January 16, 2018 US tax reform included changes to alcohol excise taxes The Tax Cuts and Jobs Act of 2017 (H.R. 1, now P.L. 115-97) (hereafter, TCJA), enacted December 22, 2017, included broad changes to the federal alcohol excise tax regime that will affect beer, wine and spirits producers of every size. This Tax Alert provides a summary of these significant changes to wine, beer and spirits excise taxes. The changes described next apply to activities after December 31, 2017 and before January 1, 2020. Wine The TCJA adjusts the application of excise tax rates on wine. Beginning in 2018, still wines containing not more than 16% alcohol-by-volume (abv) (from 14% abv) will be taxed at a rate of $1.07 per wine gallon. Still wines containing more than 16% abv but less than 21% abv are taxed at $1.57 per wine gallon. All mead and certain low alcohol by volume sparkling wine (less than 8.5% abv) are taxed at the lowest rate for wine, currently $1.07 per wine gallon. The TCJA also removes limits on, and adjusts the calculation of, the wine producer's credit. The TCJA removes the 250,000 gallon wine production limitation for wine producers to receive a credit against the wine excise tax. Thus, all wine producers and importers are now able to utilize the credit, as well as sparkling wine producers and importers who, under prior law, were not eligible to claim it. In addition, the calculation of the credit is changed to: $1.00 per wine gallon for the first 30,000 wine gallons, plus; $0.90 per wine gallon on the next 100,000 wine gallons, plus; $0.535 cents per wine gallon on the next 620,000 wine gallons. Distilled spirits Before tax reform, the IRS imposed a tax rate of $13.50 per proof gallon on all distilled spirits. The TCJA creates a tiered rate system for taxes on distilled spirits: — The first 100,000 proof gallons is subject to a tax at the rate of $2.70 per proof gallon. — For all proof gallons in excess of 100,000, but below 22,130,000 proof gallons, the rate is $13.34 per proof gallon. — For all additional amounts over 22,130,000 proof gallons, the rate is $13.50 per proof gallon. The TCJA also modified the taxes on the transfer of bonded spirits. Before the law change, only transfers of "bulk" distilled spirits were exempt from tax. The TCJA allows distilled spirits to be transferred in bond between bonded premises without payment of tax, regardless of whether the distilled spirits are "bulk" distilled spirits (in a container in excess of one gallon). Beer The TCJA also lowers taxes on beer. Under prior law, the general tax rate on beer was $18 per barrel (31 gallons). The TCJA lowers the beer tax rate from $18 per barrel to $16 per barrel on the first six million barrels brewed or imported. Beer brewed or imported in excess of six million barrels is taxed at $18 per barrel. The TCJA specifically lowers the beer tax rate for small brewers (i.e., brewers brewing fewer than two million barrels per calendar year) from $7.00 per barrel for the first 60,000 barrels produced to $3.50 for the first 60,000 barrels. Barrels produced in excess of 60,000 are taxed at the general beer tax rate of $18 per barrel. Additional tax law changes for producers that transfer beer in bond were also enacted. The TCJA allows beer to be transferred between bonded premises without payment of tax, even if the premises are not commonly-owned, as long as the transferee accepts responsibility for any required tax payment. Implications US tax reform presents significant opportunities for companies to reduce tax burdens and improve compliance processes. Companies in the alcoholic beverage industry should consider how the TCJA impacts their specific operations. Producers should consider the tax implications of the volume of their production and the alcohol-by-volume within their finished products. It also may be worth considering updating distribution channels based on changes to taxes on transfers between bonded facilities. ———————————————
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