Tax cuts for breweries, wineries, and distilled spirits producers

Posted on 02.08.18

Tax cuts for breweries, wineries, and distilled spirits producers

By Brian Kirkpatrick, CPA | Tax Manager | Emerging Business Team

Included as part of the recently passed 2017 Tax Cuts and Jobs Acts, was the Craft Beverage Modernization and Tax Reform Act (CBMTRA), which among other things, lowered the federal excise tax reported on TTB Form 5000.24 for breweries, wineries, and distilled spirits producers.  The provisions included in the CBMTRA are briefly discussed below.  All provisions discussed went into effect for tax years beginning after December 31, 2017 and are set to expire for tax years beginning after December 31, 2019. 

Excise tax lowered

The CBMTRA lowered the federal excise tax on beer from $7/barrel to $3.50/barrel on the first 60,000 barrels for domestic brewers that produce less than 2 million barrels annually.  Additional barrels would be taxed at $16/barrel.  For larger brewers and all beer importers, the excise tax was lowered from $18/barrel to $16/barrel for the first six million barrels.  Any beer brewed or imported in excess of six million barrels would still be taxed at $18/barrel.  There are some special rules that need to be taken into consideration, including a provision that two or more entities producing beer under a similar brand, license, franchise, or other arrangement will be treated as a single taxpayer when applying the reduced excise tax rates.  If certain conditions (beyond the scope of this article) are met by foreign brewers, they can assign the reduced tax rate to importers of the beer.

Transfers of beer between bonded facilities

The CBMTRA expands situations where beer can be transferred tax free between bonded facilities.  Now, in addition to being able to transfer beer from one brewery to another tax free if they are owned by the same person, tax free transfers are also possible in the following situations:

  • One brewery owns a controlling interest in the other brewery
  • The same person(s)/entity has a controlling interest in both breweries
  • Independently owned breweries where the transferor has given up all interest in the beer being transferred, and the transferee accepts responsibility for payment of the tax

Reduced tax rate for certain wine

The CBMTRA allows the credit for small domestic producers of wine to be claimed by both foreign and domestic producers of wine regardless of how many gallons of wine are produced.  Producers of sparkling wine may also claim this credit.  This credit is claimed on Schedule B of TTB Form 5000.24 when reporting Federal Excise Tax.  The credit for wine produced in, or imported into, the United States in a calendar year is as follows:

  • $1.00/wine gallon for the first 30,000 wine gallons of wine;
  • $0.90/wine gallon for the next 100,000 wine gallons of wine; and
  • $0.535/wine gallon on the next 620,000 wine gallons of wine

The CBMTRA also provides special credit rates for hard cider producers as follows:

  • $0.062/wine gallon for the first 30,000 wine gallons of cider;
  • $0.056/wine gallon for the next 100,000 wine gallons of cider; and
  • $0.033/wine gallon on the next 620,000 wine gallons of cider

If certain conditions (beyond the scope of this article) are met by foreign producers of wine, they can assign the credit to importers of the wine.

One other change in the CBMTRA as it relates to the tax rate on wine was a change in the alcohol content at which the tax rate per wine gallon of wine goes from $1.07/wine gallon to $1.57 per wine gallon from 14% to 16%. 

Reduced tax rate on mead and certain sparkling wines

Previously, sparking wines were taxed at $3.40/wine gallon and artificially carbonated wines were taxed at $3.30/wine gallon.  Under the CBMTRA, both mead and certain sparkling wine would be taxed at the “lowest rate applicable to still wine”, which is currently $1.07/wine gallon of wine.  Definitions of mead and the sparkling wines eligible for this reduced tax rate are as follows:

  • Mead
    • Contains not more than 0.64 grams of carbon dioxide per hundred milliliters of wine
    • Is derived solely from honey and water
    • Contains no fruit product or fruit flavoring
    • Contains less than 8.5% alcohol by volume
  • Sparkling Wine “Low alcohol by volume wine”

    • Contains not more than 0.64 grams of carbon dioxide per hundred milliliters of wine
    • Is derived primarily from grapes or grape juice concentrate and water
    • Contains no fruit product of fruit flavoring other than grape
    • Contains less than 8.5% alcohol by volume

Reduced excise tax rates on distilled spirits

The CBMTRA replaces the previous tax rate of $13.50 per proof gallon with a tiered rate as follows:

  • $2.70/proof gallon for the first 100,000 proof gallons of distilled spirits;
  • $13.34/proof gallon of the next 22,030,000 proof gallons of distilled spirits; and
  • $13.50/proof gallon for every gallon over 22,130,000 proof gallons of distilled spirits

There are special rules concerning controlled groups as it concerns this reduced tax rate, including that two or more entities (regardless of common control) that produce distilled spirits under a similar brand, license, franchise, or other arrangement are to be treated as a single taxpayer when applying the reduced excise tax rates.  This is the same restriction that applies to the reduced excise tax for craft beer brewers.

As in other provisions of the CBMTRA, if certain conditions (beyond the scope of this article) are met by foreign producers of distilled spirits, they can assign the credit to importers of the spirits.

Transfers of bottled spirits under bond

The CBMTRA removes the restriction that distilled spirits need to be packaged in bulk containers in order to be transferred from the distilled spirits plant tax-free.

Changes to UNICAP rules related to interest

Under the Uniform Capitalization rules in section 263A of the Internal Revenue Code, certain direct and indirect costs allocable to real or tangible personal property produced (or acquired for resale) are required to be included in inventory OR capitalized into the basis of the related property. These rules apply to interest only so much as the interest is paid or accrued during the property’s production period, and that is allocable to property which either is real property or property with a class life of at least 20 years, has an estimated production period of over two years, or has an estimated production period of over one year and a cost over $1,000,000. The production period has normally included the aging period for any property that is aged before it is sold. The CBMTRA excludes the aging periods for beer, wine, and distilled spirits from the production period as it relates to the UNICAP interest capitalization rules. This results in beer, wine, and distilled spirits producers being able to deduct interest expense attributed to a shorter production period than under previous law.

Interested in learning how the tax change may impact your business? Keiter's Emerging Business team works with numerous wineries, breweries, and beverage distributors. We can share our knowledge and insights to assist you with tax planning opportunities. Contact us: Keiter representativesEmerging Business Team | Email | 804.747.0000.

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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.

Posted by: Brian Kirkpatrick, CPA

Brian has over 6 years of experience in public accounting providing tax consulting and compliance services for privately owned business and individuals.  Brian’s focus is on professional service firms that provide medical, veterinary, and legal services as well as businesses in the real estate and construction industries.