It’s nearly impossible to page through any wine trade publication these days without encountering a story announcing a winery sale. Whether it’s the latest in a long line of acquisitions by one of the mega-winery conglomerates, or the late blooming of a wine lover’s lifelong dream, these outwardly different transactions trigger a similar set of esoteric regulatory requirements.
The compliance part of the story doesn’t make the news, but it is important — perhaps more important to you — than a lot of what does make headlines. “Paperwork happens!” In fact, like death and taxes, winery transfers are virtually inevitable at least once in every winery’s history. Your winery may not be for sale, but an unsolicited “offer you can’t refuse” or an unplanned change in family circumstances may require you to become a sudden expert on the regulatory requirements of transferring your winery to new ownership. Or maybe you’ll find yourself on the other side of the negotiation, when it’s time to expand and you discover that it’s easier to buy another production facility than it is to increase the use permit on your current one.
Even the use of common estate planning tools such as trusts or family partnerships requires that you know the basics of winery transfers and changes of control. Changes of ownership or control can happen even though the winery stays in the family. The most common scenario of this type occurs when the stock of a corporate-owned winery is placed into a trust or gifted to the owner’s children while implementing an estate plan. A change in control also occurs when some type of asset protection entity such as a family LLC or limited partnership is created to hold the stock of the winery entity. Even incremental stock transfers, as little as 5% a year, will someday add up to a change in control, when the majority of ownership finally shifts. These types of entirely “internal” transactions, while not typical sales, frequently create technical transfers which need to be reported much like a sale to a third party.
Good housekeeping
Any realtor will tell you that tidying up your house is one of the most effective ways to make your property more appealing to a buyer. Well, good compliance housekeeping is also important when selling your winery. Potential buyers will often do their “due diligence” on your licenses and permits, either before making an offer or at least before closing the transaction, so it is prudent to check whether your ownership records are up-to-date with the regulatory agencies before putting your winery on the market. In a surprisingly high percentage of the winery transactions we handle, we find that past changes wholesale liquor license in key personnel or ownership interests of the selling winery had not been reported to the regulatory agencies. These types of unreported changes will probably add significant stress and delay your transaction, because the regulatory agencies are likely to want the overlooked changes reported and approved before approving the transfer.
Another good housekeeping tip is to make sure all of your production reports and excise tax returns have been filed. Before issuing a new permit to your winery’s buyer, TTB will want to close out and discontinue your permits. But first, TTB will review your records to make sure there are no deficiencies. While TTB has made great strides in catching up on its workload, you might be unpleasantly surprised to hear about a missing return or report that had not previously been noted or requested although the error occurred several years ago.
If you are thinking of selling, you may wish to contact your winery’s specialist at TTB’s National Revenue Center to find out if they are up to date in reviewing your records, and if not, to specifically ask them to determine whether there are any outstanding items that you need to address. A tax deficiency is much easier to resolve without the pressures of a transaction creating an emergency situation.