Wednesday, March 30, 2011

Can I Store Unlabeled Wine in Taxpaid Areas?

Many wineries wonder whether they can store unlabeled wine bottles or “shiners” (perhaps for aging or as library wines) in storage areas outside of their bonded premises.  The short answer from the “TTB” is no.  Although TTB regulations provide that wines must be labeled before they are removed for “consumption or sale,” the TTB has interpreted these regulations as meaning that wines must be labeled before they are removed from bond for any reason (although a few limited exceptions do exist).  Thus, shiners must either be stored within a winery’s bonded premises, or can be transferred via a bond-to-bond transfer to another bonded premises.  The TTB does permit appeals to this rule in extraordinary circumstances, although this would require a showing that storage at any bonded premises is impossible for some reason.  A simple “fix” to this solution would be expand your bonded wine premises area to include those storage areas where you would like to hold or age your unlabelled wine bottles.

For more information regarding the storage and transport of wines in bond, or for assistance in filing a bonded premises expansion to include storage areas, please contact Bahaneh Hobel at

Thursday, March 24, 2011

Groupon and Alcohol Discounts: Do They Mix in California?

by Mike Mann

The State of Massachusetts ABC recently held that Groupon's online coupon discounts for alcohol at bars and restaurants run afoul of that state’s ABC regulation regarding happy hours. This case made clear that the many Groupon-type coupon marketing businesses currently in the market need to recognize the regulatory aspect of their offers when alcoholic beverages become part of the mix. Could the State of California ABC reach a conclusion similar to that of Massachusetts? The State of California doesn’t have the same specific “happy hour” restriction as does Massachusetts.  However, these coupon offers could raise other concerns in California under its regulations for alcoholic beverages.

As an example, the California ABC currently has an unresolved issue concerning the compensation of unlicensed third parties from the sale of alcoholic beverages. The assumption is that coupon-marketing businesses are compensated either by a percentage of the sale or by fixed fees which are paid by the participating business. These businesses include ABC licensed retailers, or in some cases manufacturers. If coupons offered to the consumer include alcoholic beverages, these marketing companies could unknowingly fall into this unresolved category of unlicensed third parties. If this were to occur, the unfortunate aspect for the retailers, bars, restaurants and wineries participating in these programs is that California ABC has no administrative authority over unlicensed businesses, only the licensees.  Thus, it would be the licensees that took part in these arrangements who would be prosecuted by ABC.  Therefore, so long as this remains as an unresolved issue with California ABC, there would appear to be some risk for retailers, bars, restaurants and wineries participating in these online coupon programs. 

More often than not, marketing companies are simply unaware of the regulatory intricacies surrounding the alcoholic beverage industry, as exhibited in the Massachusetts case. Many of these companies operate with good intention, but just don’t do their homework in the proper arena.  In turn, licensees who take part in these programs assume the programs are legal and comply with the law by the very fact that they exist.  However, when it comes to alcohol beverage regulation, the first rule is to not assume that a practiced activity within the alcoholic beverage industry is an acceptable and compliant one, it is always best to first seek guidance.

Some good news is that California ABC has reached out to industry members, their representatives and other stakeholders to examine these types of issues, as well as numerous others, that have resulted from the evolution of technology and marketing related to alcoholic beverages.  As a result, ABC has created committees which include representative stakeholders to review current industry trends and determine if they can be addressed with the archaic regulations which were established many years before current media capabilities and marketing techniques were ever contemplated. If attempts to fit the new marketing trends within the existing framework of regulations fail, the door will be open to seek legislative remedies to meet the current needs of the industry.  Until then, there remains uncertainty.

Mike Mann is a consultant in DP&F's Alcohol Beverage Department.  Mike worked for over two decades for the California Department of Alcoholic Beverage Control, retiring in 2008 as the District Administrator in charge of the Department’s Santa Rosa Office.  Mike is serving on the ABC committees formed to evaluate the framework of current regulations as applied to developing trends in the industry.  To provide Mike with input on these issues, or for assistance on regulatory matters, contact him at  

Tuesday, March 22, 2011

Avoiding Tax Reassessment in Transfer of Vineyard or Winery Properties

California real property is reassessed upon certain transfers causing higher (or lower) property taxes.  Generally, a reassessment will occur when ownership of the property is transferred.  Exclusions from reassessment are available for transfers of real property between spouses and between a parent and a child.  Therefore, family owned vineyards and winery property may have been transferred down through generations without being reassessed and without a significant increase in property taxes. 

Vineyards or winery property held in a legal entity (e.g., a corporation, partnership or LLC) are subject to reassessment upon a change in ownership of the entity, but the exclusion from reassessment for transfers between parent and child does not apply.  Entities are subject to a complicated set of rules that determine when a change in ownership takes place resulting in a reassessment.  If you are not careful, a transfer of a 1% interest of the entity can cause an unexpected reassessment of the entire property.  The death of a shareholder, partner or LLC member can be a reassessment event as his or her interest passes to the next generation.

