FEDERAL EXCISE TAX: The federal excise tax for wine is based on the classification and alcohol percentage in the wine removed from bond during the taxable period. The excise tax rates for wines are as follows:
· Still wine 16% or less ABV – $1.07 per gallon
· Still wine above 16% to 21% ABV – $1.57 per gallon
· Still wine above 21% up to 24% ABV – $3.15 per gallon
· Sparkling wine – $3.40 per gallon
· Artificially carbonated wine – $3.30 per gallon
· Cider – $.226 per gallon
· Spirits – $13.50 per PROOF gallon – (proof of alcohol) (# of gallons)/100
There are 3 frequencies of filing:
· Annual filers -postmarked no later than January 14th
o Qualify if less than $1000 annual federal excise tax liability last year, and expect less than $1000 in federal excise tax liablity this year
· Quarterly filers – Must be postmarked by 14th day after end of period
o Qualify if less than $50,000 in annual federal excise tax liability, AND AND
o Less than 60,000 gallons on hand during the quarter, include both bulk and bottled wines still in bond.
· Semi-Monthly filers – Must be postmarked by 14th day after end of period
o Qualify if over $50,000 in annual federal excise tax liability, or
o Over 60,000 gallons of wine on hand
Note that if there are no taxable removals, an Excise Tax Return does not need to be submitted for that period.
Craft Beverage Modernization Act: The Craft Beverage Modernization Act (CMBA) created a credit against your federal excise tax liability which grants a $1.00 per gallon credit against excise taxes on the first 30,000 gallons (just over 12,618 cases) of wine removed from bond each calendar year. For 30,001 – 130,000 gallons removed, the credit is $.90/gallon, and for all gallons removed above 130,000 gallons, the credit is $.535. Note that the gallonage calculation is for all tax classes in the credit section (last section) of the Federal Excise Tax Return.
Personal Use Deduction:You may also be entitled to exclude up to 200 gallons of wine each year from the total wine subject to federal excise tax under the “family use” exemption. A winery that is set up as a sole proprietorship or a partnership may deduct 100 gallons of wine without paying excise tax on it if there is 1 adult in the primary home associated with the winery; 200 gallons may be deducted if there are 2 adults in that home. An LLC may also take this deduction IF the LLC is taxed as a partnership or as a sole proprietor. Corporations and LLCs taxed as corporations are not allowed to take this deduction. The only other limitation is that this wine cannot be sold. Many wineries use this wine for competitions, or for tasting room or festival tastings (assuming the tasting is free), and therefore don’t have to keep track of the wine they use for these purposes. The deduction is taken on Line 13 of your TTB premises report, “Removed for Family Use”, and is not subject to federal excise tax.
VIRGINIA EXCISE TAX: The Virginia excise tax rate for Wine is $.40/liter. The Virginia excise tax rate for Cider is $.08/liter. It is due to VA ABC monthly by the 15th of the month along with the monthly Winery Tax Report, discussed above.
Removing wine from bond for festivals – Once wine is transferred from your production area to your retail space, it cannot be returned back to the winery production area. This includes wine that is removed to take to festivals. If you take wine out of your winery to take to a festival, any wine that doesn’t sell at the festival needs to go into your retail space for use in your tasting room or under other remote licenses.
RETAIL SALES TAX V. CONSUMER USE TAX FOR BUSINESSES:
The rule is that, unless there is an applicable exemption, you must charge sales tax on all sales and rentals of tangible goods. Conversely, unless there is an applicable exemption, you must PAY sales tax on all purchases of tangible goods. If you didn’t pay sales tax as part of the transaction, you are required to pay tax on that purchase.
Retail Sales Tax – This tax is paid by the customer as part of the sales transaction. The seller then collects it and pays it to the state.
✓ The sales and use tax rate is 5.3% except in special taxing regions, where it varies from 6-7%.
§ The Northern Virginia Special Taxing Region (6%) includes the following areas: Arlington County, Fairfax County, Loudoun County, Prince William County, Alexandria City, Fairfax City, Falls Church, Manassas, and Manassas Park.
§ The Hampton Roads Special Taxing Region (6%) includes the following areas: Isle of Wight County, James City County, Southampton County, York County, Chesapeake, Franklin, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Suffolk City, Virginia Beach, and Williamsburg.
