When the clock strikes midnight on Dec. 31, 2017, millions of Americans will raise a flute of sparkling wine to ring in the New Year. Sparkling wine producers will likely be raising a glass at the same time, albeit for quite a different reason: a significant change in their companies’ taxation beginning Jan. 1, 2018.
Specifically, on Dec. 22, 2017, President Trump signed H.R. 1 into Pub. L. No. 115-97, marking the United States’ biggest tax overhaul in roughly thirty years. Section 13806 of the new law modifies I.R.C. § 5041, concerning excise tax rates on wine.
Currently, and until Jan. 1, 2018, I.R.C. § 5041 taxes “still wines” containing 14 percent or less alcohol-by-volume at a rate of $1.07 per wine gallon, while artificially carbonated wines are taxed at a rate of $3.30 per wine gallon, and champagne and other sparkling wines are subject to a rate of $3.40 per wine gallon.
27 CFR § 24.10 explains that the difference between “artificially carbonated wine” and “sparkling wine” rests in the fermentation method, as artificially carbonated wine is defined as “wine, other than hard cider, artificially injected with carbon dioxide and containing more than 0.392 gram of carbon dioxide per 100 milliliters,” while sparkling wine and/or champagne is defined as “wine, other than hard cider, containing more than 0.392 gram of carbon dioxide per 100 milliliters of wine resulting solely from the secondary fermentation of the wine within a closed container.”
Regardless of the fermentation method, effective Jan. 1, 2018, all forms of carbonated wine containing less than 8.5 percent alcohol-by-volume and containing less than 0.64 grams of carbon dioxide per 100 milliliters will have their tax rates slashed from either $3.30 or $3.40 per wine gallon to the lowest tax rate imposed on any form of wine: $1.07 per wine gallon. Carbonated wine exceeding 8.5 percent alcohol-by-volume will remain taxed at its applicable rate of either $3.30 or $3.40 per wine gallon.
While it is unclear if the low-alcohol, carbonated wine tax savings will have an effect on retail prices, it appears that for one night, both wine producers and wine consumers can agree on a toast to 2018.
For more information on the impact of Pub. L. No. 115-97, examine Bloomberg Tax’s Tax Reform Roadmap, showing detailed comparisons between pre-reform law and the impending changes, with pertinent cites attached.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Do you support the change in taxation to sparkling wine?
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