Article
American viticultural area valuations offer potential tax savings for wineries
June 27, 2019 · Updated Aug. 24, 2020 · Authored by Michael C. Massey
Producers and consumers place great value on where their wine grapes are grown. The famous wine-grape producing areas — such as Napa Valley, California, and Walla Walla, Washington — have come to be publicly associated with quality.
However, many wineries are surprised to learn this perceived quality can be quantified and used to offset tax liabilities in the years following a vineyard purchase. The more prestigious the land area, the greater the potential savings.
This complex process includes an American Viticultural Area (AVA) valuation, and the potential tax savings can be significant. Here’s what wineries and vineyard owners need to know about the process to potentially benefit from the savings opportunity.
What’s an AVA valuation?
An AVA is a geographic area where wine grapes are produced, as defined by the Alcohol and Tobacco Tax and Trade Bureau (TTB). As of June 3, 2020, there are 248 established AVAs in the United States, with 139 in California.
An AVA may have an intangible value associated with the quality of the grapes produced within it. Unlike land, producers may be able to amortize the value of this asset for tax purposes, but doing so requires a valuation to determine the intangible value of the AVA.
Intangible value
Simply put, the intangible value of a production area results from the perceived value of the wine and wine grapes produced there. This value comes from a number of factors, such as established root stock, weather, soil quality, and consumer preference.
Wineries are only allowed to claim their wine was produced in an AVA if the following conditions are met:
- 85% of the grapes used to produce it were grown there
- The wine is registered with the TTB
Grape pricing comparison
Prices paid for grapes from different regions can vary dramatically. The graphs below illustrate 2019 bulk grape pricing in California, as reported by the U.S. Department of Agriculture (USDA) for different crush districts.
For example, in the Cabernet Sauvignon grape pricing chart, in district four — which is Napa County — the median price of Cabernet Sauvignon grapes was approximately $9,000 per ton.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.