Key Takeaways:

• Maryland’s Winery and Vineyard Economic Development Grant Program reimburses 25% of capital expenses — helping businesses invest in equipment, production tools, and agricultural materials.

• Eligible expenses include fermenters, bottling equipment, irrigation systems, and vineyard supplies — but labor, repairs, and utilities do not qualify.

• Wineries and vineyards must send applications with detailed expense reports and documentation by September 15 to be considered for funding.

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For owners, managing cash flow while investing in growth is a balancing act. The Winery and Vineyard Economic Development Grant (WVEDG) Program offers a valuable opportunity to offset costs by receiving reimbursement for qualified capital expenses. If you’re planning to upgrade equipment, expand operations, or improve production efficiency, this grant can be a key financial tool.

What Is the Maryland WVEDG Program?

The Maryland Department of Commerce administers this grant to help wineries and vineyards invest in essential infrastructure, equipment, and agricultural materials.

How Much Can a Winery or Vineyard Receive?

The program reimburses 25% of your eligible capital expenses — reducing financial strain and enabling your business to reinvest in its operations.

With funding subject to annual state budget limits, early applications are critical to securing support.

Who Can Apply?

Your business may qualify for the grant if you meet one of the following requirements:

• You are a Maryland winery holding a Class 3 or Class 4 license issued by the Comptroller of Maryland.

• You operate a Maryland vineyard with at least one contiguous acre dedicated to growing grapes for wine production.

Reviewing eligibility criteria before making capital investments can help your business plan effectively and maximize reimbursement.

What Expenses Qualify?

The grant covers costs related to the purchase and installation of equipment and agricultural materials that directly support winery or vineyard operations.

Eligible Expenses Include:

• Winery equipment: Bottling machines, fermenters, presses, crushers, corkers, and refrigeration systems.

• Vineyard investments: Irrigation equipment, trellising, soil amendments, fertilizer, and fruit plants.

• Production tools: Barrels, pumps, labeling machines, tractors, and pruning equipment.

What’s NOT Covered?

The grant does not reimburse costs for:

• Labor
• Repairs
• Construction
• Utilities
• General supplies

If your winery or vineyards is planning capital investments, working with an advisor can help you determine which purchases qualify and how to structure expenses for the best financial outcome.

How to Apply

Your business must send an application along with detailed expense documentation to be considered for funding.

Application Process

1. Obtain business certification: Your business must be certified as a qualified entity through the Maryland Department of Commerce.

2. Submit a report of expenses: You need to provide a detailed breakdown of purchases, including receipts and invoices.

3. Meet the deadline: You must submit your application by September 15 of the calendar year in which the expenses were incurred. Grant amounts are confirmed by December 15.

Given the documentation requirements, your winery or vineyard may benefit from working with tax professionals to prepare exact reports and avoid missing eligible reimbursements.

Beyond the Grant: Tax and Financial Considerations

While securing grant funding is a key step, integrating it into a broader financial strategy can create even greater savings. Aligning capital purchases with state and federal tax incentives, depreciation benefits, and other financial tools can improve cash flow and profitability.

Working with an advisor can help your winery or vineyard:

• Improve tax benefits by aligning grant-covered purchases with deductions and credits.

• Maintain compliance by keeping audit-ready documentation for grants and tax filings.

• Plan for long-term financial success by balancing investment timing and funding sources.

Looking for guidance on tax-efficient planning, grant applications, or long-term financial strategies? Advisors familiar with the winery and vineyard industry can help you navigate these complexities.

Protecting Your Investment: Key Insurance and Risk Considerations

Applying for the Maryland WVEDG is a great opportunity to offset costs, but it’s essential to address key risk management and insurance factors to protect your business investments. Considerations include:

• Business personal property (BPP) coverage: Equipment purchased with grant funds — such as fermenters, bottling lines, and tractors — should be properly insured. When setting coverage limits, businesses should consider the full value of the equipment (not a discounted amount due to grant support). Additionally, the valuation method — replacement cost versus agreed value — should be carefully reviewed to ensure adequate coverage in the event of a loss.

• Contractual obligations and funding compliance: Grant recipients should review any contractual obligations tied to funding — including potential requirements to maintain specific insurance coverages or retain financial records for audits. Non-compliance could result in funding clawbacks.

• Loss payee provisions: If financing equipment or agricultural materials, lenders may require being listed as a loss payee on the insurance policy. This ensures they receive compensation in the event of a covered loss.

• Liability and business interruption: Expanding vineyard operations or upgrading production can introduce new risks. Reviewing liability coverage and business interruption insurance can help protect against potential disruptions and revenue loss.

Working with an experienced insurance advisor can help your winery or vineyard secure appropriate coverage, remain compliant with grant terms, and safeguard your long-term investment.

