The Tax Cuts and Jobs Act (the “Act”) has significantly impacted the alcohol industry, including changes to tax credits and new taxpayer definitions. As the Act has come into effect, the TTB continues to update alcohol industry members on the impact of the Act on related excise taxes. We issued an advisory in March regarding some of the new guidance issued by the TTB, which you can find here, and are providing new updates below.
On May 17, 2018 the TTB formally expanded the use of the “alternate procedure” or “transfer by documentation” for tax credit purposes during 2018 and 2019 to untaxpaid wine stored at a receiving bonded winery, and extended the duration of the TTB alternate procedure until December 31, 2019.
Background. As mentioned in our March advisory, the Act created temporary, larger TTB excise tax credits for wine effective January 1, 2018 to December 31, 2019, and suspends until January 1, 2020 the previous TTB small producer tax credit for wine. Review the updated TTB alcohol excise tax rate table here. The new tax credits are not transferable on wine moved in bond between unrelated bonded premises. Only the producing winery can use excise tax credits when it removes wine it produces from bond.
Extension of Alternate Procedure for Wine Stored Untaxpaid at Bonded Wineries and Bonded Wine Cellars. The TTB’s previous industry circular of March 2, 2018 announced that the TTB was allowing until June 30, 2018 a virtual or paper transfer of untaxpaid wine that is stored at a bonded wine cellar (BWC), where the producing winery and BWC may do a “transfer through documentation” of the wine in bond without having to physically transfer the wine at the BWC back to the producing winery. Once documented as “received” by the producing winery the wine can be removed taxpaid by the producing winery with the excise tax credits and then virtually “transferred” back to the BWC. The TTB formally announced via industry circular on May 17, 2018 that it is extending this alternate procedure to wine that is stored at another bonded winery, not just a BWC, and also extending the duration of the use of the alternate procedure through December 31, 2019. For more details on transfers through documentation, click here.
Other Winemaking Acts as “Production.” As a reminder, the TTB stated that for the purpose of taking the tax credit allowed by the Act, in addition to production by fermentation, a winery may be considered the producer of the entire volume of wine if the winery sweetens, adds wine spirits, produces formula wine, or ameliorates the wine, if such activities are “undertaken in good faith in the ordinary course of production, and not solely for the purpose of obtaining a tax credit.” The entire volume of wine that has undergone any one of these production activities would be considered “produced” for purposes of applying the new excise tax credit. Blending that does not involve one of the operations listed above is not considered production.
Bulk Wine. If a winery purchases bulk wine in bond from another producing winery, and does not undertake any additional production activities, it must either pay full TTB excise tax on that wine upon removal, or may transfer (either physically or via the alternate transfer procedure discussed above) the bulk wine in bond back to the producer for removal at the new tax rate. This includes any wine that is purchased and blended into the purchasing winery’s own wine that it produced. However, taxpaid bulk wine can only be bottled at a TTB permitted Taxpaid Wine Bottling House (TPWBH). Wineries that wish to purchase bulk wine from other producers for blending or bottling at the purchasing winery’s premises may consider amending their TTB Basic Permit to include approval as a TPWBH. Per our discussions with the TTB, there has been a sudden uptick in interest in becoming a TPWBH, likely for these very reasons. Note, however, that Oregon Liquor Control Commission privilege taxes are triggered when wine is removed from bond, so such removals and TTB excise tax payments may impact the OLCC small producer privilege tax exemption on that wine, if available.
Kelly Luzania focuses her practice on licensing, distribution, labeling and tax assessment in the food and alcohol beverage industries. Kelly can be reached directly at [email protected] or 503.778.5359.