Once the business entity through which the wine business shall operate, the prospective business owner, entrepreneur will need to determine what sort of wine business it will establish – a stand alone winery, an alternating wine proprietorship, a wine distributorship; a retail wine establishment or restaurant.
Once the decision of what type of wine business the entrepreneur, business owner will establish, and the business entity the wine business shall operate, he/she/they will need to focus on the wine regulatory framework. For example, in order to establish a winery under federal law, a business needs to comply with two sets of laws, the Federal Alcohol Administration Act (FAA) and the Internal Revenue Code (IRC). The Alcohol and Tobacco Tax and Trade Bureau (TTB) are responsible for administering these laws and is responsible for collecting taxes on alcohol, permitting, labeling, and marketing requirements. These requirements vary depending on how the wine business is organized and structured. For instance, will the wine business produce wine for commercial purposes; store, blend or bottle untaxed paid wine; provide wine at wholesale or retail; or import wine products? For these, you must file and application with TTB and receive approval before starting operations. In order to obtain a permit, a wine making operation should first determine which type of operation they would like to run. The TTB has established approximately four types of wine operations associated with wine production. Therefore, the relevant, proper wine regulatory framework will depend on the kind of wine business the entrepreneur, business owner chooses to operate.
Stand Alone Bonded Winery
The stand alone bonded winery operation is responsible for all production activities, recordkeeping and filing associated with onsite wine production. This includes wine label approval for the wine prior to bottling and the payment of excise tax on the wine.
Alternating Wine Proprietor
The alternating wine proprietor operation is employed when two or more wine companies agree to share the use of a bonded wine premises. The wine company that owns or controls the premises is known as the “host” winery while the companies that use the premises are known as “tenants” or “alternators.” Each individual company is responsible for their own production, bottling, storage and management, recordkeeping, labeling and reporting guidelines, and taxes. This is advantageous for start up wine companies because leasing excess space and capacity from a larger more established winery minimizes startup costs.
This operation generally occurs when a currently operating winery is approached by a customer or start-up winery who would like to have wine produced. This type of operation is broken down into two parts: the party producing the wine (Producer) and the party for whom the wine is produced (Client).
Bonded Wine Cellar
These operations generally store already made wine under bond, but then they can include bottling or blending operations. The more complex a wine cellar’s operation is, the more responsibility it will incur in regards to labeling and reporting requirements.
TTB’s Wine Regulations
Depending on the type of wine operation, the entrepreneur, business owner must then apply to the TTB and comply with its many requirements. The TTB protects consumers, regulates labels for wine and approves all labels. The premise responsible for bottling the wine must also obtain a Certificate of Label Approval (“COLA”) before bottling it. 24 CFR § 4.32 et. seq. contains the wine regulations for labeling wine.