The new tax structure for alcoholic beverages enacted as part of the Tax Cuts and Jobs Act of 2017 is now in effect, and will continue for at least the next two years. The base excise tax rates on all classes of alcoholic beverages remain unchanged, but a series of tax credits related to taxable removals has been instituted.
The Small Producer Credit has been suspended till the end of 2019 and now ALL wineries, no matter how much they produce, are eligible for three levels of tax credits, based on gallonage removed from bond during the year. The new tax credits on all wines (except hard cider*) are as follows:
$1.00/gallon on the first 30,000 gallons removed
$0.90/gallon on the next 100,000 gallons removed (over 30,000 to 130,000 gallons)
$0.535/gallon on the next 620,000 gallons removed (over 130,000 to 750,000 gallons)
*Since the tax on cider is lower than on other wines, the allowable credits are also reduced.
A more detailed explanation of the tax rates and changes can be found here https://www.ttb.gov/alcohol/craft-beverage-modernization-and-tax-reform.shtml and https://ttb.gov/tax_audit/atftaxes.shtml.
When you file your excise tax return, you will calculate the tax due for the period at the full rate and then calculate the allowable tax credits in Schedule B, Adjustments Decreasing Amount Due. The total credits for the period are summed up and transferred to line 34, then deducted from the total tax due.
For wineries whose annual removals from all locations are under 30,000 gallons, keeping track of the allowable credit is easy. But for larger wineries it can be complicated, especially when wine is removed from bond at several locations. In addition to making taxable removals from their own facilities, many wineries use one or more third-party bonded wine cellars to ship their wholesale and direct-to-consumer orders. In addition, if your winery is part of a “controlled group” (group of wineries that share significant common ownership) or it has brands that are produced under contract and taxably removed by other wineries, removals from even more locations need to be combined. (For more information, contact your tax advisor or a compliance specialist.)
Because the tax credit is calculated based on the FIRST gallons removed, you must apply your credits to removals in chronological order, and monitor the cumulative volume removed at all locations so you can keep your third-party providers updated about which level of credit the winery is currently eligible to take. For this purpose, you do not need to distinguish between the various tax classes of wine removed (still wine, artificially carbonated wine, sparkling wine, cider, or wine over 16% ABV). The volume of all types of wine must be combined for purposes of tracking cumulative removals for the tax credits.
You can use an Excel spreadsheet to track removals by date. This is especially important for a winery selling over 130,000 gallons a year, because you will end up paying tax at three or more different rates each year as removals accumulate and the allowable credit changes. Almost certainly, the transitions between tax rates will occur in the middle of tax periods, and the winery needs to know exactly when that occurs so you can alert your warehouses when to start calculating your taxes at the new rate.
It will be helpful for your spreadsheet to have a separate column for each removal location, a column for daily total gallons removed, and a column for year-to-date total gallons. Entries should be made as shipments are made, one row per day. Your source documents will be bills of lading or electronic records of shipments, received from each shipping point.
For a tax period in which your tax rate changes because you cross into the next level of taxable removals, you need to inform each warehouse how many gallons to pay at each rate. We suggest that you add a second row to your spreadsheet for each day on which cumulative gallons removed crosses the point where the tax credit changes. The first row for that day would show gallons removed at each location at the older (lower) tax rate. The second row for that day would show gallons removed from each location at the new (higher) tax rate. See the example below:
Thanks to the deferral period between the end of each tax period and the due date of the return, you will have at least a few days to collect your data and figure out if you need to advise your warehouses of a change in tax rate during the last tax period.
Staying aware of your tax rate as it changes will help both the winery and its shipment partners stay in compliance with correct excise tax payments, and avoid possibly having to amend returns and pay interest later.
NOTE: If you would like a copy of the Excel spreadsheet pictured above, email me at email@example.com and I’ll send you a copy.