Jake W. Storms
Jake Storms is an associate in the Environment, Land Use and Natural Resources group. His practice focuses on renewable energy, land use, and wine.
Starbucks to Start Selling Beer and Wine in California
Expanding on its pilot programs in Seattle and Portland, Starbucks will begin selling wine and beer at a few select locations in Orange County, CA by the end of this year. The program will reportedly sell California vintages and micro-brews. You can read more about the story here and can I get that in a Venti?
Tasting Rooms Not Restaurants Says California Appeals Court
In a recent 3-0 decision, a California Appeals Court sided with Freemark Abbey Winery in its attempt to move its wine store and tasting room into a building in St. Helena which already contained a restaurant. The decision reversed the district courts granting of a preliminary injunction which would have stopped Freemark’s move entirely until a trial.
The building is owned by Freemark and the move was challenged by Silverado Brewing Co., the current operator of the existing restaurant. The challenge stems from Silverado’s lease, which gives it exclusive rights to run a restaurant in the building. Silverado claimed that moving Freemark’s tasting room into the same building would violate that exclusivity.
The court based its decision on the word “purvey” which, it stated, in this context simply meant selling. Any other reading, said the court, would lead to “absurd results.” The decision remanded the case back to district court with an order to vacate the broad preliminary injunction the district court had previously granted and an order to institute a new narrow injunction which would “prohibit[s] Freemark Abbey from selling food or beverages for consumption on the premises in any portion of the building” pending trial.
A copy of the court decision can be seen here.
Stoel Rives Holds California Wine Seminar
On March 8 and 9, Stoel Rives cosponsored, with Kennedy/Jenks Consultants, the 6th Annual Best Practices for Owning and Operating a Winery, held in Napa, CA. The well attended event covered such topics as valuation, water, energy, and branding. Stoel attorney’s Chris Hermann, John McKinsey, and Jake Storms were all panel speakers with John McKinsey acting as emcee for the second day of the conference.
TTB Publishes Notice of Rulemaking for Inwood Valley AVA
On December 5, 2011, the TTB published a Notice of Proposed Rulemaking (Notice No. 125) regarding the establishment of the Inwood Valley Viticultural Area in Shasta, California. If established, the new AVA would consist of a 28,000 acre area, the vast majority of which is currently not dedicated to, or known for, vineyards. The TTB invites comments on the proposed rulemaking, with any comments due on or before February 3, 2012. A full version of the Notice and the documents relating to the underlying Petition can be found here.
TTB Rules to Expand Sonoma AVAs
On Wednesday November 16, the TTB published a ruling (T.D. TTB-97, available here) amending the federal definition of the Russian River Valley viticultural area and the Northern Sonoma viticultural area, by expanding each. The action first began in August of 2008 when Gallo Family Vineyards submitted a petition for the amendment. After receiving numerous comments both for and against, the TTB ruled to expand the Russian River Valley viticultural area south and southeast by 14,044 acres to 169,029 acres, an increase of 9%. This expansion will include land just west of Rohnert Park and Cotati.
The decision will also expand the Northern Sonoma viticultural area to include the entirety of the Russian River Valley viticultural area. The expansion will add 44,244 acres to the Northern Sonoma area, bringing its total to 394,088 acres, also an increase of 9%.
The TTB specifically noted in the ruling that the expansion will not affect currently approved wine labels but will allow winemakers in the expanded area to utilize the two viticultural designations not previously available to them.
The ruling goes into effect on December 16, 2011.
UC Davis Holds Wine Law Conference
I recently attended the UC Davis Wine Law Conference, held at the UC Davis School of Law. The conference's main focus was intellectual property and European imports/exports, as well as the affects of recent changes in the European Union rules regarding wine IP, with a specific focus on Italy. Panelists also discussed the affects of international beverage counterfeiting and how multinational parties can and should reach consensus on trade rules. The discussions were frank, sometimes even contentious, but overall very productive. The conference drew numerous high-level attendees, including members of the legal community, industry stakeholders, and regulatory agencies from both the United States and abroad.
IRS Publishes New Audit Technique Guide for Wineries and Vineyards
The IRS recently issued a new Audit Technique Guide (“ATG”, available here) applicable to winery and vineyard operations. As with previous IRS guidance, the new ATG is meant to be used by IRS examiners; however the IRS anticipates the industry will rely upon the publication as a guide. It should be noted, the ATG should not be cited as the IRS's technical position.
Many of the issues in the new publication have been previously covered in prior IRS guidance. In this ATG, however, the IRS appears to streamline many of its positions. For example, the UNICAP rules, to which wineries are subject, have evolved since the 1995 guidance. While previously cited as only temporary, these rules have since been finalized, and additional UNICAP rules have been added.
