On Thursday evening, February 1, the Alcohol and Tobacco Tax and Trade Bureau (TTB) released additional FAQ guidance on the alcohol excise tax provisions of the 2018 tax reform (the Tax Act).
- Imports: Echoing a January 31 pronouncement by Customs and Border Protection, TTB has instructed importers to continue paying the full rate of excise tax until it can establish the procedures by which foreign producers can assign their tax credits to US importers. TTB promises to give importers the opportunity to seek excise tax relief (refunds) on entries made after the law went into effect, once procedures and guidance have been issued.
- Wine: TTB interprets the Tax Act’s tiered tax structure as requiring a precise determination of which removals were “first” when deciding how to divide the excise tax credits between the credits (as high as $1/gallon) available for most wines and the credits (only as high as ¢6.2/gallon) available for wine taxed at the “hard cider” rate. Consequently, producers removing both “hard cider” and other wine will have a strong incentive to delay the removal of hard cider until later in the year in order to maximize the benefit from the more generous credits available to other wine. TTB also has pledged to amend its forms to recognize the new tax rate cutoff for still wine at 16 percent alcohol by volume (previously 14 percent).
- Distilled Spirits: TTB takes the position that a distiller or importer cannot elect when to take the tax credits available under Section 5010 of the Internal Revenue Code (the 5010 credit), the credit for using wine and flavors containing alcohol in the production of distilled spirits. Thus, the Tax Act’s new credits may impact the total credit available through the 5010 credit, as TTB further takes the position that combining the 5010 credit with a Tax Act credit cannot reduce the effective rate of excise tax on a distilled spirit less than zero. This provides distillers and (eventually) importers with a strong incentive to time their removals so that products enjoying a substantially lower effective rate of tax due to the 5010 credit are not removed until the distiller or importer has exhausted its Tax Act credits during the early part of the year. TTB also provides further guidance on how to transfer non-bulk distilled spirits in bond, as authorized by the Tax Act.
- Non-Beverage Drawback: TTB has confirmed that in seeking drawback (a refund) for taxpaid spirits used in the manufacture of non-beverage articles, the drawback amount will be $1 less than the tax actually paid. Thus, where spirits are taxpaid at the Tax Act’s lowest $2.70 per proof gallon rate, drawback will be limited to $1.70 per proof gallon.
As observers of the Tax Act’s excise tax provisions recognize, TTB’s latest guidance does not resolve many of the Act’s important questions. Methods for foreign producers to assign their tax credits to US importers, for example, remain unknown. Similarly unknown is how TTB will interpret the Tax Act’s new “Single Taxpayer Rule.” But the new guidance does represent an important additional step in clarifying the application of the Tax Act.