§ The Central Virginia Special Taxing Region (6%) includes the following areas: Charles City, Chesterfield, Goochland, Hanover, Henrico, New Kent, Powhatan, and Richmond City.
§ The Historic Triange Special Taxing Region (7%) includes the following areas: James City, Williamsburg, and York.
§ Halifax and Henry Counties have a tax rate of 6.3%.
✓ For in-state sales, online or phone sales are taxed at the rate applicable to the county where the winery is located. For example, if you’re in Fauquier, your tax rate is 5.3%. Wine shipped from Fauquier to VA residents as a result of an online or phone sale or as a wine club shipment will all be taxed at 5.3%, regardless of the tax rate where the consumer lives. Similarly, wine shipped from Hampton Roads or Northern Virginia regions from online or phone sale shipments would be taxed at the 6.0% rate, regardless of the tax rate where the consumer lives.
✓ When you participate in festivals, you are subject to the tax rate of whatever jurisdiction is hosting the festival.
✓ Note that you are required by law to collect from the consumer and remit to the state the appropriate sales tax. You are not permitted to “pick up” the sales tax on behalf of the customer.
✓ In Virginia, the tax on an item must be listed separately from the underlying item’s price, unless special permission is granted by the Tax Commissioner. Yet, it is common practice for a winery to post flat prices which include the sales tax for tasting fees and glasses of wine sold both on-site or when selling off-site via a remote permit. So how can you accomplish the same goal of avoiding making change for each glass of wine sold, while still remaining within the law? You have a few options:
§ Don’t list the tax at all. Instead of listing it as $5 for a glass of wine, list it as $4.75 with a caveat at the bottom of the price list that all sales are subject to VA sales tax.
§ List the tax separately. Instead of posting the $5 price for the glass of wine, list it as “$4.75 + tax” or “$5 ($4.75 + $.25 VA Sales Tax)”, so that the customers realize that the price they’ll actually pay isn’t just $4.75. You can certainly tell them that, with tax, the total will be $5 without running afoul of the law.
§ Submit a letter to the Tax Commissioner requesting permission to include sales tax on certain items in the listed price of those items. The VWA requested to have blanket permission for all wineries, but the situations in which the Tax Department was willing to grant this blanket permission were far narrower than was practical. Therefore, we’ve created a template letter that you can put on your letterhead and submit to the Tax Department requesting exemption from this rule so that you can continue to have an even price and back the tax out of it at the end of each month. That template can be found in the Appendix below. Remember to include your winery name and tax id where indicated and tweak the letter if you’re not interested in including the tax in the posted prices for all the items mentioned in the body of the letter.
Use Tax – Paid by you, on the following items:
✓ Items you purchase without being charged sales tax which are not otherwise exempt from payment of sales/use tax (see below). Glasses and office products are the most common example of this type of use tax. After July 2019, online sellers who sell more than $100,000 or make more than 200 sales in VA are required to charge you VA sales tax. Check your incoming invoices! If there is no sales tax included on the invoice, you need to enter the cost of that invoice into line 2 on your monthly sales/use tax return to VA Department of Taxation, and pay use tax on that amount; or If there’s no sales tax included on the invoice, you need to enter the cost of that invoice into line 2 on your monthly sales/use tax return to VA Department of Taxation, and pay use tax on that amount; or
✓ Wine that you make that would otherwise be sold that you USE rather than selling. The most common examples are wine for complimentary tastings and wine given to volunteers as payment for their service.
§ The use tax rate and the sales tax rate are the same, meaning that if you are in Loudoun County, and therefore subject to the 6% tax rate for sales tax, the use tax rate for you is also 6%. However, the use tax for wine that you USE is based on the fabricated cost of the wine, which includes the cost of materials, labor, and overhead charged to work in progress rather than the retail price. In our example, 6% of a $10 cost would be owed, instead of $6 of the $25 retail price.
Specific Situations:
✓ Tasting Fees: Because there is an exchange of tangible personal property (i.e., wine), fees for wine tastings are generally subject to the sales tax. Remember, though, make sure that you’re posting the tax separately from the underlying cost of the tasting. If you offer complimentary tastings, you can pay use tax to the state on the cost value of the wine used for those tastings. Note: Having seperate SKUS for complimentary tastings v. regular tastings will make it easier to keep track of whether they are subject to sales or use tax.
