On July 13, 2023, the Alcohol and Tobacco Tax and Trade Bureau (TTB) published Procedure Number 2023-1, providing brewers with updated guidance on the transfer of beer without tax payment between breweries not of the same ownership.
The Craft Beverage Modernization Act (CBMA) provisions of the Tax Cuts and Jobs Act of 2017 temporarily permitted the transfer of beer between breweries under different ownership without the payment of tax (previously, transfers of beer in bond were limited to breweries under the same ownership). TTB issued Procedure 2018-1 to provide brewers with guidance on how to effectuate these newly approved transfers; however, it stated it was effective only through December 31, 2019.
Although the Taxpayer Certainty and Disaster Tax Relief Act of 2020 made a brewer’s right to transfer beer without the payment of tax to a brewer of different ownership permanent, TTB did not update the Procedure issued in 2018. TTB informally communicated that brewers could continue to rely on Procedure 2018-1 even though it was no longer “effective,” but it has now published updated guidance on such transfers.
Recording and Reporting Transfers
As set forth in Procedure 2021-1, a shipping brewer must prepare an invoice covering the transfer. The invoice must show that the brewer transferred the beer without the payment of tax. It must also feature the following:
- The name and address of the shipping brewer;
- The date of shipment;
- The name and address of the receiving brewer; and
- For cases, the number and size of cases and the total barrels; for kegs, the number and size of kegs and the total barrels; for shipments in bulk containers, the type of container, the identity of the container and total barrels.
A shipping brewer should use the transfer invoice to prepare its required daily records and monthly Brewer’s Report of Operations (BROP) or Quarterly Brewer’s Report of Operations (QBROP). A receiving brewer should use the transfer invoice showing beer received from another brewery without the payment of tax in preparing its required daily records and the BROP or QBROP.
Permissible Containers and Labeling Requirements for Transferred Beer
Transfers of beer without the payment of tax may be made in a brewer’s packages or in bulk containers.
Beer transferred in a brewer’s packages from one brewery to another brewery under separate ownership must meet the marking, branding and labeling requirements set forth in 27 CFR § 25.141–25.143. Beer transferred in bulk containers (containers with a capacity larger than one barrel of 31 gallons) from one brewery to another brewery under separate ownership must meet the marking, branding and labeling requirements set forth in 27 CFR § 25.145.
Taking Advantage of Reduced Tax Rates for Transferred Beer
The CBMA establishes a reduced excise tax rate of $16 per barrel on the first 6,000,000 barrels of US-produced beer brewed by a brewer and removed during the calendar year. For brewers producing 2,000,000 barrels or less, an excise tax rate of $3.50 per barrel applies on the first 60,000 barrels of beer removed for consumption or sale during the calendar year which have been brewed or produced by such brewer at a qualified brewer in the United States. TTB reminds brewers that, in general, a brewer may apply these reduced excise tax rates only when it is the producer of the beer being removed for consumption or sale, NOT when transferred beer is merely received and then removed for consumption or sale. Beer is considered to have been “produced” if it is lawfully brewed or produced at a qualified brewery location (TTB in general does not consider the operation of blending to be “production” in this context).
For example, a brewer that receives US-produced beer in bulk and only makes de minimis changes to the beer, or only bottles or packages the bulk beer, would not be able to take advantage of a reduced tax rate. Alternatively, a receiving brewer that accepts US-produced beer and adds water or other liquids to it may then be considered the producing brewer and may be eligible for a reduced tax rate upon removal of the beer for consumption or sale.
Brewers receiving beer packaged in consumer containers from a brewer of different ownership are not entitled to remove the packaged beer at a reduced tax rate. The applicable tax rate for beer transferred without the payment of tax in consumer containers would be $18 per barrel upon the receiving brewer’s removal for consumption or sale.
TTB’s regulations do not currently reflect the statutory revisions described in the Procedure. TTB intends to update its regulations, at which time it will suspend Procedure 2023-1. Until then, brewers should review the full text of Procedure 2023-1 to ensure any transfers made without the payment of tax are compliant with TTB’s updated guidance.
For questions about transfers of beer between breweries, please contact Isabelle Cunningham or McDermott’s alcohol team.