Category archives for “Excise Taxes”

Federal Excise Tax Reform Update: Beer Transferred in Bond

August 29, 2018

Last month, the TTB released TTB Procedure Number 2018-1 addressing the transfer of beer between breweries not of the same ownership. Unlike wineries, prior to the Tax Cuts & Jobs Act of 2017 (the “Act”), breweries could not transfer beer under bond unless the transferring and receiving brewer were under common control. However, the Act now allows the transfer of beer under bond (i.e., without the payment of excise tax) between breweries not of the same ownership, subject to certain conditions, and only through December 31, 2019. In these transfers, the receiving brewery must accept responsibility for the payment of excise taxes on the beer, when the beer is ultimately removed from the receiving brewery for sale. TTB Procedure Number 2018-1 sets out the record keeping and documentation requirements for these transfers, and also provides instructions for completing TTB operational reports to reflect transfers of beer under bond.

Note that a brewery may only claim the reduced excise tax rates on beer that the brewery has produced. Beer is considered to be “produced” if it is brewed or produced at a brewery premises, including beer that has been brewed by fermentation or to which water or other liquids have been added during any stage of production. However, blending or combining two beers does not count as “production” for reduced tax purposes. Thus, for beer transferred in bond, the receiving brewery may not be eligible to claim the reduced excise tax rates on the beer received under bond. However, transfers beer produced at the brewery to another brewery for bottling, and which receives the same beer back under bond, would be eligible to remove such beer at reduced tax rates.

The TTB is still working on guidance regarding the Act’s changes to alcohol excise taxes. For more information on the excise tax changes, production requirements, and the alternate procedure relating to claiming the excise tax credit, we have previously blogged on these subjects here, here, and here. The TTB has not yet issued guidance on the controlled group and single taxpayer rules, but such guidance could impact how your business is able to claim the Act’s reduced excise tax rates. We will continue to post updates on the TTB’s guidance as it is released.

If you have any questions about how the recent excise tax changes may affect your business, contact one of the attorneys at Strike & Techel.

Federal Excise Tax Reform Updates: Imports and Wine Transferred In Bond

May 22, 2018

The Alcohol and Tobacco Tax and Trade Bureau (“TTB”) has issued a revised industry circular regarding the alternate procedure for wineries to claim the excise tax credit on wines that are stored at a bonded wine cellar or bonded winery. Per Industry Circular 2018-1A, that alternate procedure is now available through December 31, 2019, rather than expiring on June 30th as originally determined. Thus, the alternate procedure is available for the entire term of the federal excise tax revisions, which are set to expire on December 31, 2019, although industry groups are working to get the excise tax revisions extended. Furthermore, the alternate procedure is available for wines stored untaxpaid at a bonded winery as well as at a bonded wine cellar. The prior industry circular had only specified bonded wine cellars. For more information on the excise tax changes, production requirements, and the alternate procedure relating to claiming the excise tax credit, we have previously blogged on these subjects here and here.

Those following our blog will be aware that the tax changes that took effect in January apply to beverage alcohol products produced outside of the United States, as well as domestic production. Having said that, it is still not possible to claim the tax credit for wine, or the reduced beer and distilled spirits tax rates, for products coming into the US from overseas. The TTB issued preliminary guidance through its FAQ page back in February that it was working with Customs and Border Protection to establish procedures and issue guidance for importers. Based on recent public statements from TTB, we expect those procedures and guidance to issue in June. Until then, imported products continue to be subject to tax payment at the full excise tax rates for each product category. Once the new procedures take effect, importers will be eligible to claim retroactive credits and lower tax rates for products brought in since January 1st of this year.

If you have any questions about how the recent excise tax changes may affect your business, contact one of the attorneys at Strike & Techel.

Ring in the New Year with Major Industry Excise Tax Reform

December 29, 2017

Last week, the President signed into law sweeping alcoholic beverage excise tax reform as part of the Tax Cuts and Jobs Act of 2017 (the “Act”). These alcohol excise tax changes originated in the Craft Beverage Modernization and Tax Reform Act, and were incorporated into the larger $1.5 trillion tax overhaul. The new law is scheduled to take effect on January 1, 2018. The law sunsets at the end of 2019, but with the possibility that the changes might be extended if successful. The TTB is working on guidance and the form revisions necessitated by these fast-approaching excise tax changes, and expects to issue more information in the coming weeks.

