For the first time since 1986, the U.S. Senate and the House of Representatives have passed sweeping tax changes. Partisan politics aside, craft spirits makers are getting ready to celebrate as the Craft Beverage Modernization and Tax Reform Act has one more step to go. The final step will be ink to paper from President Trump. The signature is more of a formality than anything but, even the bill that made it through the House ran into some procedural speed bumps in the final hours and required a second signing so anything is possible.
Update December 22, 2017: President Trump has signed the tax bill including “Craft Beverage Modernization and Tax Reform Act.” Time to pop a bung!
This tax reform bill will enhance the continued growth of an “American heritage” industry – distilled spirits. Distilled spirits has been a part of the fabric of this nation since its founding including one of the earliest commercial distilleries run by the nations first President, George Washington. These small manufacturers purchase local agricultural products, create jobs and support their local economies through payroll, property and other taxes, tourism and let’s not forget, these people made some darn fine product!
You can read the full text of the Craft Beverage Modernization and Tax Reform Act below.
Industry Statements from DISCUS and ACSA
Two of the distilled spirits industry associations have released the statements below. The first one is from the Distilled Spirits Council of the United States best known as DISCUS. Founded in 1973, the association which includes most of the largest distilled spirits makers in the world was formed when three organizations – the Bourbon Institute, the Distilled Spirits Institute and the Licensed Beverage Industries, Inc. merged. The second association is the relatively young but mighty in will and determination American Craft Spirits Association or ASCA. Founded in 2013, the ACSA represents the entrepreneurial crafts spirits makers from every state in the nation.
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Distilled Spirits Council Lauds Tax Reform’s Federal Excise Tax Reduction on Beverage Alcohol
“The Distilled Spirits Council commends U.S. House and Senate leaders and their colleagues for approving the Craft Beverage Modernization and Tax Reform Act as part of the Tax Cuts and Jobs Act. This legislation reduces the federal excise tax on distilled spirits producers for the first time since the Civil War, which will enable the more than 1,300 operating distilleries nationwide to re-invest in their businesses and stimulate job growth in their communities.
Supported by 303 cosponsors in the House and 54 cosponsors in the Senate, this landmark legislation creates a more equitable tax structure for distillers, brewers, winemakers and importers of beverage alcohol by equalizing the federal excise tax on spirits, beer and wine for the first 100,000 proof gallons. It also provides for the same in-bond treatment of spirits transferred in bottles as for beer and wine and exempts the spirits aging process from interest expense capitalization rules.
We look forward to working with the U.S. Department of Treasury’s Tax and Trade Bureau to implement these important tax provisions as soon as the President signs this legislation into law.”
American Craft Spirits Association – You’re FET Status
The legislation contains the tax-related provisions of the Craft Beverage Modernization and Tax Reform Act, which includes a reduction in the Federal Excise Tax for craft distillers. The rate will drop from $13.50 to $2.70 for the first 100,000 proof gallons. The provision will be effective beginning January 1, 2018 and is expected to continue through December 31, 2019.
We are one step closer to having this become law, but we wanted all of you to know of this nearly final historic step in the Congress that will bring tax parity for craft distillers. Again, we could not have done this without your unwavering support in our efforts. THANK YOU!
Cheers –
Your ACSA Legislative Affairs Team
The legislation is pending a final signature from President Donald Trump. That signature could happen before Christmas.
The Details – Craft Beverage Modernization And Tax Reform
Looking for the details of the bill? Here’s the section of the tax reform bill that applies to the distilled and craft beverage industry as of the publication date of this story.
PART IX—OTHER PROVISIONS
Subpart A—Craft Beverage Modernization And Tax Reform
SEC. 13801. PRODUCTION PERIOD FOR BEER, WINE, AND DISTILLED SPIRITS.
