Compliance tips for small wineries
Editor’s Note: We recently collaborated with Chris Towt at VineSpring to put together some basic compliance guidance for small wineries. As an eCommerce provider, VineSpring shared their perspective on the DTC challenges and the compliance considerations that small wineries should account for to limit risk for their DTC program.
Staying Compliant in a Challenging Industry
Starting a winery is difficult. Think about this – if you planted grapes in 2013, you might have a harvest in 2016, and a sellable wine in 2018. Five years of time and investments have gone into finally having a product you hope to sell to friends, family, and people who appreciate what you’ve created.
Making wine is hard, but selling wine may be more difficult than producing it. This is alcohol, after all, which is replete with regulation from federal, state and local governments. If you are shipping wine directly to your customer without a license, you are probably breaking the law.
So what can you do? A few simple tips to follow and trends to watch that will keep you on track with compliance.
Tips for Compliance
TIP #1: DTC WINE SALES ARE TAXED BASED ON WHERE POSSESSION OCCURS
If your customer takes physical possession of the wine in Colorado, then Colorado taxes and rules apply to that order. If they take possession in your tasting room in California, then California taxes and rules apply. This is an easy one to remember – wine is taxed where possession occurs.
TIP #2: COMPLIANCERULES.ORG WILL ANSWER MANY QUESTIONS
When you have a question about shipping wine to specific states, go to ComplianceRules.org. This is an excellent resource for distilling the complexities out of compliance. While viewing individual state rules, be sure to scroll down the page and check out the “Additional Information” area. The Wine Institute and Compli keep this information up to date and in an easy to read format for quick understanding of compliance rules, including instructions for obtaining the appropriate licenses in each state.
TIP #3: CHOOSE THE STATES YOU SHIP TO STRATEGICALLY
Let’s say you just opened a tasting room and you’re taking sales in your home state, but not shipping wine yet out of state. Pick the next states you will ship to strategically! Consistently, the top states to ship to are California, Texas, New York, and Florida because of the population centers there. Using ComplianceRules.org, find out the cost of getting a license for the first year and a renewal year (sometimes these fees are different). Calculate your profit margin on selling a bottle of wine (don’t forget to include shipping costs) and determine how many bottles of wine you must sell to break even on your compliance costs. You’re now on your way to becoming compliant.
Trends in Compliance
TREND #1: COMMON CARRIERS ARE REPORTING ALCOHOL SHIPMENTS TO STATES
We often get the question of “will the states know that I’m making shipments without a license, or can I fly under the radar if I’m small.” It’s important to note that the carriers (FedEx and UPS) are reporting all of the wine shipments that they make to over 25 states. Over the last two years, states have begun changing their laws to get more information from the carriers so they can ascertain who is making each shipment and make sure that wineries have the appropriate licenses and pay the necessary taxes on each shipment.
TREND #2: SALES TAX COMPLIANCE WILL BE INCREASINGLY IMPORTANT
Last month the Supreme Court handed down a major decision that will impact all businesses that are selling directly to consumers across the country. States now have the ability to require out of state businesses to get a permit and pay sales taxes, even if the business doesn’t have a physical presence in that state. Wineries are already used to paying sales tax in most states, so this won’t be as huge of a change is it will be for other businesses. However, it reinforces the importance of making sure you’re paying proper taxes in the destination state.
It’s not as hard as you think!
There are multiple resources you can use to understand how to get licensed and follow the rules, and there are also some great companies that are willing to help you with ongoing compliance services at a rate that’s usually more cost-effective than trying to manage it all in-house.
The 2021 sales tax changes report: midyear update
Your guide to navigating the complicated world of tax compliance and preparing for the future
Stay up to date
Sign up for our free newsletter and stay up to date with the latest tax news.