Act Now to Secure Funding

With the September 15 deadline, wineries and vineyards should start gathering documentation now to maximize funding potential. Since approvals depend on state budget availability, early submissions are recommended.

Navigating the grant application process while aligning it with broader tax and financial strategies can be complex. MGO works with winery and vineyard owners to find eligible expenses, structure capital investments to enhance tax benefits, and support compliance with reporting requirements to avoid delays or disqualifications. By taking the right steps now, your business can secure grant funding while strengthening your overall financial position.

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Because of these newly tightened conditions, companies may face challenges when raising capital, forcing them to adopt a more thoughtful approach to seek funding. Likewise, investors will want to ensure their priorities are protected and their returns met. The combination of a given borrower’s need for capital and a financer’s desire to seek favorable returns may lead to the creation of agreements that have characteristics of both debt and equity. As such, it is crucial for all parties involved to understand the resulting tax classification and the treatment of these arrangements, so all expectations are met.

The Taxation of Debt and Equity

For borrowers, the difference between debt and equity can be critical because interest payments are generally tax deductible and subject to certain limitations. Dividends or other payments related to equity would not be deductible for U.S. federal income tax purposes.

Enacted as part of the Tax Cuts and Job Act (TCJA) of 2017, one main limit on interest deductibility is the IRC 163(j) limit on the amount of business interest that can be deducted each year. This limit is calculated as 30 percent of adjusted taxable income, which prior to the 2022 tax year closely resembled earnings before interest, taxes, depreciation, and amortization (EBITDA). However, starting with the 2022 tax year adjusted taxable income excludes depreciation and amortization, becoming EBIT. This should result in a lower limit on the amount of interest expense that can be deducted each year. Any interest expense exceeding this annual limit can be carried forward to future years.

Determining if an Arrangement Is Debt or Equity for Federal Income Tax Purposes

Classifying an arrangement as debt or equity is made on a case-by-case basis depending on the facts and circumstances of a given agreement. While there is currently little guidance in this area beyond case law, the Internal Revenue Service (IRS) has issued a list of factors to consider when questioning whether something is debt or equity. (Keep in mind, however, that the IRS states not one factor is conclusive.) The factors include whether:

• An agreement contains an unconditional promise to pay a sum certain on demand or at maturity,
• A lender can enforce the payment of principal and interest by the borrower, and
• A borrower is thinly capitalized.

The courts have also established a broader — but similar — list of factors to consider when determining whether an instrument should be treated as debt or equity. Both the IRS and the courts have generally placed more weight on whether an instrument provides for the rights and remedies of a creditor, whether the parties intend to establish a debtor-creditor relationship, and if the intent is economically feasible. Some factors include:

• Participation in management (as a result of advances),
• Identity of interest between creditor and stockholder,
• Thinness of capital structure in relation to debt, and
• Ability of a corporation to obtain credit from outside sources.

For international companies, the characterization of debt or equity when considered in a cross-border funding arrangement is important, as withholding tax rates may apply to interest payments and may differ from tax rates applied to dividends. Further, withholding tax obligations occurs when a cash payment is made. If you have a cross-border arrangement, it is crucial to know if you have debt or equity on your hands.

Special Rules Related to Payment-in-Kind

Once it is determined that an agreement should be classified as debt for U.S. federal income tax purposes, some borrowers may prefer to set aside interest payments or pay interest with securities, which is often referred to as payment-in-kind (PIK). This is generally done to preserve cash flow for operations and growth of the business. When a borrower chooses this route, U.S. federal income tax rules will impute an interest payment to the lender.

While using a PIK mechanism will not automatically result in the debt being recharacterized as equity for federal income tax purposes, it can support viewing the instrument as equity.

Limits to Deductible Debt Interest

There are limitations that can apply to interest deductibility. As noted above, IRC 163(j) limits deductibility of business interest; for a corporation, this is deemed to be all interest regardless of use. Another provision that can result in interest deductibility limitation is IRC 163(l), which applies to certain convertible notes and similar instruments held by corporations.

For cannabis operators, it is important to consider that IRC 280E disallows interest deductions. Hence, it is highly detrimental for cannabis operators to issue debt from entities that are cannabis plant-touching.

How We Can Help

Due to the nature of the debt versus equity analysis, companies thinking about fundraising should plan on how they intend to perform the raise and whether to have the raise treated as equity or debt. If debt classification is desired, a borrower should take the steps needed to strengthen the facts of the transaction to support the arrangement as a debt instrument.

MGO’s dedicated tax team has extensive experience advising companies across industries on capital-raising, debt refinancing and restructuring, recapitalizations, and other tax transactions. If you are planning to fundraise, or you are currently in the process of conducting a debt versus equity analysis, contact us today.

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