Generally, a transfer of entity interests results in a reassessment if someone acquires more than 50% of the entity or if there is a cumulative transfer of more than 50% of the entity.  Whether any particular transfer is a change in ownership depends on how the entity acquired the property, the details of prior transfers and any applicable exclusions.    

Beginning in 2010, any change in ownership of an entity that holds real property in California must be reported to the California Board of Equalization on Form BOE 100.  Failure to report a change in ownership can result in a 10% penalty.  County assessor forms required upon the death of a real property owner now include a question about the decedent’s interest in any legal entity. 

If your vineyard or winery property is held in a legal entity, always consider the property tax consequences before restructuring or making transfers of shares or interests.  A review of potential property tax issues should be included in every vineyard or winery owner’s estate plan as well.

For further information or assistance with estate planning matters, please contact Julia M. Walk at

Monday, March 21, 2011

New Source of Funds Requirement for TTB Permit Applications

Those of you that may have recently filed an original TTB application as a brewery, winery, distillery, importer or wholesaler may have noticed that the TTB now requires “source of funds” documentation as part of the application materials.  The requirement simply requires disclosure as to the source of the funds you will be using to start and/or operate your business, and can typically be satisfied by providing TTB copies of bank records (TTB requires 5 months worth of statements) or loan documents.  While the regulation may be considered burdensome to some, especially those who have long held other permits with the TTB, the new rule is in line with the TTB’s goal of identifying the parties that will have an interest in any alcohol beverage permits that may be issued.

For more information on the TTB permitting process, please contact Bahaneh Hobel at

Friday, March 18, 2011

TTB Permits Online - On the Road to More Efficient Federal Filings

The TTB's new online permit system is now active and available for use. Although “Permits Online” is currently only available for New Winery Operations applications (Bonded Winery, Bonded Wine Cellar, Tax-Paid Bottling House) and New Wholesaler/Importer applications, TTB anticipates that the system will soon be available to accommodate amendments to existing permits and registrations.  And within the next year, TTB anticipates that Permits Online will be available for all applicants, including those related to distilled spirits and brewery operations.

The Permits Online system should hopefully expedite the TTB application process and does allow for better tracking of TTB applications once filed.  Although original “paper” submissions are still required for some documents (such as bonds, consents of surety and powers of attorney), the new system should greatly reduce the amount of paperwork typically submitted to TTB for federal permits.  DP&F is also actively working with the TTB to provide suggestions and comments regarding the efficiency and effectiveness of the system.

The link to TTB's new online permit system homepage is:

For assistance with TTB applications (whether online or in the traditional format), or more information about Permits Online, please contact Bahaneh Hobel at  

Monday, March 14, 2011

Winery and Vineyard Procedures for Hiring Seasonal Workers; Avoiding Problems in I-9 Audits by Immigration Services

Due to the necessities of hiring seasonal workers, many vineyards and wineries are faced with the task of verifying employees' eligibility to work in the U.S. by maintaining Form I-9, Employment Eligibility Verification forms. Over the past year, the U.S. Citizenship and Immigration Services (USCIS) has increased its audits of employers’ I-9 files.  The USCIS has also been bringing criminal cases against employers for violating the I-9 requirements.  What this means to employers is that sloppy paperwork and poor documentation can cost you $1,000 per worker, and knowingly hiring an illegal immigrant can result in a $10,000-per-worker fine.

Here are some steps to help you avoid potential legal trouble with the USCIS:

  1. Take stock of your I-9 compliance and make sure you’re using the new version of the I-9 form; 
  2. Do not ask an applicant to complete an I-9 prior to making a job offer (unhired applicants can use I-9 information to allege that you are discriminating against them);
  3. Require all new hires to complete and sign Section 1 of the I-9 form on their first day of work;
  4. Review the employee-offered documents to make sure they are on the new version of the I-9’s list of acceptable documents and that they appear genuine (you are looking for obvious fakes, you are not required to go out of your way to question the authenticity of an employee’s offered documents which appear genuine);
  5. Do not ask new hires for any particular documents or for more documents than the I-9 requires; the employee chooses the documents, not you;
  6. Do not consider the expiration date of I-9 documentation when making hiring or firing decisions;
  7. Do calendar when documents that authorize an employee to work in the U.S. expire so that you may follow up (remember you do not need to re-verify identity documents such as a driver's license or a passport);
  8. Do not keep the I-9 documents in the personnel file (to protect against discrimination claims keep the I-9 and supporting documentation in a separate file);
  9. Keep I-9 forms and copies of supporting documents for three years after the employee’s hire date or one year after his or her termination date, whichever comes later; and most importantly,
  10. Establish a consistent procedure for completing the I-9 forms and train your hiring managers on the procedure.
You can find more detailed information about I-9 documentation and procedures on the USCIS website at this Link to I-9 info
For specific questions about your businesses compliance you can contact Jen Phillips at