(a) In General.—Section 263A(f) is amended—
(1) by redesignating paragraph (4) as paragraph (5), and
(2) by inserting after paragraph (3) the following new paragraph:
“(4) EXEMPTION FOR AGING PROCESS OF BEER, WINE, AND DISTILLED SPIRITS.—
“(A) IN GENERAL.—For purposes of this subsection, the production period shall not include the aging period for—
“(i) beer (as defined in section 5052(a)),
“(ii) wine (as described in section 5041(a)), or
“(iii) distilled spirits (as defined in section 5002(a)(8)), except such spirits that are unfit for use for beverage purposes.
“(B) TERMINATION.—This paragraph shall not apply to interest costs paid or accrued after December 31, 2019.”.
(b) Conforming Amendment.—Paragraph (5)(B)(ii) of section 263A(f), as redesignated by this section, is amended by inserting “except as provided in paragraph (4),” before “ending on the date”.
(c) Effective Date.—The amendments made by this section shall apply to interest costs paid or accrued in calendar years beginning after December 31, 2017.
SEC. 13802. REDUCED RATE OF EXCISE TAX ON BEER.
(a) In General.—Paragraph (1) of section 5051(a) is amended to read as follows:
“(1) IN GENERAL.—
“(A) IMPOSITION OF TAX.—A tax is hereby imposed on all beer brewed or produced, and removed for consumption or sale, within the United States, or imported into the United States. Except as provided in paragraph (2), the rate of such tax shall be the amount determined under this paragraph.
“(B) RATE.—Except as provided in subparagraph (C), the rate of tax shall be $18 for per barrel.
“(C) SPECIAL RULE.—In the case of beer removed after December 31, 2017, and before January 1, 2020, the rate of tax shall be—
“(i) $16 on the first 6,000,000 barrels of beer—
“(I) brewed by the brewer and removed during the calendar year for consumption or sale, or
“(II) imported by the importer into the United States during the calendar year, and
“(ii) $18 on any barrels of beer to which clause (i) does not apply.
“(D) BARREL.—For purposes of this section, a barrel shall contain not more than 31 gallons of beer, and any tax imposed under this section shall be applied at a like rate for any other quantity or for fractional parts of a barrel.”.
(b) Reduced Rate For Certain Domestic Production.—Subparagraph (A) of section 5051(a)(2) is amended—
(1) in the heading, by striking “$7 A BARREL”, and
(2) by inserting “($3.50 in the case of beer removed after December 31, 2017, and before January 1, 2020)” after “$7”.
(c) Application Of Reduced Tax Rate For Foreign Manufacturers And Importers.—Subsection (a) of section 5051 is amended—
(1) in subparagraph (C)(i)(II) of paragraph (1), as amended by subsection (a), by inserting “but only if the importer is an electing importer under paragraph (4) and the barrels have been assigned to the importer pursuant to such paragraph” after “during the calendar year”, and
(2) by adding at the end the following new paragraph:
“(4) REDUCED TAX RATE FOR FOREIGN MANUFACTURERS AND IMPORTERS.—
“(A) IN GENERAL.—In the case of any barrels of beer which have been brewed or produced outside of the United States and imported into the United States, the rate of tax applicable under clause (i) of paragraph (1)(C) (referred to in this paragraph as the ‘reduced tax rate’) may be assigned by the brewer (provided that the brewer makes an election described in subparagraph (B)(ii)) to any electing importer of such barrels pursuant to the requirements established by the Secretary under subparagraph (B).
“(B) ASSIGNMENT.—The Secretary shall, through such rules, regulations, and procedures as are determined appropriate, establish procedures for assignment of the reduced tax rate provided under this paragraph, which shall include—
“(i) a limitation to ensure that the number of barrels of beer for which the reduced tax rate has been assigned by a brewer—
“(I) to any importer does not exceed the number of barrels of beer brewed or produced by such brewer during the calendar year which were imported into the United States by such importer, and
“(II) to all importers does not exceed the 6,000,000 barrels to which the reduced tax rate applies,
“(ii) procedures that allow the election of a brewer to assign and an importer to receive the reduced tax rate provided under this paragraph,
“(iii) requirements that the brewer provide any information as the Secretary determines necessary and appropriate for purposes of carrying out this paragraph, and
“(iv) procedures that allow for revocation of eligibility of the brewer and the importer for the reduced tax rate provided under this paragraph in the case of any erroneous or fraudulent information provided under clause (iii) which the Secretary deems to be material to qualifying for such reduced rate.