While the streamlining in the new guidance is mainly procedural, the ATG does reflect some significant developments. One such change is the IRS's acknowledgement that vineyards may qualify for Section 179 deductions. Currently, Section 179 allows a $500,000 deduction to taxpayers who place over $2 million of property in service by the end of 2011. For 2012, Section 179 reduces those numbers to a $125,000 deduction for placing over $500,000 of property in service during that year. The deduction will be further reduced to $25,000 for tax years beyond 2012. The ATG states that, based on changes to the definition of property subject to the Section 179 deduction, "[c]ertain practitioners are taking the position that this new definition includes vineyards and are taking [the Section] 179 deduction."
In addition, the ATG addresses and essentially blesses an income deferral method rejected in a 1996 case. The ATG describes the case as involving an accounting structure in which a farmer, using cash method accounting and operating a vineyard as a division of a winery, would sell grapes to the winery without receiving payment until the wine was sold, up to two or three years later. As a result of using cash method accounting, the vineyard would defer income until such time as the wine was sold. The ATG states that in 1997, the IRS published treasury regulations allowing this accounting practice.
To learn more about the issues discussed above as well as other developments addressed in the ATG, please contact:
Carl Lewis at cslewis@stoel.com
Nikki Dobay at nedobay@stoel.com
Jake Storms at jwstorms@stoel.com
This post was created in conjunction with Nikki Dobay.
Court Upholds San Diego County's Winery Ordinance
On April 15th, a California Superior Court Judge denied a challenge to San Diego County’s new Winery Ordinance. The Ordinance, passed in 2010 and available here, eases restrictions on tasting rooms and sales for smaller producers and allows others to essentially “fast-track” registration as a “small winery” with such designation allowing for pre-approved events, such as weddings.
The challengers claimed that the Ordinance’s Environmental Impact Report (“EIR”) under the California Environmental Quality Act (“CEQA”) was inadequate. Judge Timothy Taylor disagreed, stating “[t]he Board of Supervisors was, by the EIR, adequately informed about the consequences of its decisions. The public (including petitioner) was provided with adequate information regarding the decisions of their elected leaders.”
The challengers have 30 days from the issuance of the ruling to appeal.
California State Water Board Moves on Frost Protection Program
The State Water Resources Control Board (“Board”) held a workshop last week on a proposed regulation designed to assess and mitigate water use from the Russian River by growers in Mendocino and Sonoma Counties during frost season. Though no formal action took place, the Board received numerous comments on the proposed regulation.
The regulation would add Section 862 to the California Code of Regulations establishing that any water diversion from the subject area from March 15 to May 15 not in accordance with a Board-approved Water Demand Management Program (“WDMP”) would be deemed unreasonable. This includes the pumping of hydraulically connected groundwater, but excludes diversions upstream of the Warm Springs and Coyote Dams.
In addition, the new regulation would require the WDMP to include:
· An inventory of the frost diversion systems within the area subject to the WDMP
· A stream stage monitoring program
· Annual assessment of potential risks to salmonids from frost diversions
· Identification and implementation of any corrective actions deemed necessary to protect salmonids
· Annual reporting of the WDMP
The workshop was heavily attended by stakeholders from both government and industry and included a presentation of the projected cost of the proposed regulation. The draft economic report, available here, states that the average cost for those diverters in Mendocino County not requiring corrective actions would be $105.86 per acre in initial capital outlay and $28.50 per acre in annual costs; for Sonoma County, those numbers would be $59.98 and $18.74, respectively. For a 40-acre vineyard in Mendocino, this puts the total cost at $4,234 for initial capital outlay and $1,140 in annual costs; for Sonoma County, these numbers would be $2,399 and $749, respectively.
A common theme from the Board and the audience was that several important terms in the proposed regulation had yet to be satisfactorily defined. Chairman Hoppin, himself a farmer, repeatedly stated his hope that both sides would strive for a balance between protecting species and the water needs of farmers.
Several commentators expressed a need for the Board to address the permitting of offstream storage (i.e., storage ponds) as a tool to help address Russian River overdraft. Chairman Hoppin assured the audience that steps needed to be taken in this arena and that it was on the Board’s radar.
Formal rulemaking and the program’s environmental report are expected in mid-May, with final regulations in place by March 2012.
Stoel Rives Attorneys Speak at Wine Conference
This past week, Stoel Rives partners Chris Hermann and John McKinsey and associate Jake Storms all participated as panel speakers at the Best Practices for Owning and Operating a Winery conference, held at the Hyatt Vineyard Creek in Santa Rosa, CA. John also acted as co-host of the conference, which covered a wide variety of topics affecting wineries and vineyards, from siting and permitting and valuation to how to build a brand and protect trademarks.
Chris, Chair of Stoel’s Winery and Vineyard Management group, spoke on custom crush agreements and the pitfalls that can affect those who do not adequately protect themselves. John, California Co-Chair of Stoel’s Winery and Vineyard Management group, educated attendees on energy use and utilizing renewable electricity sources. Jake, an associate in the group, spoke on industry trends and California-specific legislative and project actions, including AB 605 and the California High-speed Rail.
The event was well attended, with over 40 stakeholders present at the two-day event. This marks the fifth year of the event, which was sponsored by Stoel Rives and Kennedy/Jenks Consultants, along with industry mainstay, Wines & Vines.
