Tax Bill to Benefit Vineyard Owners

Depreciation rate may encourage grapevine plantings; alcohol excise taxes change as well

by Linda Jones McKee
wine vineyard depreciation tax bill
U.S. Sen. Rob Portman of Ohio signs the conference report on the Tax Cuts & Jobs Act this week. Portman is responsible for adding provisions from the Craft Beverage Modernization and Tax Reform Act introduced in 2015 to the new tax bill.
Washington, D.C.—When the U.S. House of Representatives passed the Tax Cuts and Jobs Act for the second time this morning; it included unexpected last-minute wording that will benefit the owners of vineyards and orchards. Section 13201 of this bill allows “plants bearing fruits and nuts” to be fully depreciated in the year they are planted. The 100% depreciation will apply to “a plant which is planted or grafted after Sept. 27, 2017, and before Jan. 1, 2023.” That depreciation will then drop by 20% each year until Jan. 1, 2027, when the depreciation will be reduced to zero.

Previously, the depreciation for planting grapevines was 50% for the first year. This change should encourage grapegrowers to plant, replant or expand their vineyards, and it also will help reduce the financial impact of time it takes until grapes come into production.

The amendment that provides excise tax reductions for all wineries is buried in the approximately 1,000-page Tax Cuts and Jobs Act and did not receive much, if any, publicity prior to the bill’s passage. U.S. Sen. Rob Portman of Ohio added those tax provisions to the tax bill this past fall from another bill, the Craft Beverage Modernization and Tax Reform Act, that had been introduced into the Senate by U.S. Sen. Ron Wyden of Oregon in 2015.

wine vineyard depreciation tax bill
Source: Wine Institute
Originally designed to benefit the beer industry, the Craft Beverage Modernization and Tax Reform Act was rewritten to include benefits for wineries and distilleries. Through the efforts of a beverage coalition that included WineAmerica, the Beer Institute, the Brewers Association, the Distilled Spirits Council, the American Craft Spirits Association and the Wine Institute, the alcohol excise tax reform bill had received bipartisan support. When Sen. Portman added provisions from the bill onto the broader Senate tax legislation as an amendment, the Craft Beverage Act had 304 House and 55 Senate sponsors.

According to Jim Trezise, president of WineAmerica, the Tax Cuts and Jobs Act will save all wineries, regardless of size, significant money through an excise tax credit mechanism that reduces the effective rate. Although the federal excise tax on table wine will remain steady at $1.07 per gallon, a new tax credit of $1 will be allowed on the first 30,000 gallons of wine produced, which will lower the effective tax rate to 7 cents per gallon.

The tax credit on the next 100,000 gallons produced by a winery will be 90 cents per gallon, and between 130,000 and 750,000 gallons produced, the tax credit will be 53.5 cents per gallon. The ceiling for the tax credit is 750,000 gallons, for a maximum savings of up to $451,700 per winery, depending on their production volume.

These excise tax provisions are scheduled to expire Dec. 31, 2019, unless Congress extends the timeframe or makes them permanent. 

Included in the Tax Cuts and Jobs Act is a change in the definition of table wine. The alcohol level for table wine will be increased from 14% to 16%, in part because of the higher sugar content of grapes resulting in higher alcohol wines. Another provision is included that will increase the tolerance for still wine from 0.392 grams of carbon dioxide per hundred milliliters of wine to 0.64 grams 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. Below this level of carbon dioxide, the wine is taxed at $1.07 per wine gallon; above it, wines are taxed as sparkling wine at either $3.30 or $3.40 per wine gallon.

“There are nearly 10,000 wineries across all 50 states, and the vast majority are small, family-owned farms and business, so this is a welcome development for growing our entire industry,” said Trent Preszler, Ph.D., the CEO of Bedell Cellars in Cutchogue, N.Y., and chairman of the WineAmerica Board of Directors. “The excise tax savings will allow wineries to invest money back into their businesses in countless ways, whether that’s hiring new employees, buying oak barrels, or planting vineyards. Ultimately, such investments will help American wineries be more competitive in the global marketplace.”

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