allow bottled goods transfer only by DSPs of similar ownership, such as a multi-location owner, or a group of related companies (“controlled group” as defined in tax laws). Next, beginning in 2022, the reduced rate of tax is only applied to distilled spirits processed by a DSP, specifically in this rule processed does not include solely bottling. So, if DSP A ships a finished product to DSP B, who only bottles the product, DSP B cannot withdraw the product at the reduced tax rate. We can look to TTB for further guidance on this, as the current definition of “processing” includes bottling activity, and of course there will be questions as to what processing activity they will consider as being sufficient to qualify for reduced rate. I would conjecture here that adding water to set bottling proof, and final filtering may be considered part of bottling operations. However, it’s best to defer to TTB for the answers on such questions. As this restriction begins in 2022, there is time to work out the details for this rule. Also, in respect to this “processing” rule, look above to the new transfer-in-bond rule enacted in 2020, effective in 2021. If this product is solely bottled by DSP B, the product can be returned to DSP A by transfer in bond, where DSP A may then withdraw the product and pay the reduced rate. Further, if DSP A contracts with DSP B to process and bottle the product, the reduced rate may be allowed, as under the “single taxpayer” rule, according to TTB in their guidance, “the single taxpayer provisions apply to two or more entities (whether or not under common control) that produce beer, wine, or distilled spirits, or process distilled spirits, under a license, franchise, or other arrangement.” In this sense, DSP A and DSP B, if producing products under a contract, may be treated as a single taxpayer for purposes of applying the reduced rates. In previous articles, I wrote about the single taxpayer rule and transfers, hoping to provide some direction to those looking to understand these new angles in the federal spectrum of distilled spirits laws and regulations.
If you haven’t already, you will.
In closing here, the best source to refer to is the TTB guidance which they post to their website. Just look to the header on the TTB.gov homepage, and click to access their FAQ, guidance documents, laws and regulations and related details. As with any newly enacted changes to laws, the agencies and the impacted industry must work to find the new ground where both can share a clear understanding of how the stated mechanism in law will work in their real-world application of the rule to regulated operations, tax liability considerations, and how businesses can function profitably.
Jim McCoy operates J. McCoy Alcohol & Tobacco Compliance Consultants LLC, and since 2010 has assisted alcohol and tobacco businesses in their efforts to meet Federal regulatory and tax requirements. For more information email Jim at firstname.lastname@example.org. WWW.ART ISANSP IRITMAG.COM
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