Extras on Excise: Senate Tax Plan Proposes Major Shake-Ups on Federal Alcohol Tax Rates

Resz Old Fashioned

On Nov. 20, 2017, the Senate Finance Committee released the text of its proposed tax overhaul. While many of the provisions relate to individual and corporate taxation, several proposals would mark major changes for federal taxation of the alcohol industry.

I.R.C. § 5051(a)(1) currently imposes an $18 tax on each barrel of beer imported, brewed, or produced for consumption or sale in the United States. A barrel of beer contains a maximum of 31 gallons (the equivalent of two full-sized kegs of beer).

Section 13803 of the Senate bill would lower this rate to $16 per barrel for the first 6 million barrels brewed or imported into the U.S., but would retain the $18 rate for any barrels produced or imported in excess of that amount.

The bill would also provide an additional tax break for small domestic brewers (defined as brewers making 2 million or less barrels of beer per calendar year). The current tax rate for small brewers is $7 per barrel for the first 60,000 barrels, while barrels produced in excess of 60,000 are taxed at the normal rate of $18 per barrel. Section 13803 of the Senate bill would cut the rate for small brewers in half, to $3.50 per barrel, for the first 60,000 barrels produced by small brewers; barrels produced in excess of that amount would be taxed at the proposed general rate of $16 per barrel.

The tax changes do not stop with beer, however, as the Senate bill also proposes to expand the small domestic wine producer credit and change some wine tax rates.

Under I.R.C. § 5041(c), people or companies that produce 250,000 gallons of wine or less per year can claim a credit of $0.90 per wine gallon on the first 100,000 wine gallons produced; the credit is reduced by 1 percent for each 1,000 gallons of wine produced in excess of 150,000 wine gallons per calendar year.

Section 13806 of the Senate bill would eliminate the 250,000 wine gallon production cap—permitting domestic wine producers of all sizes to take advantage of the credit—and would also increase the amount of the credit to:

(1) $1.00 per wine gallon for the first 30,000 wine gallons produced or imported; plus

(2) $0.90 per wine gallon on the next 100,000 wine gallons; plus

(3) $0.535 cents per wine gallon on the next 620,000 wine gallons.

In addition, Section 13807 of the Senate bill modifies I.R.C. § 5041(b), concerning the tax rate on imported or domestically-produced wine. Currently, most forms of still wine are taxed at the lowest rate of $1.07 per wine gallon if they contain 14 percent of less alcohol-by-volume (ABV). The Senate bill would allow wines with an ABV of up to 16 percent to be taxed at the lowest rate.

Section 13808 of the Senate bill would also clarify the taxation of honey wine—also known as mead—generally subjecting mead to the lowest tax rate on wine ($1.07 per wine gallon).

Finally, in addition to changing the tax scheme on beer and wine, distilled spirits would also be taxed under a new rate tier if the Senate bill proposal is enacted.

I.R.C. § 5001(a) imposes a $13.50 tax on each proof gallon of distilled spirits imported or produced in the United States. Under § 13809 of the Senate bill, the first 100,000 proof gallons would be taxed at $2.70 per proof gallon–-a $10.80 reduction from the current rate. The tax would be $13.34 for all proof gallons in excess of that amount, but below 22,130,000 proof gallons, and $13.50 per proof gallon for all additional amounts.

Given the multitude of changes that will be forthcoming regarding the federal tax overhaul, these provisions may be amended in the future. Be sure to follow Bloomberg BNA’s products, including Bloomberg’s Tax Reform Roadmap, to stay abreast of any applicable news and updates.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Do you support these proposed changes? Do you think these savings would be passed down to consumers?

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