The Act will drastically lower the tax rate payable on alcoholic beverages through the course of 2018 and 2019. Already-existing excise tax reductions for small brewers and small winemakers are expanded and extended to all producers of beer and wine, distilled spirits producers will get significantly lowered excise tax rates, and importers will gain the opportunity to stand in the shoes of their foreign producers to access similar reductions. Specific reductions include:

  • Spirits: The tax rate for distilled spirits will be reduced from $13.50 a proof gallon to only $2.70 on the first 100,000 gallons taxably removed during each calendar year, and to $13.34 on additional gallons up to 22,130,000.
  • Beer: Beer excise taxes will be reduced from $18 a barrel to $16 a barrel on a brewer’s first 6 million barrels, with the small producer tax payment halved to $3.50 a barrel on the first 60,000 barrels for those brewers producing less than 2 million barrels.
  • Wine: All wine producers will now benefit from a tax credit on the first 750,000 gallons produced by the winery and taxably removed during each calendar year. The tax credit is $1 on the first 30,000 gallons removed, $0.90 on the next 100,000 gallons, and $0.535 on the next 620,000 gallons. There is a proportionate tax credit for qualifying hard cider. All producers will be eligible for this tax credit, including sparkling wine producers. The base tax rates are also affected by this reform, and there are reductions in the tax rates for certain types of mead, low alcohol grape wines, and still wines with 14.1% ABV to 16% ABV.

As well as reducing excise taxes, the new law also removes the requirement to capitalize interest costs incurred and allocable to stock during the ageing period for alcoholic beverages in income tax assessments. Bond transfers also change, with transfer of beer to be allowed between bonded facilities held by different licensees, including by pipeline, and transfer of packaged distilled spirits in bond between bonded facilities will be allowed, which is currently limited to bulk distilled spirits. The Act also has provisions limiting reduced tax rates among controlled groups, including foreign producers, and has extensive provisions regarding the assignment by a foreign producer of the right to reduced tax to importers. Both of these items, and likely others, will require implementing regulations, which should follow soon in the new year.

With passage of the Act last week, industry members should assess operations and the current payment of excise taxes—especially if not all excise taxes are paid directly—to be able to maximize the benefits available over the two year span of these excise tax changes. If you have any questions about how the Act might affect your business, contact one of the attorneys at Strike & Techel.

TTB Delays Hard Cider Tax Labeling Requirement

December 13, 2017

In January 2017, the federal laws on alcoholic cider were revised to expand the definition of what constitutes “hard cider” and to revise its federal tax rate. We posted about those and other developments in the “hard cider” arena here and here.

Included in those changes to the law was a requirement, to be effective starting January 1, 2018, that the statement “Tax class 5041(b)(6)” appear on any hard cider removed from wine premises or Customs custody for which the “hard cider” tax rate is claimed. However, on December 5, 2017, the TTB published a temporary rule, delaying the new labeling requirement until January 1, 2019. Until the new effective date, the tax class statement continues to be optional.

Along with the labeling delay, the TTB has also decided to reopen the public comment period, providing an opportunity for the public to make additional comments over the next two months regarding both the delayed labeling requirement and other “hard cider” regulatory amendments.

For more information regarding hard cider licensing and regulatory requirements, contact one of the attorneys at Strike & Techel.

Federal Definition of “Hard Cider” Will Be Expanded in 2017

January 18, 2016

On December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (“PATH Act”) (LINK). The PATH Act provides for changes to the definition of “hard cider,” which will bring valuable tax rate changes for some makers of cider and perry. Currently, “hard cider” is defined as a “still wine derived primarily from apples or apple concentrate and water, containing no other fruit product, and containing at least one-half of 1 percent and less than 7 percent alcohol by volume.” 26 U.S.C. § 5041(b)(6). Because the current definition of hard cider states that the wine must be still, the definition excludes ciders with carbonation in excess of 0.392 grams of carbon dioxide per 100 milliliters. 26 U.S.C. § 5041(a). The current definition also excludes perry, which is wine made from pears. Finally, the alcohol content of many wines made from cider apples ranges from approximately 5% to 8.5% alcohol by volume, and cider products with more than 7% alcohol do not meet the current hard cider definition.

Beverages that meet the definition of hard cider are taxed at the rate of 22.6 cents per gallon. 26 U.S.C. § 5041(b)(6). This rate is much more favorable than the $1.07 per gallon tax rate on still table wines, as well as the $3.40 per gallon tax rate on sparkling wines, and the $3.30 per gallon tax on artificially carbonated wines. 26 U.S.C. § 5041(b). Passage of the PATH Act will be welcome news to the cider and perry producers who have advocated for an expansion of the definition of hard cider in order to get the lower tax rate. Beginning on January 1, 2017, the definition of hard cider will be a wine that meets the following parameters:

  • Contains not more than 0.64 grams of carbon dioxide per 100 milliliters;
  • Made from apples, pears, or concentrate of apples or pears and water;
  • Contains no other fruit product or fruit flavoring other than apple or pear; and
  • Contains at least 0.5% and less than 8.5% alcohol by volume.

