Permanent excise tax breaks for craft brewers, wineries and distillers

TAX ALERT | December 22, 2020

Authored by RSM US LLP

Bill awaiting signature by President Trump

As first reported in our December 22 Tax Alert, members of Congress have passed a $900 billion stimulus bill that includes funding the government for 2021, additional COVID relief and tax extenders all in one massive collection of 5,593 pages of legislation. The bill is awaiting the President’s signature. This Tax Alert is focused on the permanent reduction in excise tax for craft brewers, wineries and distillers.

 The Act makes permanent the temporary provisions of the Craft Beverage Modernization and Tax Reform provisions of the Tax Cuts and Jobs Act. The provisions apply to both producers and importers of beer, wine, and distilled spirits unless otherwise noted. The provisions are contained in Division EE of the 2021 Consolidated Appropriations Act, which is titled Taxpayer Certainty and Disaster Tax Relief Act of 2020.

Beer

The Act makes permanent certain provisions that reduce the rate of excise tax on beer.

• The rate of excise tax on beer is $16.00 per barrel for the first 6,000,000 barrels of beer produced or imported and $18.00 per barrel thereafter.
• A reduced rate of $3.50 per barrel applies for certain domestic small producers of beer for the first 60,000 barrels produced. Domestic producers who produce 2 million barrels or less are eligible for this reduced rate.
• Tax-free transfer of beer between bonded facilities permanently apply to transfers between related parties or between unrelated parties if the transferee accepts responsibility for payment of tax and other conditions are met.  

Wine

The Act makes permanent certain provisions that reduce the effective tax rate on wine.

• The credit for wine producers is now permanently $1 per wine gallon for the first 30,000 gallons of wine, $0.90 per wine gallon for the next 100,000 gallons of wine, and $0.535 per wine gallons for the next 620,000 gallons of wine. 
• A similar credit for hard cider is now permanently $0.062 per wine gallon for the first 30,000 gallons of hard cider, $0.056 per wine gallon for the next 100,000 gallons of hard cider, and $0.033 per wine gallon for the next 620,000 gallons of hard cider. 
• The percentage at which the lowest tax rate of $1.07 per wine gallon is imposed is now permanently applicable to still wines containing not more than 16% alcohol by volume (ABV). The rate on still wines containing between 16% and 21% ABV continues to be $1.57 per wine gallon, and the rate of tax on wine containing more than 21%and not exceeding 24% ABV continues to be $3.15 per wine gallon.

Distilled Spirits

The Act makes permanent provisions that reduce the rate of excise tax on distilled spirits.

• The rate for distilled spirits is now permanently $2.70 per proof gallon on the first 100,000 proof gallons of distilled spirits, $13.34 per proof gallon on the next 22,130,000 of proof gallons of distilled spirits, and $13.50 for any additional gallons of distilled spirits.  
• The act provides rules related to transfers of bulk distilled spirits and non-bulk transfers related to bottling or storage.

All products 

The Act provides certain rules that apply to all alcohol.

• Under the Uniform Capitalization (UNICAP) rules of section 263A, the Act makes permanent the exclusion of aging periods for beer, wine, and distilled spirits from the production period for purposes of interest capitalization rules.  
• With respect to the single taxpayer rules for purposes of determining the volume tiers for tax rates, the Act removed products “marketed under a similar brand” as being treated as a single taxpayer.  
• Beginning Jan. 1, 2023, refunds must be claimed by importers who have received an assignment from a foreign producer, rather than being able to immediately obtain a reduced rate (beer and distilled spirits) or credit (wine) of tax on entry. Claims can be made as often as quarterly.
• Reduced rates of tax are not allowed for illegally produced or smuggled alcohol.

Observations from RSM’s WNT and Consumer Products Industry Team

Craft brewers, wineries and distillers will welcome industry backed legislation passed by Congress.  The permanent reduced tax rates for beer and distilled spirits and a permanent credit for wine provides certainty for alcohol beverage producers, importers, and distributors. Additional favorable provisions are also contained in the bill.  These permanent tax breaks are the result of a strong and effective industry campaign. The bill has overwhelming bipartisan support among members of Congress and if signed into law by President Trump, it will provide relief to companies struggling in these uncertain economic times.