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Ring in the New Year with Major Industry Excise Tax Reform

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.

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