For more information on cider and perry, see our July 29, 2015 blog post “Comparing Apples and Pears” (LINK), and contact one of the attorneys at Strike & Techel for further guidance.

Beer that isn’t Beer, Wine that isn’t Wine and Drinks that aren’t Beverages

April 27, 2015

Mostly in our practice at Strike & Techel we work with clients making fairly traditional alcoholic beverage products, albeit with new flavors, production methods and quality drivers. These classic alcoholic beverages are distilled spirits, wines and beers, subject to regulation by the Alcohol and Tobacco Tax and Trade Bureau (TTB). More and more, however, we are called upon to work with alcohol products that fall outside the TTB’s jurisdiction, either because they don’t meet traditional definitions, or because they simply aren’t classified as beverages.

Products that do not fit within TTB jurisdiction are subject to Food & Drug Administration (FDA) labeling requirements. Under TTB rules, wine must contain at least 7% alcohol, and beer must be malt-based. Because of these restricted definitions, common examples of drinks that are subject to FDA rules are wine coolers and ciders below 7% alcohol, and beers that aren’t made with malt. Any beers made with other grains, like sorghum, rice or wheat (usually to be sold as “gluten free” products), are under FDA rules. These beverages do not need to obtain label approval, as a standard alcoholic beverage would, but must comply with FDA rules on labeling, to avoid in-market audits for violations. In December 2014, the FDA finally published its guidance for industry on the labeling of non-malt-based beers, which had been in draft form since 2009 (LINK). It helpfully goes through all of the FDA labeling requirements that apply to such beers. These are the same requirements that apply to any FDA-regulated alcoholic beverage, including many ready to drink (RTD) beverages, as discussed in our recent blog post (LINK). Among the key distinctions from standard alcoholic beverage labeling are that the label must include an ingredient list and a nutritional statement.

As well as regulating alcoholic beverages, FDA also regulates certain non-beverage alcoholic products. These are products which are consumed – often as cocktail ingredients – but which are not classified as beverages by the TTB because they have been deemed “unfit” for beverage purposes under TTB regulations. Common examples of these products are bitters and other alcohol-based flavorings. Attaining non-beverage status is a goal rather than a failure for these products because products eligible for non-beverage status are exempt from payment of federal excise taxes and they can be sold by retailers without an alcoholic beverage license. Products with a lot of sugar or other flavorings or ingredients that serve to make them more palatable as beverages may not make the cut as non-beverages and would remain subject to excise taxes and TTB label jurisdiction.

TTB and FDA classifications of alcoholic products have significant implications on the way they are labeled, taxed and sold, so it is important to submit these products for TTB review before bringing them to market.

For more advice on alcoholic beverages and non-beverages, contact one of the attorneys at Strike & Techel.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2015 • All Rights Reserved •

Excising Effervescence: Who Sets Federal Tax Rates?

July 30, 2012

Excise taxes on wine can vary substantially depending on whether or not the wine is sparkling or still wine. For example, wine containing 14% alcohol or less is taxed at a rate of $1.07 per gallon, while naturally sparkling or artificially carbonated wine is taxed at the much higher rate of $3.40 per gallon. See 26 U.S.C. § 5041. For domestic wine, the tax rate is established when TTB classifies a product during the certificate of label approval (COLA) process. If there is uncertainty over how wine should be classified, a producer may submit the product to the TTB laboratory for analysis and a determination of the proper classification. 26 U.S.C. § 5041 defines still wines as “those wines containing not more than 0.392 gram of carbon dioxide per hundred milliliters of wine.” Accordingly, if a product with carbonation below that level is classified as a sparkling wine, and therefore subject to a higher tax rate, a producer may submit the product to TTB to seek to have the product reclassified.

Ensuring the proper tax classification for imported wine can be more difficult because of the role of U.S. Customs and Border Patrol (“CBP”) in the determination and collection of excise taxes. Imported wine is subject to the same excise tax rates as domestic wine, but taxes on imported wine are collected by CBP at the U.S. port of entry. The CBP does not necessarily rely on TTB’s classification of an imported wine for tax purposes, and instead has the discretion to make its own determination on the tax classification of the imported product. For example, TTB may classify a product as “still wine,” but CBP may still tax the wine at the higher sparkling wine rate if it appears to CBP to be a sparkling wine product.

To challenge the tax rate imposed by the CBP, an importer may seek an Official Ruling Request, and rulings are typically issued within 30 days of the request. Information on how to file an Official Ruling Request can be found here. Importers or their brokers may also seek to correct past overpayments of excise taxes by filing a Post-Entry Amendment if the taxes were recently paid, or a Protest if the taxes for a particular shipment have been “liquidated,” which typically occurs approximately 10 months after the taxes are paid to the CBP.

