In France, the National Institute of Origin and Quality, a public organization supervised by the Ministry of Agriculture, is in charge of granting, regulating, and administering the appellation d’origine contrôllée (AOC) for French wine. There are 363 AOCs.
In Italy, the denominazione di origine controllata (DOC) system to regulate wine has its policies set by the Ministry of Agriculture, Food and Forestry, while having a consortium of wine producers, Consorzio del Vino, enforcing and managing the system. There are 330 DOCs.
In Spain, a Consejo Regulador, a regulatory council for each wine region enforces regulations and quality control for the denominacion de origin (DO) system. These councils are overseen by the Instituto Nacional de Denominaciónes de Origen located in Madrid. There are 69 DOs.
In the United States, the American Viticultural Area (AVA) system, the U.S.’s answer to the French AOC system, is regulated by the Alcohol and Tobacco Tax and Trade Bureau (TTB) a part of the Department of Treasury. As of October 2024, there are 276 AVAs in 34 states with 154 AVAs in California alone.
While the French AOC system was started in 1935 with Chateauneuf-du-Pape being designated an AOC in 1936, the U.S. didn’t start it’s AVA system until June 1980 when it designated the first AVA in Augusta, Missouri. Napa, the second U.S. AVA, received its designation in January 1981.
But why and how are AVAs designated and what do they mean to wine drinkers?
The United States Code of Federal Regulations, Title 27, Chapter 1, Subchapter A, Part 9.12 establishes the regulations that govern the creation of an AVA. Under these regulations, a petition must be submitted to the TTB that specifies the name, boundaries, distinguishing features and maps and boundary descriptions of the AVA.
The name of the AVA must be verifiable through common use for the area to be so designated.
In the boundaries section of the petition, detail of the “commonalities or similarities within that boundary” must be specified with an explanation of why the features within the boundary are different from adjacent areas.
The distinguishing features part of the petition must give “a description of the common or similar features of the proposed AVA affecting viticulture that is distinctive.” Once again, these features must illustrate how they are different from adjacent areas outside of the AVA. The distinguishing information to be provided includes: climate (temperature, rain, fog, wind, etc.); geology (landforms, earthquakes, floods, etc.); soils (parent material, texture, slope, drainage, fertility, etc.); physical features (flat, hills, lakes, rivers, etc.) and elevation (maximum minimum). And finally, the maps and boundaries description section requires a U.S. Geological Survey map for the AVA with the proposed boundary clearly marked.
The above is an abbreviated description of the AVA’s petition requirements. But it illustrates the effort and time that is needed to establish an AVA.
And what is the advantage of having an AVA? The U.S. wine industry and consumers benefit from appellation of origin labeling. Valuable information about the wine, consumer education, local brand knowledge, and regional economic growth can all be gathered from knowing the appellation of origin.
Under federal regulations a wine can be labeled with an AVA so long as at least 85% of the grapes used to make the wine come from that AVA. Additionally, the wine must be fermented, bottled, and aged within the state or one of the states where the AVA is located. This appellation of origin on a label is in addition to the other federal regulations for wine labels that require brand name, kind of wine, alcohol content, net contents, health warning, producer or bottler name and address, sulfite declaration and others.
The federal rules have established the basics for wine labels in general and for appellation labeling in specific. State rules are often stricter as is the case in California. To be labeled a California wine it must be made from 100% California grown grapes. To list a specific AVA the rule is the same as the federal rule, 85% of the grapes from that AVA, but to be labeled as a varietal wine in California it must be made from at least 75% of that varietal grape and to be vintage dated at least 95% of the grapes must come from that harvest year. Note too that California also requires the California Redemption Value (CRV) to be on the label.
But wait, there’s more. More advantages to having an AVA, that is. An AVA is a geographical area so when you buy a vineyard, you also acquire the intrinsic value of the AVA in which the vineyard is located. This intangible AVA can further be described as a right to use the AVA designation on the wine label. This right to use can influence how grapes and wines are priced, and how growers and wineries can structure their finances, profits and taxes. This value is referred to as an “intangible” which is similar to a brand name or a trademark. Think Nike, Disney, Starbucks or Napa Valley. AVA’s can also be thought of as a federal license, grant or permit. Think liquor license or patent.
Most of us know that land cannot be depreciated, however, if a person/entity buys a winery with a vineyard that exists in a designated AVA area, once that AVA is properly appraised that value can be allocated away from the land and amortized (intangibles are amortized and tangibles are depreciated) over 15 years thereby potentially reducing the person/entity’s tax liability each year for 15 years. The more valuable the AVA in which the vineyard is located, the greater the potential tax benefit. In 1993, the federal government created Internal Revenue Code section 197 which addresses intangible assets. In 2010 the IRS came out with a Chief
Counsel Memorandum stating that an AVA is an intangible IRC 197 asset subject to 15-year amortization. The challenge is, how much of the cost/purchase price can you allocate to the AVA (and not the land)? That is a question for appraisers, accountants, attorneys, and the IRS to argue. Yet if you are in the market for purchasing a vineyard or winery that is located in an AVA area, you will want to ensure that the AVA’s intangible value is appraised and documented as part of your purchase.
So, whether you get a bottle of wine that is labeled AOC, DOC, DO or preferably AVA no matter, just sit back and enjoy it!
CHEERS!
CL Keedy & Linda Flemins Wine Education Committee