Currently the federal excise tax rate for distilled spirits is split into three tiers. Distillers pay $2.70 per proof gallon (PG) on the first 100,000 PG, $13.34/PG on the next 22,130,000 PG sold, and $13.50/PG on anything above that. This reduced tax rate has allowed craft distillers to reinvest the money into purchasing new equipment or hiring more staff. However, this reduced tax rate is currently set to expire on December 31, 2020 which will result in a 400% tax increase for craft distillers.
Unlike beer or wine, many distilled spirits need to mature for years before they and therefore distillers need more certainty in their taxes so they can adequately plan for their businesses future. This is why ADI is continuing to advocate along side our members and partners in the industry that the current tiered federal excise tax rate for distilled spirits be made permanent.
Join us in contacting your House Representatives and Senators to let them know that the CBMA should be made permanent. You can also share your support for this effort through the Spirits United call for action which has an easy form to contact your representatives.
On December 20, 2019, President Trump signed into law the Further Consolidated Appropriations Act, 2020, which among other things, extended the provisions of the Craft Beverage Modernization Act (CBMA) through December 31, 2020. This came in no small part from the sustained effort of craft distillers from around the country who contacted their representatives both in person during the 2019 Summer Fly-in, and by writing and calling. The updated CBMA was co-sponsored by 342 House Representatives and 73 Senators which was more co-sponsors than when it was first introduced in 2017.
The long sought reduction in federal excise for distilled spirits ends December 31, 2019. ADI will be sending a representative to the upcoming (July 22-24, 2019) Public Policy Conference in Washington D.C. and strongly encourages as may distillers to participate as possible. Participants should register online. All distillers should phone and write your Federal representatives to encourage them to make these tax cuts permanent. Find your representatives here.
Temporary Tax Parity Achieved
On Friday, December 22, 2017 President Trump signed the $1.5 trillion tax bill also know as “H.R.1 – An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.” Tucked into this massive tax bill was an amendment that reduced the federal excise tax (FET) on distilled spirits but, only for 2018 and 2019. Sometime around December 14th the Senate added an amendment to the tax bill that proposed changing this single FET to a graduated tax. Before 2018, when a distillery sold distilled spirits to a distributor or a state liquor agency, the distillery paid the US Treasury an excise tax of $13.50 for every proof gallon (a PG is one gallon of spirit at 50% ABV).
However, starting January 1, 2018 the FET for distilled spirits is now broken down into 3 brackets.
Bracket 1: $2.70/PG for the first 100,000 PG; Bracket 2: $13.34/PG up to 22,130,000 PG sold; Bracket 3: $13.50/PG for anything above that. This graduated tax was most recently proposed in the “Craft Beverage Modernization and Tax Reform Act of 2017” as a means to provide small distillers with a tax break and bring the FET for distilled spirits in line with the discounts that small breweries and small wineries receive. However, when the Senate added the FET reform to the tax bill, it stipulated that the tax reduction would only last though 2019. Though it may be reauthorized at the end of 2019 when Congress reauthorizes a number of tax laws that are set to expire. That being said, Distillers will need to reach out to their representatives in Fall 2019 to stress the importance of reauthorizing the new FET structure.
The other interesting question about the FETs for distilled spirits is what its economic impact will be. We will not know for certain until next year at the earliest however, we can make an estimate. According to TTB in 2016, all Distilled Spirits Producers (DSPs) generated about $4.185 billion in revenue for the US Treasury. If we apply the new FET system to the TTBs data of average taxable removals in proof gallons, the Treasury would have received $4.088 billion, a difference of $97 million or 2.34%. This is minuscule in relation to the overall Federal budget.
About half of the savings will go to DSPs selling less than 100k PG which will have a significant impact on the large number of small distilleries around the country. With these savings, most small distillers have already indicated that they plan to invest the money in new equipment, and or more employees which will have ripple effects locally and nationally from new sources of income tax, payroll tax, and sales tax just to name a few.