✓ Wine Tasting v. Wine Education: Sales tax is due for sales of tangible personal property, but not for services. Because there is an exchange of tangible personal property (i.e., wine), fees for wine tastings are generally subject to the sales tax. However, where the wine tasting involves a heavy educational element such that the true object of the transaction is a service, the charge is exempt from the sales tax.
✓ Wine Used for Tastings at Festivals: The banquet permits required in order to serve alcohol at a festival can only be issued to a non-profit or, in some cases, another manufacturer of wine or beer. Generally, the admission charged for the event includes tastings at the attending wineries. Under ABC law, the wine used for tastings at those events has to be sold and invoiced to the entity holding the license. Since it’s a sale, it is subject to sales tax unless it meets one of the exemptions listed below. In this case, the applicable exemption is that it is for resale or a sale to an entity that is exempt from paying sales tax. You should ask the host for an ST-10 exemption certificate in order to substantiate this exemption the first time you participate in a festival, and that exemption certificate will cover all events you have going forward with that same host. This situation is unique to the wine industry because of ABC law; most event hosts have likely not been doing this. We’ll be trying to spread the word about this protocol as well. NOTE that if you do not invoice the wine used for tastings at events, you are in violation of ABC law AND you’ll be liable for use tax on the cost value of all the wine used. Realizing how much wine this can be, the potential tax liability to you is significant.
✓ Venue Rental Fees: Rental fees are subject to sales tax regardless of whether they are related to the sale.
✓ Admissions to Events Onsite at the Winery: If admission to an event is tied to the exchange of money for a tangible good (usually food, wine, a glass, or a tasting in your case), the whole admission fee is taxable. A workaround if it’s a festival where the admission just includes a tasting rather than food as well is to charge a general admission fee that includes entertainment and admission to all attendees, and then a separate fee for the tasting and wineglass. For example, you are having an event at the winery and have a separate food cart providing food. You charge a $7 admission to every entry including those who are DDs or otherwise not drinking. If they want to do the tastings as well and get the wine glass, there is separate $3 ticket and wristband that allows them to do this. In this situation, the $3/person fee will be taxable, not the entire $10/person. REMEMBER, per (a)(5) above, to state underlying “product” separately from the sales tax.
EXEMPTION FROM SALES/USE TAX: The rule is that you must charge sales tax on any sale or rental of a tangible good, unless there is an applicable exemption. For each of these, you need to keep the appropriate paperwork on file or you will be subject to the tax. The most common exemptions are:
Items Being Used for Resale:For items you purchase for resale on which you don’t want to pay the sales tax, you’d provide this certificate to the seller in order to forego having to pay that tax. For items that you sell for resale, the purchaser would provide the certificate. The following items are generally the items to which this exemption will apply.
✓ Corks, bottles, capsules, bags and other packaging that leaves with the customer. You provide the certificate to the seller.
✓ Sugar, yeast to be added to bulk wine. You provide the certificate to the seller.
✓ Wine sold to wholesalers – The wholesaler provides the certificate to you.
✓ Wine sold for tastings to banquet permit holders hosting festivals. The permit holder provides the certificate to you.
The exemption certificate you’ll use for these types of transactions is the ST-10. The purchaser provides the certificate and both seller and purchaser should keep a copy in their files. A copy of this exemption certificate can be found in the Appendix below.
Purchases of Agricultural Products: Va. Code § 58.1.609.2 provides an exemption from the sales and use tax for certain specified items, including farm machinery and supplies sold to farmers for use in “agricultural production for market.” This term contemplates the cultivation of crops and raising of livestock. Thus, most of the activities associated with the growing and harvesting of the grapes for wine making would be considered agricultural production. This is the exemption you’d use for the purchase of grapes and items in the vineyard. The exemption certificate you’ll use for these types of purchases is the ST-18. The purchaser provides the certificate and both seller and purchaser should keep a copy in their files. A copy of this exemption certificate can be found in the Appendix.
