The Craft Beverage Modernization and Tax Reform Act has brought some bright news for producers of craft beer, wine and spirits. Beginning in tax year 2018, excise taxes will be substantially reduced, resulting in some pretty hefty tax savings for many of America’s beverage producers.
What is Excise Tax?
An excise tax is an indirect tax that is charged upon the sale of a specific good, such as a barrel of beer. Different from sales tax, which applies to most everything we buy, excise tax only applies to certain goods. The tax is often baked into the final cost of the good. A few of the goods subject to excise tax include, tobacco, alcohol, gasoline and gambling.
The reduced excise tax rates are effective as of January 1, 2018 and will apply to products removed in calendar years 2018 and 2019, regardless of when the products were produced. However, this reduction is set to expire after two years.
For brewers producing less than 2 million barrels of beer a year, the bill reduces the federal excise tax from $7 a barrel to $3.50 a barrel for the first 60,000 barrels. For all other brewers and beer importers, the tax will be reduced from $18 to $16 a barrel on the first 6 million barrels. However, for barrelage over 6 million, the bill maintains the $18 a barrel rate.
The bill will also encourage collaboration between brewers by allowing the transfer of beer between bonded facilities without tax liability. This means that brewers will have more freedom to collaborate on new beers and share bottling and storage facilities without the tax burden.
The bill also expands the list of ingredients that can be automatically added to a beer without the approval of the Alcohol and Tobacco Tax and Trade Bureau (TTB). The list of exempt ingredients has been expanded to include wholesome fruits, vegetables and spices.
This reduction is expected to produce more than $140 million in annual savings, allowing considerably more capital to be invested within the business. Brewers can look forward to having more savings for research and development, expanding operations, hiring more workers and stimulating their local economy.
The expansion of the excise credit will also apply to all wineries, regardless of production size. For 2018 and 2019, wines will be taxed by volume and by alcohol percentage. This will range from $0.535 to $1 per gallon based on the amount produced — $1 per gallon for the first 30,000 gallons, $0.90 per gallon on the next 100,000 gallons, and $0.535 on the next 620,000 gallons.
Wine with 14% to 16% alcohol content will see taxes reduced from $1.57 per gallon to $1.07, while wines with higher alcohol content will incrementally increase. For the first time, sparkling wine producers will see their rates decrease to be in line with the rates of still wine.
The craft alcohol producers are also in luck, as they will see a federal excise tax reduction to $2.70 per gallon for the first 100,000 gallons produced or imported. In addition, the new law will exempt the sprits aging process from interest expense capitalization rules, enabling distilleries to reinvest a significant portion back into their business.
Craft beverage producers who overpay their 2018 taxes based on 2017 tax rates are eligible to seek a refund or credit with the TBB.