New Tax Bill: Understanding the Changes for the Alcohol Industry

Posted 01/09/2018

The beer industry, and especially craft beer brewers and importers, are rejoicing at the pass of the tax reform bill on Wednesday, December 20th, 2017. With the enactment of this bill, brewers and importers who produce less than 60,000 barrels of beer a year will see their excise tax rate fall from $7 a barrel to $3.50 a barrel. This is great news for the industry as the Brewer's Association estimates that 97% of breweries in the country generate less than 60,000 barrels. Larger breweries, those who produce between 60,000 and 2 million barrels a year, will pay $3.50 for their first 60,000 barrels, then $16 for any barrels over that number – a savings of $2 per barrel, as the previous rate was $18.

This measure in the bill will benefit all breweries and craft beer importers, but will especially allow for smaller craft breweries to use the savings to invest and grow their businesses. A national trade organization for the beer industry, the Brewer's Institute, estimates that the savings produced from this tax reform could generate up to 320 million dollars of annual economic growth within the beer industry.

The beer industry is not the only one to benefit from this bill. Wine and spirits producers and importers are also celebrating the recent enactment. Wineries will receive a $1 credit per gallon for their first 30,000 gallons made, $0.90 for the next 100,000, and $0.535 for the next 620,000. Wineries making more than 750,000 gallons will pay the full tax rate on everything over that amount. Additionally, in the bill there is a provision to increase the alcohol level at which a wine can be taxed as table wine - $1.07 per gallon. Currently, wines exceeding 14% ABV are taxed at $1.57 per gallon. The beverage act would increase that threshold to 16%, making higher alcohol wines taxable at the $1.07 tax rate. The provision also allows for certain lower alcohol wines (below 8.5% ABV) to have increased carbonation. Both of these provisions apply to domestically produced and imported wines.

For distilled spirits, the tax rate will drop from $13.50 to $2.70 for the first 100,000 proof gallons produced or imported. For all proof gallons above 100,000 but less than 22,130,000, the tax rate will become $13.34, and for amounts greater than 22,130,000, the tax rate will be $13.50. Both of these reductions will allow for wineries and distilleries to re-invest in their businesses and stimulate production and job growth within their regions.

While alcohol producers and importers are excited about this change, they also know that it may be short lived. The measure in the bill will expire after two years, and may be eligible for extension. For now, those in the industry plan to buckle down and take advantage of this savings opportunity.

For qualifying importers, CBP/Customs and Border Protection and brokerage software providers will work through the needed adjustments, and the expectation is that any tax payments made at pre-tax bill rates would be reclassified retroactively and refunds will be processed. Likewise, for our clients, we will work with you to streamline the changes in recordkeeping that this tax form brings, and we will keep you informed of any updates regarding the bill in the future. As of now, CBP (Customs and Border Protection) has not received any new protocols for handling collection of taxes, nor has the system been updated to accommodate the changes. We also have many questions in regards to the eligibility by producer, assignment of importer, and other items that we are investigating. We are gathering questions from our members and working on a list of FAQs to post to our website.  Please send us any question or concerns you may have and we will add them to the list. 

For a more in-depth summary of the bill, please visit the attached committee report and navigate the pages 519-531.