‘Small Producers Tax Credits for Everyone!’ (Said in my best globally famous talk show host voice.)
So you’ve heard that the Craft Beverage Modernization Act was made permanent. And you operate a winery or you support operational reporting for a winery. Now what?
Let’s Begin at the Beginning – Tax Class for Still Wine
Before you can figure out how to take a tax credit, you need to check the tax class. The rates of tax for still wine can be found in 26 U.S. Code SECTION 5041 (c) or by clicking here if you really want to read tax code. Effective January 1, 2021, still wine that is not more than 16% alcohol by volume (‘ABV’) is taxed at $1.07USD per gallon and still wine between 16% ABV and not more than 21% ABV is taxed at $1.57USD per gallon. That means that while the tax rate has not changed, the ABV for still wines in a specific tax class did change.
If you produce still wine and you have removed it tax paid from the winery’s bond, the excise taxes owed are based on the rates listed above. Still wine that is transferred from the winery’s bond to another bond (typically for storage or order fulfillment) and tax paid later is still eligible for the tax credit. In short, if you pay tax on still wine of your own production you are eligible for the tax credit described below.
Side Note – Labelling Rules
TTB labeling rules for listing the ABV on wine labels did not change. I received questions about this over the past two years and the listing requirements along with permitted tolerances, can be found HERE.
Tax Credit? What Tax Credit?
Effective January 1, 2021, among other changes, the words ‘For Small Domestic Producers’ is removed from that same 26 U.S. Code SECTION 5041(c) mentioned above. This permanently establishes that the following tax credits are available to all wine producers and importers:
- $1.00USD/gallon on the first 30,000 gallons produced in the United States or imported into the United States in a single calendar year
- $.90USD/gallon on the next 100,000 gallons
- $.535USD/gallon on the next 620,000 gallons
Up to 750,000 gallons of wine are eligible for some form of tax credit in a single calendar year. Note that while the tax class changes only applied to still wine, the tax credits apply to all types of wine.
Excise Tax Class? Check. Tax Credit? Check. Where Do I Claim the Credit?
Before you can claim the tax credits listed above, you need to first tell the Tobacco Tax and Trade Bureau (‘TTB’) that you have removed the wine from bond to tax paid status. If you work on the winemaking side of the business or support winery operations, you’ve probably heard the terms ‘702’ or ‘5120’, depending on your vintage in the industry. Those terms apply to the TTB Report of Wine Premises Operations, found HERE on the TTB’s website. This report is where a wine producer declares how much wine they have produced, what winemaking activity (including bottling) occurs and, among other things, what wine is removed from bond during a given reporting period. (Reporting periods vary based on production volume.) Just in case you’ve looked up the form and you’ve never filled one of these out before, there are two rows on the form where you list wine removed tax paid – Section A (Bulk Wines) on row 14 and Section B (Bottled Wines) row eight. Both rows have multiple cell options depending on the tax class and type of wine or hard cider that was removed, but those rows are where you specify what has been removed tax paid. Once wine has been reported as ‘removed taxpaid’, excise tax is owed on that wine. After the operations report is filed, it is time to file and pay the excise tax for the wine removed from bond along with claiming available tax credits.
The TTB Excise Tax Return or TTB F 5000.24sm, is where you declare the taxes you owe and credits allowed.
Updated Forms Available
There are now forms available for winemaking activity prior to January 1, 2018 and activity from January 1, 2018 to present. You can find the most common TTB forms HERE.
A Permanent Tax Credit is Not a Change in Tax Rate
Making these two changes permanent is great news for producers large and small. What needs to be clear is that these are two different changes – one to the up to 16% ABV tax rate and the other allowing all producers to claim a tax credit that had previously been reserved for small producers. While the net impact may be a reduction in taxes paid, it is not a reduction in a tax rate across the board.
For anyone who has read the relevant section of the 5,000 plus page document where these changes were made permanent, you will notice something missing from this post. This post is directed at domestic wine producers and does not explain how it may apply to importers of wine in the United States.
Need More Information?
Cronbach Law Group PC is a law firm located in Napa, California. Our focus is helping our clients understand the complex world of alcoholic beverage regulation – 50 states, 51 sets of rules. Let us be your guide and keep your busines priorities top of mind on along the way. www.winedeal.law
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