Wine Bond: Requirements, Coverage, and How to Apply

A wine bond is a surety agreement that guarantees the federal government will collect excise taxes on wine you produce, blend, store, or move through bonded premises. Under 26 U.S.C. § 5351, anyone establishing bonded wine premises must file a bond and receive approval from the Alcohol and Tobacco Tax and Trade Bureau (TTB) before starting operations.¹ Since 2017, though, a large share of small wineries have been able to skip the bond entirely because their federal excise tax liability stays under $50,000 a year.

Who Qualifies for the Small Producer Exemption

If your federal wine excise tax liability was $50,000 or less in the prior calendar year and you reasonably expect it to stay at or below $50,000 in the current year, you do not need a wine bond. The exemption was created by the PATH Act of 2015 and took effect in January 2017. It applies only if you pay taxes on a deferred schedule (semimonthly, quarterly, or annual returns).² The statute treats exempt taxpayers as if they had furnished sufficient bond, so being exempt does not leave you in legal limbo.³

To put the threshold in production terms: still wine at 16 percent alcohol or less is taxed at $1.07 per gallon, so $50,000 in tax works out to roughly 46,700 gallons a year. That covers most small and mid-sized wineries. Higher-alcohol wines and sparkling wines are taxed at steeper rates and hit the cap sooner.⁴

One boundary matters: the exemption only covers wine for nonindustrial use. If you remove wine for industrial purposes, you still need a bond regardless of your tax liability.⁵ New applicants claim the exemption during the initial permit application in Permits Online. Existing bonded wineries can move onto the exemption by amending their permit.

How a Wine Bond Works

A wine bond is a three-party agreement. You (the principal) promise to pay all federal excise taxes on wine you produce, store, or ship. The U.S. government, through TTB, is the party protected by the bond. An authorized surety company backs the promise financially, agreeing to pay the government if you don’t.⁶

The bond does not stop at the winery gate. It also covers spirits used in wine production, volatile fruit-flavor concentrates, and wine in transit between bonded locations. If a taxable event occurs on or off your premises, the bond reaches it.⁷

What You Actually Pay

The bond amount, called the penal sum, is the ceiling on what the surety could owe the government if you default. It is not what you pay. Your yearly cost is a premium charged by the surety, typically 0.5 to 4 percent of the penal sum for applicants with solid credit. On a $10,000 bond that runs about $50 to $400 a year. Weaker credit or a thin operating history can push premiums closer to 10 percent. Your credit score, business assets, and industry experience all factor into the quote.

Calculating Your Bond Amount

The penal sum is tied to the maximum tax liability your operation could carry at any one moment. TTB recognizes two types of coverage, and both go on the same form.⁷

Wine Operations Coverage

This covers tax on all wine and spirits you possess, have in transit, or cannot account for at any one time, with the small producer wine tax credit factored in if you qualify. The minimum is $1,000 and the maximum is $50,000. If your tax liability exceeds $250,000, the maximum climbs to $100,000.⁸

Tax Deferral Coverage

Most commercial wineries remove wine from bonded premises after the tax has been determined but before it has been paid, on a regular payment cycle. That deferred liability needs its own coverage: minimum $500, maximum $250,000. There is a shortcut for smaller operations. If your wine operations coverage totals $2,000 or more, you can allocate $1,000 of it to also cover deferred taxes, which may let you skip a separate deferral bond.⁸

A worked example: a winery holding 5,000 gallons of still wine at 16 percent alcohol or less has a potential tax liability of $5,350 ($1.07 × 5,000). That winery would need at least a $5,350 wine operations bond, usually rounded up to a standard surety increment. Higher-alcohol still wines are taxed at $1.57 or $3.15 per gallon, sparkling wine at $3.40, artificially carbonated wine at $3.30, and hard cider at $0.226.⁴ Multiply the rate by the volume you expect to have on hand, in production, or in transit at peak.

Applying for the Bond

The form is TTB F 5120.36, Wine Bond. It is available as a fillable PDF and inside the Permits Online electronic filing system.⁹ The form asks for the exact legal name of the business as registered with your state, the physical address of the bonded premises, your nine-digit EIN, the penal sum for each type of coverage you need, and the surety’s information, including its seal and a power of attorney authorizing whoever signs on its behalf.¹⁰

The bond is not notarized. Corporate and LLC principals either impress the corporate seal or check a box stating the entity has no seal; where no seal is used, two witnesses sign. The surety impresses its own seal.¹⁰

TTB accepts bond forms and powers of attorney electronically through Permits Online, and the agency has said all required documentation can be submitted through a fully automated process there. Paper filing to the National Revenue Center is still allowed but slower.¹¹ TTB’s customer service goal is to process 85 percent of original permit applications within 75 days, though actual times move with volume, and production applications tend to take longer than simpler filings.¹² The bond has to be approved before TTB issues the permit to operate, so build in lead time before your planned opening.³

Keeping the Bond Current

A wine bond is not a file-and-forget document. Your tax liability changes as production grows, and TTB expects your bond to keep pace.

Superseding Bonds

A superseding bond replaces the existing one entirely. TTB can require one whenever it decides your current bond no longer adequately protects the government’s interest, or when your surety becomes insolvent. You also need a superseding bond if your surety files to be relieved of liability. In that case a valid replacement must be in place on or before the date specified in the surety’s notice, or operations may be suspended.¹³

Crossing the Exemption Threshold Mid-Year

If you have been operating under the small producer exemption and your cumulative excise tax liability crosses $50,000 during the year, you must furnish a bond. The regulations give you 30 days from the date you cross the threshold to submit TTB F 5120.36. During that grace period you can continue removing wine on which the tax has been determined but not yet paid, as long as the tax on those removals stays at or below $1,000.¹³

When a Surety Pulls Out

Surety companies can and do terminate bonds. When that happens, you need to secure a new surety and file a superseding bond before the termination date. Losing bond coverage without a replacement is one of the fastest ways to have a permit revoked.¹³

1
Office of the Law Revision Counsel. 26 USC 5351 – Bonded Wine Cellar
2
Alcohol and Tobacco Tax and Trade Bureau. PATH Act Bond Requirements for Alcohol Industries
3
Office of the Law Revision Counsel. 26 USC 5551 – General Provisions Relating to Bonds
4
Office of the Law Revision Counsel. 26 USC 5041 – Imposition and Rate of Tax
5
TTB: Alcohol and Tobacco Tax and Trade Bureau. Permits Online Tutorials Part 1 Wine
6
Alcohol and Tobacco Tax and Trade Bureau. 27 CFR Part 24 – Wine Bond Regulations
7
eCFR. 27 CFR 24.146 – Bonds
8
eCFR. 27 CFR 24.148 – Penal Sums of Bonds
9
Alcohol and Tobacco Tax and Trade Bureau. Bond Forms
10
Alcohol and Tobacco Tax and Trade Bureau. TTB F 5120.36 – Wine Bond
11
Alcohol and Tobacco Tax and Trade Bureau. TTB Forms
12
Alcohol and Tobacco Tax and Trade Bureau. Processing Times for Original Permit Applications
13
eCFR. 27 CFR 24.154 – Superseding Bonds and New Bonds for Existing Proprietors