“(C) CONTROLLED GROUP.—For purposes of this section, any importer making an election described in subparagraph (B)(ii) shall be deemed to be a member of the controlled group of the brewer, as described under paragraph (5).”.
(d) Controlled Group And Single Taxpayer Rules.—Subsection (a) of section 5051, as amended by this section, is amended—
(1) in paragraph (2)—
(A) by striking subparagraph (B), and
(B) by redesignating subparagraph (C) as subparagraph (B), and
(2) by adding at the end the following new paragraph:
“(5) CONTROLLED GROUP AND SINGLE TAXPAYER RULES.—
“(A) IN GENERAL.—Except as provided in subparagraph (B), in the case of a controlled group, the 6,000,000 barrel quantity specified in paragraph (1)(C)(i) and the 2,000,000 barrel quantity specified in paragraph (2)(A) shall be applied to the controlled group, and the 6,000,000 barrel quantity specified in paragraph (1)(C)(i) and the 60,000 barrel quantity specified in paragraph (2)(A) shall be apportioned among the brewers who are members of such group in such manner as the Secretary or their delegate shall by regulations prescribe. For purposes of the preceding sentence, the term ‘controlled group’ has the meaning assigned to it by subsection (a) of section 1563, except that for such purposes the phrase ‘more than 50 percent’ shall be substituted for the phrase ‘at least 80 percent’ in each place it appears in such subsection. Under regulations prescribed by the Secretary, principles similar to the principles of the preceding two sentences shall be applied to a group of brewers under common control where one or more of the brewers is not a corporation.
“(B) FOREIGN MANUFACTURERS AND IMPORTERS.—For purposes of paragraph (4), in the case of a controlled group, the 6,000,000 barrel quantity specified in paragraph (1)(C)(i) shall be applied to the controlled group and apportioned among the members of such group in such manner as the Secretary shall by regulations prescribe. For purposes of the preceding sentence, the term ‘controlled group’ has the meaning given such term under subparagraph (A). Under regulations prescribed by the Secretary, principles similar to the principles of the preceding two sentences shall be applied to a group of brewers under common control where one or more of the brewers is not a corporation.
“(C) SINGLE TAXPAYER.—Pursuant to rules issued by the Secretary, two or more entities (whether or not under common control) that produce beer marketed under a similar brand, license, franchise, or other arrangement shall be treated as a single taxpayer for purposes of the application of this subsection.”.
(e) Effective Date.—The amendments made by this section shall apply to beer removed after December 31, 2017.
SEC. 13803. TRANSFER OF BEER BETWEEN BONDED FACILITIES.
(a) In General.—Section 5414 is amended—
(1) by striking “Beer may be removed” and inserting “(a) In General—Beer may be removed”, and
(2) by adding at the end the following:
“(b) Transfer Of Beer Between Bonded Facilities.—
“(1) IN GENERAL.—Beer may be removed from one bonded brewery to another bonded brewery, without payment of tax, and may be mingled with beer at the receiving brewery, subject to such conditions, including payment of the tax, and in such containers, as the Secretary by regulations shall prescribe, which shall include—
“(A) any removal from one brewery to another brewery belonging to the same brewer,
“(B) any removal from a brewery owned by one corporation to a brewery owned by another corporation when—
“(i) one such corporation owns the controlling interest in the other such corporation, or
“(ii) the controlling interest in each such corporation is owned by the same person or persons, and
“(C) any removal from one brewery to another brewery when—
“(i) the proprietors of transferring and receiving premises are independent of each other and neither has a proprietary interest, directly or indirectly, in the business of the other, and
“(ii) the transferor has divested itself of all interest in the beer so transferred and the transferee has accepted responsibility for payment of the tax.
