What is a “Custom Crush” arrangement and what are the Federal requirements for “Custom Crush” clients and winemakers?
In a typical custom crush arrangement, a grape grower or any person with winemaking materials (the “client”) enters into a contract with a bonded winery proprietor to have the grapes processed into wine. The client retains title to the grapes, and the wine is made to the client’s specifications. The finished wine is returned to the client for sale to other dealers, or the winery sometimes sells the wine on behalf of the client.
The custom crush client may be required to obtain a Federal Wholesaler’s Basic Permit from TTB. This permit allows the client to engage in the business of purchasing wine for resale at wholesale, in accordance with the Federal Alcohol Administration Act at 27 U.S.C. 203(c)(1) and 27 CFR 1.22. Although the client is specifically paying for the producer’s services, the client has purchased wine (within the broad meaning of the term) at the price set in the agreement. If the client engages in activities normally associated with wholesaling, such as setting the price for the wine, determining which dealers will be sold the wine, and controlling and paying for advertising of the product, the client must have a wholesaler’s basic permit. If, however, the client merely receives the proceeds from the sale by the winery of the resulting wine, a permit would not be required.
The custom crush client who engages in the business of selling wine is liable for Registration as a Liquor Dealer. The holder of a federal permit is automatically registered to sell at the address shown on the permit. If selling at retail at a location where you do not hold a valid producer, blender, wholesaler or importer permit, the retailer must register that location by filing TTB F 5630.5(d). There is no cost for registration.
Bonded winery proprietors must ensure that the receipt of winemaking materials and the ensuing activities associated with the production of custom crush wine is properly recorded. TTB reminds the industry that wine produced for custom crush clients carries the same regulatory requirements for recordkeeping, reporting, labeling and taxation as wine made for the winery itself.
The bottling winery is responsible for obtaining an appropriate Certificate of Label Approval, and the wine premises which removes the wine from bond is responsible for payment of Federal excise tax at the rate appropriate for the producing winery. For the purposes of determining eligibility for the Small Domestic Producer’s Credit, all wine produced for clients must be included in the production and removal calculations (see 27 CFR 24.278-9).