Winery Compliance: Tiny Tax Tips
I’m not a tax specialist, but I have picked up a few things in 15 years of performing all types of winery compliance tasks. And I always tell people that winery compliance work isn’t nearly as difficult or scary as they may think. Labor intensive…possibly. Fun…definitely not! Difficult…not really.
For direct shipment of wine, you are essentially looking at three different reports at the most for any one state: excise tax, shipments, and sales & use tax. For a well-organized office, excise tax returns are not that difficult. Total up the volume of wine you shipped to the state during the period covered by the return, multiply the total volume by the rate of the excise tax for each category of wine, write a check for the amount of the tax due. Shipment reports are even easier…just detail what and to whom you shipped, no check required.
What usually throws people is sales & use tax (S&U). Unlike the straightforward nature of excise tax and shipment reporting, S&U taxes have several other variables that can impact the degree of difficulty (Olympics jargon here) in completing the return. Besides that, the form is usually longer with schedules and attachments for deductions, exemptions, adjustments, credits and prepayments. And let’s not forget local taxes.
Having said all that, even completing S&U tax forms for most states a winery ships to is not that complex; you simply need to separate the wheat from the chaff and understand a few basics about what information the state wants.
A comment I hear often is that the forms are so complicated and the instructions so difficult that I don’t know how to complete the form. The reality is that for every state except the home state in which your winery is located most of these schedules and attachments aren’t going to apply. These forms are generally designed for resident businesses in the state and as such cover many exceptions that are only applicable to resident businesses. For a winery shipping wine direct to out-of-state residents, completing that state’s S&U tax return is pretty much limited to reporting the sales activity for wine and any other products you ship into the state, deduct any non-taxable items (such as shipping costs or non-prepared foods) and multiply the net sales by the state tax rate. The only difficult S&U tax return is going to be for your home state…and you have to do that whether you ship or not because your home state S&U tax return includes all of your sales activity in the state, not just your shipping activity.
A couple of key things to be aware of when comleting S&U tax returns:
Gross Sales v. Net Sales: almost invariably on line 1 of the return the state wants to know the amount of sales activity you had in the state for that period. Read the instructions for line 1 carefully because the value to put there will determine your response to other questions on the return. Specifically, determine whether the state wants to know your Gross Sales (taxable and non-taxable) or your Net Sales (taxable only). Most states want to know your Gross Sales and then let you deduct your non-taxable sales further down in the form. Non-taxable items could be certain types of products (non-prepared foods like that jar of gourmet mustard) or sales to certain types of customers (sales to the U.S. government, sales for resale). They could also include shipping charges incurred. The important thing is to be sure to understand what sales are to be included in line 1.
Frequency: how often you are required to file is usually a function of the volume of sales activity in the state. For most wineries that will be relatively low resulting in only annual filing. For others, quarterly or even monthly filing may be required.
Local Taxes: more and more states are moving to “destination-based” systems wherein the winery is required to collect and remit not just the state S&U tax but also the local S&U tax. Local taxes usually range from a .25% up to 2.5%, depending on the region and are determined by city, zip or even street level address.
When all is said and done, most of your compliance work is not as cumbersome as it may seem once you look past the extraneous information on the forms. And for the information that is required, new systems are available to assist you to complete these tasks effectively and efficiently. That is why we created REthink Compliance. To bypass the chaff and remove the anxiety of direct shipping compliance. The reports generated there will tabulate the sales activity according to each state’s requirements…right down to local sales & use tax rates. So don’t despair. Taxes are still a nuisance, but they don’t have to be scary.