Purchases for Use in Manufacturing: 23 VAC 10-210-920 explains that the integrated manufacturing process includes the production line of a plant, factory, mill, etc., starting with the handling and storage of raw materials at the plant site and continuing through the last step of production where products are finished or completed for sale and conveyed to a warehouse at the same plant site, and also includes production line testing and quality control. Activities conducted away from the plant site or used to convey products or materials between two plant sites fall outside of the scope of the manufacturing exemption. The key to the use of this exemption is that the item for which exemption is being claimed needs to be directly used in the manufacturing process. This is the exemption you’ll use for most activity within the winery itself. The exemption certificate you’ll use for these types of purchases is the ST-11. The purchaser provides the certificate and both seller and purchaser should keep a copy in their files. A copy of this exemption certificate can be found in the Appendix below.
Sales to Non-Profits: Certain non-profits are exempt from paying state sales tax. You should get a copy of the exemption letter they received from the state and keep a copy of that in your file as an explanation of why you didn’t charge sales tax for that transaction. In this situation, the contract wine maker should remember to get an ST-10 resale exemption certificate from the farm winery customer.
Contract Winemaking: The Department of Taxation has determined that “contract winemaking” would be treated as fabrication for purposes of sales tax, and that the wine created in a contract winemaking situation would therefore be subject to sales tax. However, Sales tax should be collected on the total fabrication charge, including labor, even if charges for labor are separately stated, unless another exemption applies. If the farm winery that is the customer of the contract winemaking facility will be selling the fabricated wine, it is entitled to the sale for resale exemption. In this situation, the contract wine maker should remember to get an ST-10 resale exemption certificate from the farm winery customer.
Diplomatic Exemption from Sales Tax Payment: Certain diplomats are granted exemption from paying sales tax on items purchased within the US. This exemption does extend to purchases of alcohol. Exemption cards are issued by the US Department of State and bear a photograph and name of the diplomat eligible for exemption, or the person entitled to make official purchases for the mission. The extent to which an individual or mission is exempt from the tax is illustrated on the face of the card. The purchase must be made by the person to whom the card is issued. The record of the sale must indicate the exemption card number.
If you are presented with a diplomatic card, ensure that the exemption extends to sales taxes. Make a copy of the card (or at least note the card number) and attach it to the receipt for the sale. This will serve as your supporting documentation in claiming that that transaction is exempt from sales tax so that you aren’t responsible for covering the tax for the diplomat on that transaction.
SALES TAX RETURN: Sales tax returns must be filed online by the 20th of the month here .
By law, local sales taxes must be apportioned according to the locality in which the sale was made.
✓ Once you enter into the online return, the first page that will come up will be titled “Create Schedule of Local Taxes.”
✓ Click all localities (some may be cities rather than counties) where you made sales during the reporting period. Remember that all direct to consumer shipment orders taken in your home city or county are apportioned to your locality. The sales outside of your home locality will generally be sales taken from a remote location, such as sales at festivals. If you had no sales other than in your home locality, just click your home locality.
✓ After selecting localities, click “create return”. The next page will list the localities you selected, and you’ll enter the same information you’ve always entered into the online system (gross sales, use, exempt sales) by locality.
Your actual sales (the amount you received before tax) is entered on the first block based on what city or county it is attributable (see details in section (a) above). This includes any exempt sales that you made (sale of grapes, sales of wine to wholesalers or to festival hosts).
Any use tax items (wine used for complimentary tastings, wine used to pay volunteers) are entered into the second block. Generally, all use tax will be attributable to your home locality. REMEMBER, wine on which you’re paying use tax is valued at COST for use tax purposes.
Once you go to the second page, you’ll see a dealer discount calculation. You are entitled to this discount unless you have averaged $20,000 a month in sales tax and have been notified by the Department of Taxation that you no longer qualify for the discount. Otherwise, leave that box checked and click the button “calculate the tax”. The system will calculate the tax owed and you can submit payment online as well.
