A recently proposed bill could make the Craft Beverage Modernization and Tax Reform Act of 2017 permanent.
Senators Roy Blunt (R-Mo.) and Ron Wyden (D-Ore.) had good news for the craft beverage industry on Wednesday, February 6, 2019. The Senators announced a bipartisan bill, which if passed, would amend the Internal Revenue Code to make permanent the Craft Beverage Modernization and Tax Reform Act of 2017 (CBMA). The CBMA was passed as part of the Tax Cuts and Jobs Act (TCJA) and marked the first federal excise tax reduction for the distilled spirits industry since the Civil War.
Originally proposed in 2015, the CBMA became part of the TCJA of 2017. As part of a legislative compromise to get the bill passed, the CBMA contained a sunset period. The current version of the bill is only effective during the calendar years of 2018 and 2019. For distillers, the major benefits of the CBMA are its establishment of reduced excise taxes on the production of distilled spirits and the reduction of restrictions on tax-free transfers of spirits between distillers.
The Impact of the CBMA
To grasp the magnitude of the CBMA’s impact on the beverage industry, you have to understand the tax and regulatory environment that preceded it. Prior to the passage of the CBMA, the federal government imposed a tax of $13.50 per proof gallon on a producer’s first 100,000 proof gallons, the equivalent of about 1.2 million (40% ABV) bottles of distilled spirits. The excise tax was then reduced to $13.34 per proof gallon for production between 100,000 proof gallons and 22.13 million proof gallons. Production above 22.13 million proof gallons was taxed at the original rate of $13.50 per proof gallon. Additionally, distillers were required to pay state and local excise taxes on top of the federal excise tax burden. These taxes had the effect of discouraging increased production of spirits.
With the passage of the CBMA, the excise tax burden on distillers was temporarily (for the tax years of 2018 and 2019) reduced on a producer’s first 100,000 proof gallons from $13.50 to $2.70. The next 22.13 million proof gallons produced or imported are taxed at a rate of $13.34 per proof gallon and production over 22.12 million is subject to the rate of $13.50 per proof gallon. The Act also allows foreign distilled spirits manufacturers to assign the reduced rates to importers.
The CBMA not only reduces the excise tax burden on distillers, but it also reduces some of the red tape associated with the industry. For example, the Act authorizes the transfer in bond of distilled spirits between plants (bonded premises) in bulk or bottled form, whereas previously only the transfer of bulk spirits was permitted. Additionally, the bill excludes the aging period from the production of distilled spirits for the purpose of determining whether a taxpayer can expense, rather than capitalize interest costs paid or incurred during the production period.
Senators Blunt and Wyden hope to promote job creation and encourage reinvestment of the tax savings in the industry by extending the life of the CBMA beyond 2019. Currently, the bill has been referred to the Committee on Finance. If it is successful in committee, it will be introduced to the Senate floor where it will be debated and voted on.
Taking Advantage of CBMA Today
The CBMA is still in effect for the 2018 and 2019 tax years. If you’d like to learn more about how you can benefit from CBMA, please reach out to Blue & Co.’s beverage industry experts, Patrick Brown (pbrown@blueandco.com) or Derek Gray (dgray@blueandco.com).