“(2) TRANSFER OF LIABILITY FOR TAX.—For purposes of paragraph (1)(C), such relief from liability shall be effective from the time of removal from the transferor’s bonded premises, or from the time of divestment of interest, whichever is later.
“(3) TERMINATION.—This subsection shall not apply to any calendar quarter beginning after December 31, 2019.”.
(b) Removal From Brewery By Pipeline.—Section 5412 is amended by inserting “pursuant to section 5414 or” before “by pipeline”.
(c) Effective Date.—The amendments made by this section shall apply to any calendar quarters beginning after December 31, 2017.
SEC. 13804. REDUCED RATE OF EXCISE TAX ON CERTAIN WINE.
(a) In General.—Section 5041(c) is amended by adding at the end the following new paragraph:
“(8) SPECIAL RULE FOR 2018 AND 2019.—
“(A) IN GENERAL.—In the case of wine removed after December 31, 2017, and before January 1, 2020, paragraphs (1) and (2) shall not apply and there shall be allowed as a credit against any tax imposed by this title (other than chapters 2, 21, and 22) an amount equal to the sum of—
“(i) $1 per wine gallon on the first 30,000 wine gallons of wine, plus
“(ii) 90 cents per wine gallon on the first 100,000 wine gallons of wine to which clause (i) does not apply, plus
“(iii) 53.5 cents per wine gallon on the first 620,000 wine gallons of wine to which clauses (i) and (ii) do not apply,
which are produced by the producer and removed during the calendar year for consumption or sale, or which are imported by the importer into the United States during the calendar year.
“(B) ADJUSTMENT OF CREDIT FOR HARD CIDER.—In the case of wine described in subsection (b)(6), subparagraph (A) of this paragraph shall be applied—
“(i) in clause (i) of such subparagraph, by substituting ‘6.2 cents’ for ‘$1’,
“(ii) in clause (ii) of such subparagraph, by substituting ‘5.6 cents’ for ‘90 cents’, and
“(iii) in clause (iii) of such subparagraph, by substituting ‘3.3 cents’ for ‘53.5 cents’.”,
(b) Controlled Group And Single Taxpayer Rules.—Paragraph (4) of section 5041(c) is amended by striking “section 5051(a)(2)(B)” and inserting “section 5051(a)(5)”.
(c) Allowance Of Credit For Foreign Manufacturers And Importers.—Subsection (c) of section 5041, as amended by subsection (a), is amended—
(1) in subparagraph (A) of paragraph (8), by inserting “but only if the importer is an electing importer under paragraph (9) and the wine gallons of wine have been assigned to the importer pursuant to such paragraph” after “into the United States during the calendar year”, and
(2) by adding at the end the following new paragraph:
“(9) ALLOWANCE OF CREDIT FOR FOREIGN MANUFACTURERS AND IMPORTERS.—
“(A) IN GENERAL.—In the case of any wine gallons of wine which have been produced outside of the United States and imported into the United States, the credit allowable under paragraph (8) (referred to in this paragraph as the ‘tax credit’) may be assigned by the person who produced such wine (referred to in this paragraph as the ‘foreign producer’), provided that such person makes an election described in subparagraph (B)(ii), to any electing importer of such wine gallons pursuant to the requirements established by the Secretary under subparagraph (B).
“(B) ASSIGNMENT.—The Secretary shall, through such rules, regulations, and procedures as are determined appropriate, establish procedures for assignment of the tax credit provided under this paragraph, which shall include—
“(i) a limitation to ensure that the number of wine gallons of wine for which the tax credit has been assigned by a foreign producer—
“(I) to any importer does not exceed the number of wine gallons of wine produced by such foreign producer during the calendar year which were imported into the United States by such importer, and
“(II) to all importers does not exceed the 750,000 wine gallons of wine to which the tax credit applies,
“(ii) procedures that allow the election of a foreign producer to assign and an importer to receive the tax credit provided under this paragraph,
“(iii) requirements that the foreign producer provide any information as the Secretary determines necessary and appropriate for purposes of carrying out this paragraph, and
“(iv) procedures that allow for revocation of eligibility of the foreign producer and the importer for the tax credit provided under this paragraph in the case of any erroneous or fraudulent information provided under clause (iii) which the Secretary deems to be material to qualifying for such credit.
