Distilling the Craft Beverage Modernization and Reform Act

craft distillery

DISTILLING THE CRAFT BEVERAGE MODERNIZATION AND REFORM ACT

 

Spirits, wine, and beer. If you guessed that the common denominator between these items is alcohol, you would be partially correct! Spirits, wine, and beer are all goods that can be produced domestically or imported into the United States. More importantly, these goods are subject to the Craft Beverage Modernization and Reform Act. The following blog post provides the background that every producer, importer, broker, and everyone in between needs to know to understand how the Craft Beverage Modernization and Reform Act can impact you, your business, and even your clients.

 

What is the Craft Beverage Modernization and Reform Act?

 

The Craft Beverage Modernization and Reform Act (“CBMA”) was created to provide tax relief for brewers, wine makers, distillers, and importers of beverage alcohol.

 

The History

 

The CBMA was originally passed in 2017 as part of the Tax Cuts and Jobs Act. The provisions enacted in 2017 were effective throughout the 2017, 2018, and 2019 calendar years. At the end of 2019, the CBMA was extended for one year and set to expire in December 2020.

 

The extension prompted efforts to lobby Congress in an effort to salvage the provisions from expiration.

 

Where are We Now?

 

In December of 2020, former President Donald J. Trump signed the Consolidated Appropriations Act H.R. 133 which included the Taxpayer Certainty and Disaster Tax Act of 2020, making most CMBA provisions PERMANENT while changing others. Making certain provisions of the CBMA permanent means that these permanent provisions have no expiry date and are not subject to renewal.

 

If the CBMA has not been renewed, tax rate on spirits producers would have reverted to previous rates (increase of 400%).

 

What are the Permanent Provisions? [1]

 

Spirits will now be taxed at a:

  • Reduced rate of $2.70 per proof gallon for first 100,000 proof gallons produced domestically or imported annually
  • Rate of $13.34 per proof gallon for the next 22,130,000 proof gallons

 

Wine will be subject to a Tiered Tax Credit System that follows the following structure:

  • $1 per gallon credit for first 30,000 wine gallons
  • $0.90 per gallon credit for next 100,000 wine gallons
  • $0.535 per gallon credit for the next 620,000 wine gallons

 

Beer will now be taxed in the following ways:

  • Brewers producing 2 million barrels or less annually will be subject to rates reduced to $3.50 per barrel on first 60,000 barrels but will have to pay $16 per barrel on remaining barrels
  • Brewers producing OVER 2 million barrels annually AND BEER IMPORTERS will be subject to a reduced rate of $16 per barrel on the first 6 million barrels.

 

Other permanent provisions:

  • Adjusted alcohol content for certain still wine tax classes from 14% to 16% alcohol by volume
  • Lower tax rates for certain meads and low alcohol wines
  • Transfers of beer in bond between brewers who are not of the same ownership

 

What are the Changes to Previous CBMA Provisions?

 

The answer is yes. These changes include:

 

1) Restrictions on the transfer of bottled distilled spirits in bond by prohibiting the “transfer of bottled spirits in bond except: between bonded premises belonging to the same person or members of the same controlled group; or if the distilled spirits are transferred in bond from the DSP who distilled or processed the spirits to another DSP for bottling or storage and returned to the transferor for removal, but only if the transferor retained title during the entire period between such distillation, or processing, and removal.” [2]

 

2) Changes to the type of processing activities that qualify for reduced tax rates for distilled spirits (effective in January 2022) that state “only DSPs who perform a processing activity other than bottling are entitled to take a CBMA reduced rate on distilled spirits that they process and remove.” [2]

 

3) Changes to the Single Taxpayer provisions that state that “two or more entities (whether or not under common control) that produce or process distilled spirits under a license, franchise, or other arrangement shall be treated as a single taxpayer.” [2]

 

Bottling distilled spirits will not be “processing” for reduced rate purposes:

 

Conclusion

 

Whether you are a producer, importer, or certified connoisseur of spirits, wine, or beer, knowing how an act impacts the industry is crucial. The Craft Beverage Modernization and Reform Act was enacted to provide tax relief to producers and importers of the 3 alcohol products that were part of the trivia question at the beginning of this blog post. If you are a producer or importer of spirits, wine, and/or beer, how has this act impacted you? Let us know!

 

 

Sources

[1] Horta, Crystal. “Understanding The Craft Beverage Modernization and Reform Act.” Park Street Imports, 15 Feb. 2021, www.parkstreet.com/understanding-the-craft-beverage-modernization-and-reform-act/. 

[2] Bugher, Tim. “TTB: Beverage Alcohol: Craft Beverage Modernization Act (CBMA).” TTBGov – Craft Beverage Modernization and Tax Reform (CBMTRA), 8 Jan. 2021, www.ttb.gov/alcohol/craft-beverage-modernization-and-tax-reform-cbmtra.