PERSONAL PROPERTY TAX:
In addition to Sales/Use tax, farm wineries are also subject to Real Estate Tax and Personal Property Tax from the localities in which they are based. Although your farm equipment (tractors, sprayers) and winery equipment (tanks, barrels, hoses, crushers) are exempt from Sales/Use Tax, they are NOT exempt from Personal Property tax. In 1984, the law was changed to create a separate category for farm machinery (which encompasses all the items mentioned above), and gave the localities the ability to create a reduced or waived tax rate for farm equipment, but a locality does not HAVE to reduce the tax rate, and can tax it up to the regular personal property tax rate in the county. Wine inventory which is produced by the winery is specifically exempted from personal property tax, so the localities are not able to tax on the value of the wine on hand itself. Citizens can ask the county to reduce the tax rate imposed on farm machinery in order to reduce their tax liability.
BPOL:
BPOL is a privilege tax imposed on gross receipts for various lines of business. Is it a local tax imposed by the counties and generally comes up as a “business license” that is paid annually. The following items are excluded from BPOL tax based on state law, but business lines outside of these could have BPOL imposed on them. The imposition of BPOL tax varies widely from county to county.
Exempt:
✓ For selling farm or domestic products or nursery products, ornamental or otherwise, or for the planting of nursery products, as an incident to the sale thereof, outside of the regular marketing houses and shed of such county, city, or town, provided that such product are grown or produced by the person offering them for sale;
✓ On a manufacturer for the privilege of manufacturing and selling goods, wares, and merchandise at wholesale at the place of manufacture.
When any person, firm or corporation is engaged in more than one business which is made by law subject to taxation, such person, firm or corporation shall pay the tax provided by law on each brand of his, their or its own business.
Different categories that the localities could try to subject to BPOL:
✓ Sales of wine you produced onsite – exempt from BPOL
✓ Sales of wine produced from fruit you grew, but produced elsewhere – arguably exempt from BPOL
✓ Sales of wine produced from other people’s fruit at another location – not exempt under plain language
✓ Tasting room sales – not exempt under plain language
✓ Food sales below the MOU with VDACS – not exempt under plain language
✓ Restaurant food and beverage sales – not exempt under plain language
✓ Venue Rental – not exempt under plain language
MISCELLANEOUS:
Agricultural worker exemption for employment tax: There is a $20K per employer limit on the exemption – if the winery or vineyard is spending more than $20K in wages for all employees, then they will need to pay taxes on all wages. For small wineries and vineyards, the tax dept. suggests the best way to maintain an exemption would be for owners/members and other folks who would work for free to operate the tasting room and at festivals, as well as any other non-agricultural duties, and leave the paid work to be exclusively agricultural. Once you get any other kind of paid labor involved, you’re going to need to pay taxes on everyone.
The definition of agricultural workers includes individuals who handle, plant, dry, pack, package, process, freeze, grade, store or deliver agricultural products. It would appear that delivering and sorting grapes coming from the vineyard would be covered under this definition. However, those grapes must be grown by the employer of the worker, not by an outside grower for the definition to apply.
Meals Tax: Richmond, Fredericksburg, Virginia Beac, Rappahannock County – State law permits localities to impose local taxes in addition to the state sales/use tax. Since “meal” is defined by local ordinance, some localities are requiring the payment of an additional meals tax on wine that is served for on-premise consumption. When you participate in an event in one of these localities, be aware that you may be liable for an additional tax payable to the locality, and may (as is the case in Virginia Beach) need to get a local business license in order to pay those taxes. Everyone normally keeps track of glasses of wine that they sell, but remember in these jurisdictions to also keep track of the bottles that you open for customers so you pay the meals tax on the correct amount.
Tax Credit: An individual and corporate income tax credit is available for Virginia farm wineries and vineyards in an amount equal to 25 percent of the cost of all qualified capital expenditures made in connection with the establishment of new Virginia farm wineries and vineyards and capital improvements made to existing Virginia farm wineries and vineyards.
In order to claim the tax credit, a vineyard must consist of at least one acre; a winery must possess a farm winery license.
The total amount of tax credits available in the state for a calendar year cannot exceed $250,000. If applications for this credit exceed $250,000, the Department of Taxation will allocate the credits on a pro rata basis. Any credit amounts that exceed a taxpayer’s liability can be carried forward for ten years. Taxpayers cannot claim both this credit and a federal deduction for the same expenses under IRC §179.
The business must apply by April 1st using Form FWV .
For additional information, see this web page.