Wednesday, March 9, 2011

Refusal of Trademark UPSLOPE for Beer Upheld by USPTO Based on Prior Trademark for UPSLOPE for Wine

Consistent with earlier precedent, the U.S. Patent and Trademark Office's Trademark Trial and Appeal Board (TTAB) upheld the Office's refusal to register the trademark UPSLOPE for beer based on a prior registration for UPSLOPE for wine.  In considering the likelihood of confusion between trademarks, the TTAB limits the analysis to the trademarks as shown in the trademark applications or registrations at issue, as well as the goods as described in such applications or registrations. 

In this case, the marks were identical as identified in the respective trademark application and registration, i.e., the word "UPSLOPE."  Therefore, the critical issue was whether beer and wine are sufficiently related such that consumers would believe that both a beer and wine labeled with the mark UPSLOPE were somehow associated with one another or emanated from the same source.

Applicant, Upslope Brewing, argued that alcohol beverages (e.g., beer and wine) are not related goods per se.  The TTAB agreed stating that the relatedeness of alcohol beverages is not an absolute rule and evidence must be considered before making such a determination. However, after reviewing the record, which included Internet evidence of retailers offering beer and wine on their websites, and copies of several registered trademarks in use for both beer and wine, the TTAB was persuaded that the two goods are closely related. 

While this opinion clearly establishes that relatedness of alcohol beverages must be proven on a case-by-case basis, it also illustrates that the threshold for such evidence in the TTAB is fairly low such that relatedness can usually be proven so as to support a finding of likelihood of confusion between similar marks for beer and wine.

The full opinion may be found at the following link: In re Upslope Brewing LLC, Serial No. 77650402

For further information or assistance with trademark matters contact Scott Gerien at

Tuesday, March 8, 2011

Using E-Verify to Ensure the Legality of Your Winery Workforce

E-Verify is the federal government’s electronic employment verification system.  It is an Internet-based system that allows an employer, using information reported on an employee's Form I-9, Employment Eligibility Verification, to determine the eligibility of that employee to work in the United States.  The E-Verify system is operated by the Department of Homeland Security in partnership with the Social Security Administration.  It is free to employers and is limited to determining the employment eligibility of new hires only.

While certain members of Congress have introduced bills attempting to require all employers to use the E-Verify system, participation in E-Verify today is voluntary for most businesses.  However, some companies are required by state law or federal regulation to use E-Verify.  For example, most employers in Arizona and Mississippi are required to use E-Verify, and E-Verify is also mandatory for employers with certain federal contracts.  California currently does not require employers to use E-Verify. 

The federal government through the Department of Homeland Security (“DHS”) has initiated the “I E-Verify” program where businesses that have voluntarily adopted the use of the E-Verify program are recognized on a DHS-created list.  The list is intended to boost the stature of the participating employers with immigration-conscious customers.

Link to Dept. of Homeland Security E-Verify Page for Employers

For more information or assistance on employment or labor issues, please contact Jen Phillips at

Friday, March 4, 2011

Are Your Winery Interns "Employees" That Need to be Paid?

Recently, the California Department of Industrial Relations Division of Labor Standards Enforcement (DLSE) issued an opinion letter concerning educational internship programs.  Specifically, the letter addressed whether California law would require employers to treat interns of a particular educational program as employees.

The DLSE noted that there is no California statute or regulation which exempts trainees or interns from the minimum wage and overtime requirements.   Rather, the DLSE noted that California’s definitions of “employee” and “employ” are similar to the federal Fair Labor Standards Act and that California has historically followed federal interpretations which have recognized that certain trainees and interns who participate in a bona fide internship or training program fall outside the minimum wage laws.

The question becomes how does one determine whether a “trainee” or “intern” is exempt?  The DLSE has used an 11 part test in the past.  With this opinion letter, the DLSE seems to reject the 11 part test and instead relies on the six part test articulated by the federal Department of Labor to determine whether a trainee or intern is an employee or exempt from coverage.  The relevant six criteria are as follows:

1.        The training, even though it includes actual operation of the employer’s facilities, is similar to that which would be given in a vocational school;

2.        The training is for the benefit of the trainees or students;

3.        The trainees or students do not displace regular employees, but work under their close observation;

4.         The employer derives no immediate advantage from the activities of trainees or students, and on occasion the employer’s operations may be actually impeded;

5.        The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and

6.         The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.

The bottom line is that there is no bright line answer to the question of whether an intern is an employee under the law.  Each internship or training program needs to be analyzed under this applicable six part test to determine if the participants fall outside California’s wage and hour laws.

For further information or assistance on employment or labor matters contact Jennifer Phillips at