Conquering the challenges of California winery property tax compliance
California produces more than 80% of U.S. wine and is home to some of the largest wineries in the country. Tax compliance can be complicated when your business involves managing multiple vineyards, operating specialized equipment, and even moving grape bins with forklifts. In addition to complying with beverage alcohol tax laws regulating shipping and selling wine, California wineries must also consider managing property tax compliance.
A typical California winery is responsible for paying property tax on real estate and personal property used in its business. Not complying with tax liabilities can leave you with the taste of sour grapes in the form of penalties.
In this post, we break down California property tax compliance for wineries to help you understand your tax liability and stay in good standing with tax authorities.
Taxing the vine: Real property tax compliance for wineries
Real property includes vineyards, winery buildings, and tasting rooms. County assessors consider multiple factors to come up with your real property assessment. When valuing vineyards, for example, they generally consider the number of acres, improvements like trellises and irrigation, and the vines themselves. It’s worth pointing out that under California law, new and replanted vines are exempt from property taxes for the first three years because they aren’t considered in full production.
The assessor typically has all the information they need to determine the assessed value of your real property and generally won’t require you to file a special form. An exception might be if you have a special assessment and must file agricultural exemptions. In this way, real property tax compliance is relatively straightforward for winery owners compared to personal property tax compliance. However, it’s not uncommon for larger wineries to owe tax to multiple jurisdictions because they have property in different locations. Staying on top of your property tax obligations for your California real estate can still be time-consuming.
It’s possible to overpay California property tax if the assessor doesn’t have accurate records about your real property, such as vineyards. According to the Napa County Assessor’s Department, only 60% to 65% of the vineyard owners who receive vine reports in any given year return them. “Failure to report timely can mean vines and [improvements] that have been removed may be assessed for several years after removal,” warns the department.
When it’s personal: Two types of California personal property tax statements for wineries
Wineries use specialized equipment for harvesting grapes at each stage of wine production, including crushing, fermentation, and bottling. Machinery used for winemaking is often defined as tangible personal property, which means the “movable” property, unlike a building. Tangible personal property is generally subject to property tax unless considered exempt under law, as can sometimes be the case for equipment used in agriculture.
Computers and furniture used at the winery and tasting rooms are also considered personal property and are usually taxable.
To stay compliant, your California winery must file annual property tax returns with the county assessor’s office in the jurisdiction where your personal property is legally located. In California, that means filling out either a Business Property Statement (Form 571L) or an Agricultural Property Statement (Form 571A). The forms ask for similar information but are not interchangeable, so submitting the right one is important. In addition, you can’t file the same form in multiple jurisdictions; each county has its own version. Unlike some other tax forms that can be submitted electronically, you’ll likely have to apply a stamp and send your return through the mail.
Getting a fair deal: Detailed records are key to an accurate personal property tax assessment
Both Forms 571L and 571A require you to provide details about your personal property that the county assessor will use to estimate the fair market value of your personal property. To determine normal or actual depreciation, the assessor generally will consider how much you originally acquired the asset for, how much it would cost to replace the asset, and the age of the asset.
You must maintain good purchase and maintenance records to ensure a fair assessment. If your mechanical and accounting teams communicate regularly, you’ll have a better idea of the useful life of the equipment that can serve as a reference for depreciation schedules.
If, for example, a forklift won’t run and you don’t properly report that on your return, it’s possible to overpay property tax. If a wildfire damages your crop and prevents your business from having a good year, that can lead to a decline in the value of your assets, known as obsolescence.
Again, if you don’t accurately document these factors, your assessment could be higher than it should be. If that happens, you have limited time to appeal the assessor’s valuation and provide further information. California property tax appeal deadlines vary, so make sure you know each county’s filing deadline.
Beyond property tax: Meeting your beverage alcohol tax obligations
So far, we’ve focused on property tax compliance for California wineries. But your business must also consider how you’ll handle California wine tax regulations and other aspects of beverage alcohol tax compliance. For many wineries, this is a challenge.
Adhering to rules for age verification, volume limits, and dry area restrictions for direct-to-consumer shipments can be difficult, but it’s all necessary to stay in good standing with authorities.
Managing exemption certificates and filing returns for sales tax, excise tax, markup tax, and shipment reports is often time-consuming and complex, especially if your winery sells into multiple states.
Starting January 1, 2024, the California Bottle Bill will apply to containers containing wine. Any business that holds a manufacturing license or a wine shipper permit with the California Department of Alcoholic Beverage Control (ABC) will have to pay a fee.
Your 100-point tax compliance helper: Join the wineries automating with Avalara
If the thought of trying to meet your tax obligations is making you shrivel up like a raisin in a heat wave, there’s an easier way. Many businesses choose to automate compliance for multiple winery tax types. Avalara Property Tax and Avalara for Beverage Alcohol can help your California winery save time and keep up with regulatory requirements so you can focus on selling cases to customers.
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