By Jacob Favaro, CPA, Tax Partner | Emerging & Growth Business Team
FDA Blocks Distillers from Using Hand Sanitizer Tax Break
Lawmakers have been pushing the Food and Drug Administration (FDA) to back off its position that distilleries cannot take advantage of a tax break created to ease the way for them to produce hand sanitizer. As we all know, hand sanitizer has been in high demand during the COVID-19 pandemic.
excise tax on alcohol temporarily waived for hand sanitizer production
The Coronavirus Aid, Relief, and Economic Security (CARES) Act temporarily waives excise taxes on alcohol that distillers typically use for hand sanitizer production. This waiver is dependent on distillers filing FDA guidance. The FDA requires the alcohol used by the distillers to be denatured under its Policy for Temporary Compounding of Certain Alcohol-Based Hand Sanitizer Products During the Public Health Emergency. This requirement has restricted efforts by distillers to produce hand sanitizer.
The waiver was given to distillers, as they are “fulfilling a critical need in their communities and providing the hand sanitizer to health care professionals, first responders, and local and state governments,” seven senators wrote in a letter to the FDA on April 2, 2020. The senators say the FDA should recognize alcohol that is not denatured as a permissible ingredient in the production of hand sanitizer to ensure that “distillers do not face a tax bill for filling a vital need in their communities.” The letters also state that the undenatured alcohol is food grade alcohol, and therefore compliant with the World Health Organization’s hand sanitizer formula, and is just as effective as denatured alcohol.
The CARES Act break for excise taxes applies to distilled spirits produced between January 1 and December 31, 2020. The excise tax on distilled spirits ranges from $2.70 per proof gallon to $13.50 per proof gallon, depending upon production levels of the distillery.
We are closely monitoring this evolving and unique economic situation. We will keep you updated and informed on how to respond to these and additional tax and regulation changes as they are announced.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.