Alcohol Excise Tax Reform: How it Happened and Next Steps

by Michael Kaiser, Vice President

1.5.18

On Friday, December 22, 2017 President Donald Trump signed the Tax Cuts and Jobs Act into law. The bill was a sweeping overhaul of the United States Tax Code and features the first reform of federal alcohol excise tax since 1991.

WineAmerica was instrumental in getting the wine excise tax provisions added into the final bill. The alcohol provisions that are included in the new law are based on the Craft Beverage Modernization and Tax Reform Act of 2017, which contained excise tax reform for beer, spirits and wine. These provisions in the Tax Cuts and Job Act will expire on December 31, 2019.

Background

The Craft Beverage Modernization and Tax Reform Act (H.R. 747/S.236) was reintroduced in January 2017 by Senators Ron Wyden (D-OR) and Roy Blunt (R-MO), and House Members Erik Paulsen (R-MN-3) and Ron Kind (D-WI-3). It seeks to lower the tax burden for all wineries, breweries and distilleries in the United States. It is the first bill proposed that would reform the federal excise tax system for all three major alcohol commodities. This bipartisan bill is supported by every major alcohol industry trade association: The American Craft Spirits Association, The Beer Institute, The Brewers Association, The Distilled Spirits Council, WineAmerica and the Wine Institute.

Expands Tax Credits for All Wineries

Under existing law, wine is subject to an excise tax of between $1.07 and $3.40 per gallon, based on alcohol content and carbonation level. The new law phases out what was commonly known as the “Small Producer Tax Credit”. Qualifying small domestic wineries producing 250,000 wine gallons or less were eligible for a tax credit generally equal to 90 cents per gallon on the first 100,000 gallons produced, with that benefit phasing out between 150,000 gallons and 250,000 gallons. The Tax Cuts and Jobs Act removes the phase out and replaces the credit with a new tiered credit system for wine produced in the U.S., or imported, as follows:

  • $1.00 credit per gallon for the first 30,000 wine gallons produced
  • $0.90 credit for the next 100,000 wine gallons produced (30,001 to 130,000)
  • $0.535 for the next 620,000 wine gallons produced (130,001 to 750,000)
  • All wine produced over 750,000 gallons will be taxed at the regular rate
  • Removes the existing prohibition against claiming the credit for natural sparkling wines

Expands the Alcohol Threshold for Table Wine

Under previous law, still wine was taxed at different rates based on alcohol content, but this too has been amended by the Tax Cuts and Jobs Act.  Previously, still wine containing not more than 14% alcohol by volume was taxed at $1.07, while still wine above 14% and less than 21% alcohol by volume was taxed at $1.57 per gallon. (It is important to note that for labeling purposes alcohol content in wine may vary from the stated amount within certain tolerances, however no such tolerances exist for tax purposes.) The Tax Cuts and Jobs Act amends existing law so that wines up to 16% alcohol by volume qualify for the $1.07 tax rate, raising the threshold for table wine from 14% to 16%.

Increases Carbonation Tolerance Levels for Low Alcohol Wines

Previous law provided a tolerance for still wine of 0.392 gram of carbon dioxide per hundred milliliters of wine, which is generally taxed at $1.07 per wine gallon. Wines exceeding this limitation were taxed as “sparkling wine” at either $3.30 or $3.40 per wine gallon. The Tax Cuts and Jobs Act increases that tolerance to 0.64 gram of carbon dioxide per hundred milliliters of wine for wines produced primarily from grapes or solely from honey and water (mead), which do not contain any other fruit and contain no more than 8.5% alcohol by volume.

Current Status

Most of the provisions of the Tax Cuts and Jobs Act went into effect on January 1, 2018. This includes the changes in federal alcohol excise taxes. The Alcohol and Tobacco Tax and Trade Bureau (TTB) must now write the rules and regulations necessary to implement the changes. WineAmerica expects these rules and regulations to not be finalized until sometime in the early spring. For wineries that will need to file excise tax returns for the first part of 2018, the regulations will be retroactive to January 1. Generally this will apply to larger producers who currently need to file excise tax returns on a semi-monthly or quarterly basis. Based on current guidance, wineries should pay excise taxes as normal. The retroactive nature of the new regulations will result in tax refunds for those wineries paying the previous rates.

Future

If the alcohol excise tax provisions contained in the Tax Cuts and Jobs Act are not extended beyond December 31, 2019, the tax rates and credits will revert back to where they were  before the bill was signed into law. Over the next two years WineAmerica will be working to extend the reforms or make them permanent.

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