s many readers are now aware, the recently enacted Federal Craft Beverage Modernization And Tax Reform law lowers excise rates for distillers from $13.50 per proof gallon to $2.70 per proof gallon on the first 100,000 sold each year for two years. This new law also brought along some less-discussed changes that distillers need to be aware of and consider. Yes, paying $0.43 tax on a 750ml bottle of 80 proof alcohol instead of $2.14 means a lot less cash heading to the government. With that come some rules concerned with how that rate is applied, especially for companies that own multiple plants, or who contract out some of their production and bottling. “Controlled Group” rules, the “Single Taxpayer” rule, and the allowance for transfer in bond of bottled spirits are specific adjustments we should also get familiar with. For those who are also in the brewing and winery business, similar complex rule changes and reduced tax rates were also included in the new law.
IN BOND TRANSFERS
LOWER TAX RATE? YES, BUT ALSO...
Starting with the transfer in bond rule, note that since “All in Bond” went into effect in 1980, 26 USC 5212 only permitted “bulk” distilled spirits to be transferred between DSPs. Bulk containers are defined as holding 1 gallon or more of spirits; finished cases of bottled goods, limited to not more than 1.75L bottles, had to be tax determined when removed from the DSP. This was to prevent creation of DSP premises solely for the receipt and removal of bottled spirits—any wholesale house would otherwise be eligible to bond WRITTEN BY JIM MCCOY their warehouse and pull the excise tax payments “downstream” in the production to market path. The 2018 revised law, given the persistence of the “three-tier” system in the states and potential limitations as TTB sets rules to implement this provision, is unlikely to provide for widespread bonding of bottled goods wholesale sites. WWW.ARTISANSPIRITMAG.COM
However, the law may be helpful for anyone needing bottle warehouse space outside of their present market area. Conceivably, a warehousing premise can be established to receive both bulk and bottled goods. Such a facility would need to be qualified as a DSP site, account for the in-bond products and file reports and taxes. The allowance for transfer in bond from the main DSP to that site would enable deferral of the tax payments on case goods until distributed. A distiller already operating two or more sites may take advantage of this lifted restriction by maintaining stocks at all sites without incurring tax until the product is distributed. The new law also modifies transfer rules for beer and wine to make in bond movement more flexible, as well as providing a revised lower tax rate structure. In the wine industry under pre-2018 rules, a winery could employ the services of a bonded wine cellar to delay tax payment, but had to retain title to the wine in stock. A brewer was not, until 2018, allowed to transfer beer in bond to another brewery that was not of similar/ affiliated ownership.
LOWER DISTILLED SPIRITS EXCISE TAX RATES
In respect to the eligibility for the $2.70 per proof gallon tax rate, as might be expected, Internal Revenue Code “Controlled Group” rules have been applied, linking this allowance to the products removed for sale or imported into the US by a company or group of companies that come under those grouping rules. A group that includes companies that are 50% or more controlled by the same entities or persons are treated as one taxpayer. The new law allows such a group to allot portions of their reduced rate to producer and importer members. TTB regulated businesses should become familiar with these controlled group rules, to be aware of group relationships in respect to permitting and to the benefits of certain tax credits and reduced rates.
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