Here are a few specific aspects of vineyards and wineries that make personal
property tax compliance unique.
By Robert Reitman, CPA
Vineyards and wineries are unique in their operations, as they combine agriculture, manufacturing and hospitality. This complexity brings specific challenges in managing personal property taxes. Here are a few specific aspects of vineyards and wineries that make personal property tax compliance unique.
Obsolescence and Abandonment
Continued taxation of obsolete or abandoned property is one of the most common issues for vineyards and wineries. It’s not unusual to see old tractors, farm equipment or other machinery sitting unused on vineyard land — sometimes for decades.
Although these assets are no longer functional and are not being depreciated on the books, they continue to appear on the personal property tax rolls and are subject to tax. Vineyard owners must take action to remove obsolete items from both their property and property tax renditions (personal property returns).
Asset Classification
Another challenge in managing personal property taxes for vineyards and wineries is correctly identifying and classifying the property type. The classification determines whether the asset is considered depreciable or real property, as each has different tax implications.
For example, mobile equipment — such as tractors used in the field and carts for transporting grapes to the processing center — is classified as personal property and assessed immediately upon being placed in service. On the other hand, in California, vines planted in the ground are not assessed until three years after the season of planting in vineyard form, giving them time to become productive.
Storing wine or grape juice in large vats adds another layer of complexity. Whether these vats are classified as real estate or personal property depends on whether they are affixed to the ground or movable. In a tasting room, there may be tables, racks and stools, all of which are depreciable property. However, if the room has a built-in bar, it is considered part of the building, having a much longer depreciable life.
It takes a deep understanding of the multitude of tax rules and the various types of property used in vineyard and winery operations to optimize a company’s tax position.
Technology
Modern wineries might also have high-tech equipment such as computers and specialized machinery that should be listed separately on tax renditions. These assets often have shorter depreciation lives, and accurate tracking helps avoid overpaying taxes.
Exemptions
The wine industry benefits from many specialized tax rules and exemptions. For example, changes to the California property tax rules in 2017 let vineyards write off certain planting costs, such as fertilizer, stakes and wires, rather than capitalizing and depreciating them. Additionally, some California counties offer exemptions for startup vineyards, which can provide significant tax savings. If you (or your tax advisor) aren’t familiar with these exemptions, they are easy to overlook.
Multiple Entities or Locations
It’s not uncommon for larger operations to have separate entities for growing grapes and producing wines. An operator might also owe tax to multiple jurisdictions if these properties are located in different towns and/or counties. Staying on top of property tax obligations for various entities and locations can be confusing and time-consuming.
Resources for Personal Property Tax Compliance
Your annual business property tax affidavit — California form BOE-571-L or BOE-571- A, operation dependent) — is typically due to the county on January 1. Once submitted, the county uses the property tax affidavit to calculate the business property tax liability.
Many companies remember to add new property purchased during the year and remove sold property but neglect to report obsolete and abandoned property. It’s the property owner’s responsibility to document and report obsolete items to prevent unnecessary tax payments. Neglecting this aspect of property tax reporting leads to overpaying taxes and issues during audits.
Investing in fixed asset software can help improve accuracy. These tools track acquisitions, disposals and other changes in the asset base, assisting you to report up-to-date and accurate information to the county.
Given the specialized nature of personal property tax issues in the wine industry, you can benefit from working with a firm that has experience in this area. Their knowledge can be invaluable for understanding the various personal property tax exemptions available to vineyards and wineries.
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Robert Reitman, CPA
Robert Reitman leads MGO’s Vineyard and Wineries industry practice, offering in-depth tax consulting for inbound international operations, business planning, and estate and trust strategies. With a strong track record, he has helped startups and international companies thrive in the U.S. market and successfully handled tax controversy for wine and spirits importers. For inquiries, please contact him at rreitman@mgocpa.com or +1 (516) 308-0027.
