cannot be any claims that the wine

is organic on the “principal display

panel” and the bottle cannot use the USDA organic seal on the label.

•However, on the informational panel, certified organic ingredients can be listed as such. •If one does this, he or she must also “obtain a copy of that ingredient’s organic certificate and submit it to TTB.

Wine Labeling:Organic Labeling

“Made with Organic Grapes”

• Means that 100% of the grapes used were organic and this was certified verifying wine meets all organic regulations by USDA

• Other ingredients need not be organic

Wine Labeling: Organic Labeling“Organic” “Made with Organic Grapes”

Overseen by a certifier? Yes Yes

USDA organic seal allowed? Yes No

Organic claims allowed in addition to ingredient statement?

Yes Yes

Non-organic grapes allowed? No No

Added sulfites allowed? No Yes but only up to 100 parts per million (and disclosed on label)

Wine Trade

Wine Trade: Importation

Permits

• Importer’s Basic Permit• Alcohol Dealer Registration Form

from TTB• A Certificate of Label Approval

(COLA) for each product

Wine Trade: Importation

Certification

• Wine imported from countries subject to international agreements or treaties must have proper cellar treatment• i.e. conform with US practices & procedures

• Wine from other countries require a certification regarding procedures and practices

Wine Trade: Importation

Duties, Taxes, and Fees• Wine importers are responsible for federal excise taxes and duties• Rates are set by TTB

Wine Trade: Exportation

Permit required for non-bonded wine

cellars

Taxpaid wine may be exported to foreign

country, i.e. this is wine on which tax is already paid

All exported wine must have “export” on each

container or case of wine

Wine Trade:New York Transporting/Shipping

Direct shipping• Wine manufacturers

can take orders from state residents and ship direct to consumer

• Out-of-state wineries can ship to New Yorkers if they obtain permit and allow New York wineries to ship to their residents

Shipping must be through a

company with a trucking permit

New York Reciprocity States Arizona California Colorado Connecticut Georgia Hawaii Idaho

Illinois Maryland Massachusetts Michigan Missouri Montana

New Jersey New Mexico North Carolina Ohio Oregon South Carolina Tennessee

Texas Vermont Virginia Washington Wisconsin

Wine Trade:New York Transporting/Shipping

Interstate shipment

• Anyone licensed to sell wine in any other state and obtains an out-of-state “direct shipper’s license” may ship up to 36 cases of wine produced by that person’s winery per year directly to a New York State resident

Wine Trade:New York Transporting/Shipping

Intrastate shipment

• Once a license is obtained, a winery or farm winery can ship up to 36 cases of wine per year directly to a New York State resident who is (1) over the age of 21 and (2) as long as it is not for resale.

• Label must clearly state: “contains wine-signature of person age 21 or older required for deliver-not for resale”

• Shippers must acquire signature of person accepting delivery of above stated requirements

Record Keeping

Record Keeping

Receipt of Materials and Production

• Any producer of wine must have records showing the receipt and use of winemaking materials received on the wine premises• The date of receipt,• The quantity received or quantity used or produced

(for juice), • The name and address from whom it was received,• That date of use or other disposition of the

materials

Record Keeping

•Additional requirements:•A summary record maintained by tax class, •Documentation of wine production, receipts, removals, blending operations, and losses, and •May contain information about sugar, acid, chemicals, etc.

Bulk Still Win

e Records

Record Keeping

Bottling and Bottled Wine

•If wine packaged on site where it was manufactured, must have records of:•The volume of wine received, bottled, and removed,•The COLA serial numbers, and•Results of fill and alcohol tests

Record KeepingRemovals and Receipts

Records must be kept when wine is removed from bond for consumption or sale, which should be summarized daily to nearest

tenth of a gallon

Inventory must be kept if wine premise stores taxpaid wine

Records must be kept for any unmerchantable taxpaid wine returned to bond

Very specific information is required for a transfer in bond

Record Keeping

Inventori

es

• Annual reports• Necessary if less than

20,000 gallons of wine are on hand and annual federal excise tax will be filed

• Quarterly reports• Necessary if less than

60,000 gallons of wine are on hand and quarterly federal excise tax return will be filed

• Monthly reports• Necessary if more than

60,000 gallons of wine on hand or more than $50,000 in federal excise tax paid each year

Miscellaneous Issues

Other New York Laws

Wholesaler•Must have an office in New York State with an employee present during regular business hours•Wine must be sold in sealed containers of less than 15 gallons each

Franchise•Must submit application to NY Department of Law before offers or sales of franchises are made•Approval of application allows franchise to be effective for one year

Other TTB Regulations

Advertising

• Regulated by TTB, but does not require prior approval

• Prohibited practices are:• False or untrue statements• Statements not consistent with label• False or misleading statements

disparaging competitor• Misleading guarantees

Other TTB Regulations

Advertising• Items that must be contained in

advertisement:• Name and address of the permittee

responsible for the advertisement’s publication or broadcast

• Class, type, and distinctive designation• Exception: Only name & address required for

advertisement of general wine line or all of the wine products of one company

Oh, P.S. – I Wrote a Book!

Cari B. Rincker & Patrick B. Dillon, “Field Manual: Legal Guide for New York Farmers & Food Entrepreneurs” (2013)

Available at http://www.amazon.com/Field-Manual-Legal-Farmers-Entrepreneurs/dp/1484965191

www.newyorkagriculturelaw.com

Please Stay in Touch• Send Me Snail Mail: 535 Fifth Avenue, 4th Floor,

New York, NY 10017• Call Me: (212) 427-2049 (office)• Email Me: cari@rinckerlaw.com• Visit My Website: www.rinckerlaw.com • Read My Food, Farm & Family Law Blog:

www.rinckerlaw.com/blog• Tweet Me: @CariRincker @RinckerLaw• Facebook Me: www.facebook.com/rinckerlaw • Link to Me:

http://www.linkedin.com/in/caririncker