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Your federal excise taxes have been cut, and there are also some generous provisions related to cost capitalization and product transfer. Here’s the lowdown.

Tax strategies

Brewers, Distillers, and Vintners: Tax Reform Has Big Savings in Store for You

  • Bill Dempsey
  • 1/17/2018

The final tax reform legislation offers tax cuts for businesses and their owners in all industries, but there are several provisions that distinctly benefit craft brewers, distillers, and vintners. If you produce these types of beverages, you’ll find considerable tax-savings opportunities to seize now until the end of 2019.

Distillers, brewers, and vintners don’t have to capitalize interest on aging inventory

Uniform capitalization (UNICAP) rules require the inclusion of certain direct and indirect inventory expenses in the total cost of inventory. One of these is interest expense when the production period (including aging) exceeds two years. Obviously, whiskey, wine, other spirits, and some beer generally take more than two years to produce and age. Prior to the new law, interest expense would be recognized over the life of the production and aging period, so producers had to wait a considerable amount of time before they could write off these expenses.

That changes under the new law. You can now deduct the interest applicable to the production period and exempt the aging period from the calculation. This aging exemption is in effect from January 1, 2018, until December 31, 2019.

Excise tax on alcohol is reduced

Federal excise taxes imposed on certain types of beer, wine, and liquor have been cut. The reduced rates are effective January 1, 2018, through December 31, 2019. The changes are outlined as follows:

Beer

The new tax reform law amends the amount of federal excise tax imposed on brewers and importers of beer. Foreign brewers may assign the reduced tax rate to any electing importer. Affiliated (controlled group) brewers must look at the combined total production when determining the applicable excise tax rate.

Former Tax Law New Tax Law
Domestic large brewers and importers (greater than 2 million barrels) $18/barrel on first 6 million barrels brewed or imported $16/barrel on first 6 million barrels brewed or imported
Domestic small brewers (less than 2 million barrels) $7/barrel on first 60,000 barrels brewed $3.50/barrel on first 60,000 barrels brewed
Controlled group 50% or more common ownership 80% or more common ownership

Wine, including sparkling

The new tax reform law amends the amount of federal excise tax credit available to small domestic wine producers and extends the credit to domestic and foreign producers regardless of their total production amounts. Sparkling wine producers are included in the revised allowable still-wine credits.

Former Tax Law New Tax Law
14% alcohol or less $1.07/gal with credits as follows:
$.90/gal on first 100,000 gal
$1.07/gal with credits as follows:
$1.00/gal on first 30,000 gal
$0.90/gal on next 100,000 gal
$0.535/gal on next 620,000 gal
16% alcohol or less Did not exist $1.07/gal with credits as follows:
$1.00/gal on first 30,000 gal
$0.90/gal on next 100,000 gal
$0.535/gal on next 620,000 gal
14% – 21% alcohol $1.57/gal with no credits New tax law provides a $0.50 tax credit for wines between 14% and 16%
Naturally sparkling $3.40/gal with no credits $1.07/gal with credits as follows:
$1.00/gal on first 30,000 gal
$0.90/gal on next 100,000 gal
$0.535/gal on next 620,000 gal
Artificially sparkling $3.30/gal with no credits $1.07/gal with credits as follows:
$1.00/gal on first 30,000 gal
$0.90/gal on next 100,000 gal
$0.535/gal on next 620,000 gal
Hard cider $0.226/gal with credits as follows:
$0.056 on the first 100,000 gal
$0.226/gal with credits as follows:
$0.062/gal on first 30,000 gal
$0.056/gal on next 100,000 gal
$0.033/gal on next 620,000 gal
Mead (less than 0.64 grams CO2) and low alcohol sparkling wine (less than 8.5%) $3.40/gal for naturally sparkling
$3.30/gal for artificially sparkling
Taxed at wine rates for the 16% alcohol or less, plus applicable credits

Distilled spirits

The new tax law provides for a reduced excise tax rate and applies new affiliate (controlled group) rules that treat two or more commonly owned entities as a single taxpayer for the reduced rates. Foreign distillers may assign the reduced tax rate to any electing importer.

Former Tax Law New Tax Law
All distilled spirits $13.50/proof gal $2.70/proof gal on first 100,000 gal
$13.34/proof gal on next 22,030,000 gal
Controlled group 50% or more common ownership 80% or more common ownership

Transfer of beer between bonded facilities is not taxed

Beer may be removed from one bonded brewery to another without payment of tax and may be interspersed with beer at the receiving brewery if any of the following conditions are met:

  1. The breweries are owned by the same brewer/person (existing law).
  2. A brewery owns a controlling interest in the other (new law).
  3. The same person owns a controlling interest in both breweries (new law).
  4. An independently owned brewery divests itself of all interest in the beer transferred so that the receiving brewery is responsible for payment of tax (e.g., collaboration beers).

This provision is effective from January 1, 2018, to December 31, 2019.

Removal of bulk distilled spirits is tax-free

The new tax reform allows for the tax-free removal of bulk distilled spirits from the production facility to a bonded premises if the containers they are transferred in are at least one gallon in volume.

How we can help

These tax savings are sizeable and could offer you the chance to reinvest in your business. CLA’s craft brewer, distillery, and winery professionals can help you advantageously plan for the changes and create opportunities for growth.