“(C) CONTROLLED GROUP.—For purposes of this section, any importer making an election described in subparagraph (B)(ii) shall be deemed to be a member of the controlled group of the foreign producer, as described under paragraph (4).”.
(d) Effective Date.—The amendments made by this section shall apply to wine removed after December 31, 2017.
SEC. 13805. ADJUSTMENT OF ALCOHOL CONTENT LEVEL FOR APPLICATION OF EXCISE TAX RATES.
(a) In General.—Paragraphs (1) and (2) of section 5041(b) are each amended by inserting “(16 percent in the case of wine removed after December 31, 2017, and before January 1, 2020” after “14 percent”.
(b) Effective Date.—The amendments made by this section shall apply to wine removed after December 31, 2017.
SEC. 13806. DEFINITION OF MEAD AND LOW ALCOHOL BY VOLUME WINE.
(a) In General.—Section 5041 is amended—
(1) in subsection (a), by striking “Still wines” and inserting “Subject to subsection (h), still wines”, and
(2) by adding at the end the following new subsection:
“(h) Mead And Low Alcohol By Volume Wine.—
“(1) IN GENERAL.—For purposes of subsections (a) and (b)(1), mead and low alcohol by volume wine shall be deemed to be still wines containing not more than 16 percent of alcohol by volume.
“(2) DEFINITIONS.—
“(A) MEAD.—For purposes of this section, the term ‘mead’ means a wine—
“(i) containing not more than 0.64 gram of carbon dioxide per hundred milliliters of wine, except that the Secretary shall by regulations prescribe such tolerances to this limitation as may be reasonably necessary in good commercial practice,
“(ii) which is derived solely from honey and water,
“(iii) which contains no fruit product or fruit flavoring, and
“(iv) which contains less than 8.5 percent alcohol by volume.
“(B) LOW ALCOHOL BY VOLUME WINE.—For purposes of this section, the term ‘low alcohol by volume wine’ means a wine—
“(i) containing not more than 0.64 gram of carbon dioxide per hundred milliliters of wine, except that the Secretary shall by regulations prescribe such tolerances to this limitation as may be reasonably necessary in good commercial practice,
“(ii) which is derived—
“(I) primarily from grapes, or
“(II) from grape juice concentrate and water,
“(iii) which contains no fruit product or fruit flavoring other than grape, and
“(iv) which contains less than 8.5 percent alcohol by volume.
“(3) TERMINATION.—This subsection shall not apply to wine removed after December 31, 2019.”.
(b) Effective Date.—The amendments made by this section shall apply to wine removed after December 31, 2017.
SEC. 13807. REDUCED RATE OF EXCISE TAX ON CERTAIN DISTILLED SPIRITS.
(a) In General.—Section 5001 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:
“(c) Reduced Rate For 2018 And 2019.—
“(1) IN GENERAL.—In the case of a distilled spirits operation, the otherwise applicable tax rate under subsection (a)(1) shall be—
“(A) $2.70 per proof gallon on the first 100,000 proof gallons of distilled spirits, and
“(B) $13.34 per proof gallon on the first 22,130,000 of proof gallons of distilled spirits to which subparagraph (A) does not apply,
which have been distilled or processed by such operation and removed during the calendar year for consumption or sale, or which have been imported by the importer into the United States during the calendar year.
“(2) CONTROLLED GROUPS.—
“(A) IN GENERAL.—In the case of a controlled group, the proof gallon quantities specified under subparagraphs (A) and (B) of paragraph (1) shall be applied to such group and apportioned among the members of such group in such manner as the Secretary or their delegate shall by regulations prescribe.
“(B) DEFINITION.—For purposes of subparagraph (A), the term ‘controlled group’ shall have the meaning given such term by subsection (a) of section 1563, except that ‘more than 50 percent’ shall be substituted for ‘at least 80 percent’ each place it appears in such subsection.
