On Dec. 22, 2017, President Trump signed into law the most sweeping tax reform package since 1986, the law commonly known as the Tax Cuts and Jobs Act. Although most of the Act is focused on changes affecting American businesses without regard to industry or type, the Act devotes a small, but potent, section to reducing costs for breweries, wineries and distilleries. The provisions relevant to the alcoholic beverage industry are only applicable to 2018 and 2019, but for those two years, producers and importers of beer, wine, hard cider, mead and distilled spirits can each expect a short-term windfall and decreased tax obligations. Cheers!
Decreased Excise Tax Rates — Beer and Distilled Spirits
The excise tax rates applicable to beer and distilled spirits each decreased, but only for producers at certain levels of production. For beer, the first six million barrels are favored with a slightly decreased tax rate of $16 per barrel, down from the previous rate of $18 per barrel. Distilled spirits received a far greater boon, however, with the first 100,000 gallons being subject to an excise tax of only $2.70 per gallon, the next 22,130,000 gallons being subject to excise tax of $13.34 per gallon, and the previous rate of $13.50 per gallon applying to all other spirits produced. For low-volume distillers, that’s an 80-percent tax reduction!
Tax Bracket Shift — Wine, Mead and Low-Alcohol-by-Volume Wines
The excise tax rates for wine production remain unchanged, however, the Act expanded the lowest rate bracket to apply to wines containing up to 16-percent alcohol, where the bracket had previously applied only to wines containing up to 14-percent alcohol. Additionally, the Act created two new sub-categories of wine: mead and low-alcohol-by-volume wines. Each of the new categories is statutorily placed in the lowest tax bracket.
Small Producer Tax Rates and Credits — Beer, Wine, Hard Cider
The Act preserves and expands the reduced excise tax rates and excise tax credits applicable to small producers of beer, wine and hard cider. For brewers producing less than two million barrels of beer annually, the existing tax rate of $7 per barrel on the first 60,000 barrels has been halved to $3.50 per barrel under the Act.
Likewise, the per-gallon excise tax credit for wine and hard cider production each increased modestly, but the most notable change is that the excise tax credit production limitation increased from 100,000 gallons to 750,000 gallons! For wine, the credit is now $1.00 per gallon for the first 30,000 gallons (up from $0.90 per gallon), $0.90 per gallon for the next 100,000 gallons, and $0.53 for next 620,000 gallons. The credit for cider follows the same production thresholds as the wine credit, but is capped at 6.2 cents, 5.6 cents and 3.3 cents, at each respective bracket.
Tax Rates and Credits Now Also Applicable to Importers
Under prior law, the reduced excise tax rates and credits for small-scale producers of beer, wine and distilled spirits were only explicitly applicable to products crafted within the United States. Under the Act, foreign-produced beer, wine and distilled spirits may also take advantage of these tax preferences when imported into the country. The Act provides basic guidelines by which a foreign producer may allocate the reduced tax rate or tax credit to a domestic importer, ensuring that the applicable production thresholds are applied consistently.
The Alcohol and Tobacco Tax and Trade Bureau is posting guidance on this and related matters to the ttb.gov website on a rolling basis, however, the actual procedures to allocate the rate or credit will be determined by yet-to-be-issued regulations. For now, the best practice is for importers to use the prior-year rates and then apply for a refund when the TTB gives guidance on how to claim the lower tax rate. •