VITAL TAX REDUCTIONS MADE PERMANENT FOR CRAFT DISTILLERIES WRITTEN BY ASHLEY L. HANKE, ESQ.
he alcoholic beverage industry has taken some
hard hits since March of 2020 when the COVID-19 outbreak led to many mandatory closures for on-premise restaurants, bars,
and tasting rooms. And with onpremise alcohol sales accounting for a significant portion of many brands’ annual revenue, the outlook for a prosperous 2021 was bleak. In addition to the hardships faced by distillers in 2020, there was also a looming sense of uncertainty regarding Congress’s extension of the Craft Beverage Modernization and Tax Reform Act, or CBMTRA, an Act that has provided craft distillers with significant Federal Excise Tax (FET) reductions since January of 2018. Due to the temporary nature of the excise tax provisions, which were set to expire at the end of 2020 had Congress not acted, many craft distillers feared that without the passage, they would face detrimental financial hardships in the form of a 400 percent hike in taxes. 38
Recap: The Craft Beverage Modernization Act was a portion of the Tax Cuts and Jobs Act of 2017. The Act amended the Internal Revenue Code of 1986 as it related to the alcohol provisions that are administered by the Alcohol and Tobacco Tax and Trade Bureau. The original version of the Craft Beverage Modernization Act created a tiered excise tax rate for distilled spirits, a sizable reduction from the previous $13.50 per proof gallon rate. The act provided for reduced tax rates on spirits distilled or processed and removed during the calendar year or imported into the United States during the calendar year. The reduced rates were equal to $2.70 per proof gallon on the first 100,000 proof gallons removed or imported, and $13.34 per proof gallon on the next 22.13 million proof gallons removed or imported. The tax rate for distilled spirits not subject to the reduced rates were set at $13.50 per proof gallon. The reduced rates were initially applicable only in 2018 and 2019, but on December 20, 2019, the President signed into law the Further Consolidated Appropriations Act of 2020, which extended the provisions of the Craft Beverage Modernization Act related to alcohol for one year, through December 31, 2020. And with the hardships faced by many in 2020, an 80 percent reduction in taxes on the first 100,000 gallons manufactured meant significant savings for producers feeling the effects of COVID-19. Fortunately, as a difficult 2020 came to an end, distilleries across the U.S. received a welcomed boost of confidence to ring in the new year when the omnibus appropriations and COVID-19 stimulus package, passed by the House and Senate and signed into law by the President on December 27, 2020, made the Craft Beverage Modernization and Tax Reform Act (S. 362/ H.R. 1175) permanent for the country’s craft spirits producers.
CBMTRA Provisions Made Permanent: Key aspects of the CBMTRA provisions that are now made permanent for distillers include:
> Preservation of the FET rate of $2.70 per proof gallon on the first 100,000 proof gallons distilled or processed and removed during the calendar year;
> Preservation of the FET rate of $13.34 per proof gallon on the next 22.13 million proof gallons processed or removed during the calendar year;
> Preservation of the FET rate of $13.50 per proof gallon for distilled spirits not subject to the reduced rates (or beginning in 2022, processed only by bottling); and
> Preservation of the CBMTRA provisions applying the overall quantity limitations associated with CBMTRA tax credits and reduced rates to controlled groups of DSPs. WWW.ART ISANSPI RI TMAG.CO M