“(C) RULES FOR NON-CORPORATIONS.—Under regulations prescribed by the Secretary, principles similar to the principles of subparagraphs (A) and (B) shall be applied to a group under common control where one or more of the persons is not a corporation.
“(D) SINGLE TAXPAYER.—Pursuant to rules issued by the Secretary, two or more entities (whether or not under common control) that produce distilled spirits marketed under a similar brand, license, franchise, or other arrangement shall be treated as a single taxpayer for purposes of the application of this subsection.
“(3) TERMINATION.—This subsection shall not apply to distilled spirits removed after December 31, 2019.”.
(b) Conforming Amendment.—Section 7652(f)(2) is amended by striking “section 5001(a)(1)” and inserting “subsection (a)(1) of section 5001, determined as if subsection (c)(1) of such section did not apply”.
(c) Application Of Reduced Tax Rate For Foreign Manufacturers And Importers.—Subsection (c) of section 5001, as added by subsection (a), is amended—
(1) in paragraph (1), by inserting “but only if the importer is an electing importer under paragraph (3) and the proof gallons of distilled spirits have been assigned to the importer pursuant to such paragraph” after “into the United States during the calendar year”, and
(2) by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph:
“(3) REDUCED TAX RATE FOR FOREIGN MANUFACTURERS AND IMPORTERS.—
“(A) IN GENERAL.—In the case of any proof gallons of distilled spirits which have been produced outside of the United States and imported into the United States, the rate of tax applicable under paragraph (1) (referred to in this paragraph as the ‘reduced tax rate’) may be assigned by the distilled spirits operation (provided that such operation makes an election described in subparagraph (B)(ii)) to any electing importer of such proof gallons pursuant to the requirements established by the Secretary under subparagraph (B).
“(B) ASSIGNMENT.—The Secretary shall, through such rules, regulations, and procedures as are determined appropriate, establish procedures for assignment of the reduced tax rate provided under this paragraph, which shall include—
“(i) a limitation to ensure that the number of proof gallons of distilled spirits for which the reduced tax rate has been assigned by a distilled spirits operation—
“(I) to any importer does not exceed the number of proof gallons produced by such operation during the calendar year which were imported into the United States by such importer, and
“(II) to all importers does not exceed the 22,230,000 proof gallons of distilled spirits to which the reduced tax rate applies,
“(ii) procedures that allow the election of a distilled spirits operation to assign and an importer to receive the reduced tax rate provided under this paragraph,
“(iii) requirements that the distilled spirits operation provide any information as the Secretary determines necessary and appropriate for purposes of carrying out this paragraph, and
“(iv) procedures that allow for revocation of eligibility of the distilled spirits operation and the importer for the reduced tax rate provided under this paragraph in the case of any erroneous or fraudulent information provided under clause (iii) which the Secretary deems to be material to qualifying for such reduced rate.
“(C) CONTROLLED GROUP.—
“(i) IN GENERAL.—For purposes of this section, any importer making an election described in subparagraph (B)(ii) shall be deemed to be a member of the controlled group of the distilled spirits operation, as described under paragraph (2).
“(ii) APPORTIONMENT.—For purposes of this paragraph, in the case of a controlled group, rules similar to section 5051(a)(5)(B) shall apply.”.
(d) Effective Date.—The amendments made by this section shall apply to distilled spirits removed after December 31, 2017.
SEC. 13808. BULK DISTILLED SPIRITS.
(a) In General.—Section 5212 is amended by adding at the end the following sentence: “In the case of distilled spirits transferred in bond after December 31, 2017, and before January 1, 2020, this section shall be applied without regard to whether distilled spirits are bulk distilled spirits.”.
(b) Effective Date.—The amendments made by this section shall apply distilled spirits transferred in bond after December 31, 2017.
Distillers – What Are Your Plans?
This is a major change. What do you plan to do with this money that will be kept inside the business? Hire new employees, purchase new equipment, pay yourself for the first time in two years?
Send us an email at Info@DistilleryTrail.com to share your tale.
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