Contact the attorneys at Strike & Techel if you have any questions about federal excise tax collection.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2012 · All Rights Reserved ·

When Wine is Not Wine for California Tax Purposes

April 14, 2011

Although it has not been extensively covered in the media, those involved in the manufacture and importation of certain wine products should be aware of the California Board of Equalization’s (“BOE”) proposed Regulation 2558.1, involving the definition of “wine” for excise tax purposes in California. The regulation should not affect typical wine producers; however, those that create alternative wine products where a portion of the alcohol within the product is derived from, for example, apples or malt grains, instead of grapes, but the product is marketed as a typical grape wine product, should be aware of the proposed Regulation. Enactment of the Regulation essentially means that a sangria product that is classified as “wine” by the ABC could be classified as a distilled spirit by the BOE, and thus be taxed at $3.30/gallon (the rate for distilled spirits that are 100 proof or less) as opposed to the $0.20/gallon rate applied to wine. That constitutes a tax increase of 1650%. The proposed Regulation would define “wine” for BOE purposes as products that do not include more than .5% alcohol by volume derived from the distillation of fermented agricultural products other than the main agricultural product from which the wine is made. This is different that the California Department of Alcoholic Beverage Control’s (“ABC”) definition, which defines wine as:

…the product obtained from normal alcoholic fermentation of the juice of sound ripe grapes or other agricultural products containing natural or added sugar or any such alcoholic beverage to which is added grape brandy, fruit brandy, or spirits of wine, which is distilled from the particular agricultural product or products of which the wine is made and other rectified wine products and by whatever name and which does not contain more than 15 percent added flavoring, coloring, and blending material and which contains not more than 24 percent of alcohol by volume, and includes vermouth and sake, known as Japanese rice wine.

Essentially the ABC’s definition looks at wine as a product to which only a certain amount (15%) of “other” material can be added, while the BOE’s definition is based on a requirement that 95.5% of the alcohol in the product be derived from a single commodity. The process of this change began at the BOE’s November 17, 2010 meeting, wherein it authorized an informal rulemaking process and proceeded on an expedited basis. On December 17, 2010, after preparing an initial draft of the proposed change, an interested parties meeting was held. During the meeting, it became clear to the staff that there was an industry divergence regarding what constituted legitimate “blending material” under the ABC’s definition and what should be included under the BOE’s definition. Thus, the BOE decided that further interested party meetings would not be useful and they settled on a BOE definition that did not derive from the blending viewpoint, but rather from the alcohol derivation viewpoint. On February 23, 2011, the final proposed regulation was issued. A 45-day comment period then began and the next step is a public hearing in front of the BOE in May 2011. The proposed Regulation is scheduled to go into effect on January 1, 2012.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·

Federal Legislative Update

March 22, 2011

In the past few weeks there has been a significant amount of new legislation relating to the alcoholic beverage industry introduced on both the state and federal level. The increased legislative efforts are interesting in light of the fact that in March 1933, 78-years ago, the end of Prohibition was kicked off when Franklin Roosevelt asked Congress to pass “The Beer Act,” which was eventually passed on April 7, 1933. The Twenty-First Amendment was ratified nearly eight months later on December 5, 1933. A re-cap of the two most high-profile pieces of federal proposed legislation is below. Later this week we’ll take a look at key pieces of state proposed legislation.

S. 534 – The Brewer’s Employment and Excise Tax Relief Act of 2011, or BEER Act as it is popular referred to, was introduced by Senator John Kerry (D-Mass.) on March 9, 2011. As of today, the Bill has twenty-three cosponsors. The bipartisan bill would reduce the excise tax paid by small brewers from $7.00 to $3.50 per barrel on the first 60,000 barrels produced each year. Small breweries would then pay $16 per barrel for production above 60,000 and up to two million barrels. Currently, all brewers regardless of size pay $18 per barrel for all production above 60,000 barrels. The Bill would also revise the current definition of “small breweries” from those that produce less than two million barrels per year to those that produce less than six million.

H.R. 1161– Just over a week after S. 534 was introduced, the Community Alcohol Regulatory Effectiveness Act of 2011 was introduced by Representative Jason Chaffetz (R-UT) on March 17, 2011. As of today, the Bill has eight cosponsors. The Bill is a re-introduction of H.R. 5034, which was hotly contested last year and eventually abandoned. The Bill, depending on which of the three-tiers one is standing in or closest to, is either about protecting states’ rights to regulate alcohol or about allowing Commerce Clause violations to protect alcohol distributor’s interests. As 2011 progresses we are sure to see the heated debate unfold once again.

Imbiblog is published for general informational purposes only and is not intended as legal advice. Copyright © 2010-2011 · All Rights Reserved ·


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