Published in Vineyard & Winery Management - May/Jun, 1997

"What are the top ten federal and state regulations most frequently overlooked and violated by retail room staff at California wineries?" Judging by the high level of interest and large number of questions, we could have spent most of the day discussing this topic at Vineyard & Winery Management's recent Tasting Room Profitability seminar.

Here are the ten items I spoke about there:


Gotcha #1: Shipping Illegally to Out of State Consumers

I have written about the dangers of direct interstate shipments to consumers several times in my column. To briefly touch on the important points every tasting room employee should know:


Gotcha #2: Protecting Your Pocket: Avoiding Fines for Participation in Fund-Raisers

Wineries are regularly deluged with requests to donate wine for fund-raisers and to participate in organization-sponsored winetastings. It is often hard to say "No," but in the following circumstances, you have a good excuse (it's illegal):

Always ask what is the purpose of the wine being donated. If the answer is "a raffle," just say no. Raffles are illegal in the State of California.

If the event has an admission charge or is open to the public, make sure the sponsor obtains a temporary retail license. If they don't, they are selling wine without a license—and your winery is an accomplice.

Make sure the sponsor hasn't hired a caterer with an alcoholic beverage license to handle the event. If they have, your winery's donations to the event make it guilty of giving free wine to a retailer, and a $10,000 fine could result. (It has happened!)


Gotcha #3: Protecting Your Space: Avoiding Licensed Premise Violations

Wineries are restricted to exercising their license privileges only at their licensed premises. License privileges include selling wine and pouring tastes of wine. This means:

Note: There are a few privileges wineries may exercise away from their premises. These statutory exceptions include participation in winemaker's dinners, holding courses of instruction for the trade, and sponsoring a winetasting restricted to members of one organization and its invited guests.


Gotcha #4: Let a Retailer Move in Next Door, but Don't Let Your Daughter Marry Him!

This item refers to the general restriction against giving "things of value" to retailers. Again, there are statutory exceptions that allow suppliers to give retailers such items as wine lists and promotional items (within strict dollar limits). For example, in California, suppliers are allowed to provide ground transportation, meals, tickets to entertainment (but NOT air travel or lodging). But if a statutory exception does not allow it, beware!

It is considered to be "a thing of value" if you tell consumers where they can find your wine sold at retail. ABC understands that wineries are asked this question frequently, and would be foolish not to answer it at all. The best way to answer it, so as to avoid benefiting a retailer, would be to mention several places. When an out of state consumer questions you, refer him or her to your wholesaler in their area. The wholesaler can provide further information on local retailers.


Gotcha #5: Don't Get Caught with the Tab for Winemaker's Dinners

Winemaker's dinners are a good way to promote your brands, but you should bear in mind that this privilege is one of those statutory exceptions that allow wineries to collaborate with retailers. In order to be legal, they must be conducted under strict guidelines:

  1. Other than the small tastes offered, no premium, gift, or free goods may be given to the consumers in connection with the event.
  2. The winery may advertise the event in advance subject to the following restrictions:
    1. the names of the wines being featured at the instructional event may be listed, but not their retail prices
    2. the time, date and location and other information about the event may be given
    3. the only permissible reference to the retailer is the listing of the retailer's name and address, which must be relatively inconspicuous in relation to the advertisement as a whole
    4. pictures or illustrations of the retailer's premises and laudatory references to the retailer are not permitted in the advertisement
  1. The retail licensee may also advertise an instructional event held at its premises. Any such advertisement may contain the following information:
    1. the name and address of the winery
    2. the brand names of wine being featured
    3. the time, date, location and other identifying information
  2. A winery may not share the costs of the retailer's advertisement.
  3. Only an on-sale licensee may hold an instructional event of this nature (not a wine shop or liquor store).

Also, the winery must sell the wine for the dinner to the retailer.


Gotcha #6: This One is Serious: Responsible Service of Alcoholic Beverages

The service of alcoholic beverages for consumption on your premises is a serious responsibility. To ensure that this responsibility is properly handled:

It is rare for a tasting room employee to be cited for a violation in service, but a winery that does everything it can to prevent such an occurrence is well-prepared to defend itself should one occur.


Gotcha #7: Collaborating with Competitors

A winery's privilege of retail sales and winetasting is restricted to wine made by or for the winery, bearing brand labels owned by the winery. Wineries who wish to share a tasting room with another winery or sell other suppliers' wines must make sure proper additional licenses are in place first.

Also, a little-known California law requires that a winery must produce by fermentation on its licensed premises at least half of the wine it sells at retail.


Gotcha #8: Recordkeeping and other Allergies

Recordkeeping is one of the least fun but most necessary parts of operating a winery. My advice to retail room staff is as follows:

Keep good records of wine removed to taxpaid areas or taken for samples. Especially at small wineries, the all-too easy habit of forgetting to document these events makes inventory reconciliations difficult. Note: except for samples removed for analysis, wine taken as samples (i.e. promotional samples) are taxable even though they are given away.

Stay within the statutory limits for sampling. In California, wineries are limited to giving trade samples no larger than one liter (an exception is made for bulk samples submitted for processing purposes).

Wine used for samples should be labeled as such ("sample—not for sale") and records must be kept for three years containing the following information:

  1. complete product identification (i.e., brand and type)
  2. size of sample package
  3. name of the salesman who removes the sample package
  4. date the sample is removed from the licensed premises
  5. name of the licensee to whom any sample is given
  6. identity of the sample given
  7. the quantity given
  8. the date the sample is given to the licensee


Gotcha #9: Give and Take (Back)

Just as wineries are restricted from giving things of value to retailers, they are also restricted from giving things of value to consumers. This is where a little semantics expertise comes in handy! Instead of saying, "Get a free corkscrew with every purchase of a case," say "A corkscrew is included in the price when you purchase a case."

The privilege of return is also strictly regulated. By law, California wineries are allowed to make a money-back guarantee to consumers and to accept returns of wine, no matter where purchased, for any reason. However, returns from the trade are restricted by both federal and state law.


Gotcha #10: Don't Pay the Piper Too Much

This one's a switch—many wineries are "over-complying" in two areas—special occupational tax and state excise tax.

Many wineries are overpaying their special occupational taxes.

A surprising number of wineries are shipping wine out of state without taking the allowed exemption from state excise taxes. Even if the wine was taxpaid on a previous return, you should be deducting any gallonage shipped out of state for a reduction in taxes currently due or a refund. If you have not been doing this, you have a big refund coming! You can submit a claim for overpaid taxes going back three years.

Discussing ten "gotchas" in a one hour presentation or short article serves to alert you to problem areas but barely does justice to any of them! This list serves as a "compliance appetizer"—hopefully it has increased your hunger to seek out the information you need to stay in compliance.