TTB Announces Excise Tax Law Update

'Alternate procedure' allows all wineries to pay lower excise taxes through Dec. 31, 2019

by Linda Jones McKee

Washington, D.C.–The Tax Cut and Jobs Act signed into law on Dec. 22, 2017, provided excise tax relief for wineries, regardless of size. However, many wineries, especially those making less than 250,000 gallons, have been increasingly concerned that on June 30 the federal excise tax reductions for wine produced at custom crush facilities or stored at bonded wine cellars would be eliminated. The excise tax rate would then increase to the full excise tax rate of $1.07, a 15-fold increase for small wineries.

Today, the Alcohol and Tobacco Tax and Trade Bureau (TTB) allayed those concerns when it released the TTB Industry Circular, Number 2018 – 1A. That circular, titled “Alternate Procedure for a Wine Producer to Tax Determine and Tax Pay Wine of Its Production That Is Stored Untaxpaid at a Bonded Wine Cellar, states that producing wineries may “tax determine and tax pay, upon removal from bond, wine of their production stored untaxpaid at a bonded wine cellar (BWC) or bonded winery, as if it were removed from the producing winery's bonded premises.”

The new circular restates the “alternate procedure provided by Industry Circular 2018-1, but specifically extends its provisions to wine that is stored at a bonded winery.” In addition, the expiration date for the alternate procedure has been extended through Dec. 31, 2019.

According to Jim Trezise, president of WineAmerica, the National Association of American Wineries located in Washington, D.C., “This ruling now ensures that the Congressional intent of the Craft Beverage Modernization and Tax Reform Act (CMBTRA) will be fulfilled by allowing all wineries to benefit, and also allows more time to seek additional changes to enhance the law’s full potential.”

When Congress passed the Tax Cuts and Jobs Act in December 2017, the wine industry was pleased to have a version of the CBMTRA included. As a result of the new law, federal excise taxes on wine were reduced through a system of tax credits and other means, and it was thought that all wineries would see lower excise tax rates. Although the federal excise tax on table wine would remain steady at $1.07 per gallon, a new tax credit of $1.00 would be allowed on the first 30,000 gallons of wine produced, which lowered the effective tax rate to 7 cents per gallon. The amount of the new tax credits changed as the size of the winery increased, with 750,000 gallons being the ceiling for the tax credit. The maximum savings per winery would be $451,700.

However, the Tax Cuts and Jobs Act was a comprehensive, complicated law that was written quickly and passed without detailed review. In the months since passage, various glitches in the Tax Cuts and Jobs Act became apparent. The wine industry knew that a two-year “sunset” provision had been included in the legislation that would eliminate the tax reductions as of Dec. 31, 2019. What was not anticipated was that additional, incorrect language had been included that could nullify the benefits for many wineries across the country if they used custom crush facilities or stored wine off site at bonded wine cellars.

When TTB issued their guidelines in the Industry Circular on March 2, it was clear that TTB had interpreted those changes in language to mean that the tax cuts would apply only to wines fully controlled by the producer from production to storage and final sale. The many wineries that use custom crush facilities or bonded wine cellars would have to pay the full excise tax rate of $1.07 per gallon beginning on July 1. Because the tax bill was passed only a week before the provisions were to be implemented on January 1, 2018, the TTB created the “alternate procedure” in March to allow wineries to collect tax credits until June 30.

WineAmerica worked on the CBMTRA for three years before it was included in the new tax legislation in December. The original bill had been introduced in the Senate in 2015 by U.S. Sen. Ron Wyden (D-OR) in 2015; when the Craft Beverage Modernization bill language was added to the Tax Cuts and Jobs Act, it had 304 House and 55 Senate sponsors in large measure due to 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.

While many meetings were held in March and April, two key meetings occurred early in May: on Tuesday May 8 Jana McKarney of the Oregon Winegrowers Association met with state staff members of Sen. Jeff Merkley (D-OR) to discuss the impact of the TTB guidelines; and on Thursday May 10 Oregon Senators Merkley and Ron Wyden met in Washington, D.C. with Janie Brooks Heuck, co-owner of Brooks Wines in the Willamette Valley in Oregon and Michael Kaiser, vice-president of WineAmerica. Heuck and Kaiser explained how the TTB’s guidelines of March 2 would affect Brooks Wines and hundreds of other wineries like it across the country. Immediately after the May 10 meeting, Heuck was contacted by her Senator’s staff and was informed that TTB officials had agreed to extend the guidelines until the end of 2019.

“While the TTB amendment is very encouraging and a big relief,” Kaiser stated, “ultimately a formal change in the legislation would be far preferable. In addition, currently the tax reductions are scheduled to end on December 31, 2019, and WineAmerica will seek to make them permanent.”

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