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U.S. Wine Tax Bill Inches Forward

June 2016
by Jane Firstenfeld
In addition to requiring specialized equipment to produce, sparkling wine is currently taxed at a higher rate than still wine.

Washington, D.C.—A bill proposed by California congressman and vineyard owner U.S. Rep. Mike Thompson and U.S. Rep. Dave Reichert of Washington state made a step forward May 12 to streamline and reduce excise taxes within the wine industry.

A statement from Thompson’s D.C. office said that H.R. 4934 was referred to the House Committee on Ways and Means for further consideration. “In a Tax Policy Subcommittee hearing earlier today, a number of members voiced support for modernizing alcohol excise taxes. As a senior member of the committee, Rep. Thompson will continue to advocate for his bill until the chairman brings up the legislation for the committee’s consideration,” Thompson spokes­woman Megan Rabbitt told Wines & Vines via email.

H.R. 4934 has drawn most attention within the wine industry because it would slash the excise tax on sparkling wines from $3.40 per gallon to $1.70 per gallon, equal to the current tax on still wines. But the bill would also reduce the excise tax by 50 cents per gallon on many still wines with alcohol content higher than 14%.

Since sparkling wine already requires more steps and costs in production, the excise tax has created an extra burden for producers and inhibited many small wineries across the country from adding sparkling wines to their portfolios.

Eileen Crane, CEO and founding winemaker of 45,000-case Domaine Carneros in Napa, Calif., commented, “I’m ecstatic that Mike Thompson is taking this on.”

She added, “This is an incredible thing for a sparkling house. The sparkling wine tax is truly punitive. As a result, it is very hard to make a go of sparkling wine production. There are only about 20 sparkling wineries nationally producing over 2,000 cases. Compare that to the many thousands of still wine producers. And of those 20 sparkling houses, many have changed hands over the last 30 or so years, largely because of the tax in my opinion.

“We sparkling producers have despaired of ever having anyone stand up for us because we are such a small contingency, but Mike has taken this on. Let’s just make it right,” she said.

Not just for sparklers
Michael Kaiser, director of public affairs for WineAmerica, the D.C.-based national trade association, posted his analysis online right after the bill was introduced. “Alcohol excise taxes are a hot topic on Capitol Hill of late. This week we see another bill introduced that would lower federal excise taxes for wine,” he wrote.

Among his key points:
• Tax credits expanded for small producers, replacing the current structure with a new, tiered credit system for domestic and imported wines. The new schedule would allow credits ranging from $1 per gallon for the first 30,000 gallons produced to 90 cents per gallon for the next 100,000 gallons to 53.5 cents per gallon for the next 620,000 gallons. “All wine produced over 750,000 gallons will be taxed at the regular rate. The provision removes the existing prohibition against claiming the credit for naturally sparkling wines. It would also reduce the tax rate for sparkling and carbonated wine from $3.40 and $3.30, respectively to $1.07.”

• The bill also would expand the alcohol threshold for table wine. “Under present law, still wine is taxed at different rates based on alcohol content. Still wine containing not more than 14% alcohol by volume is taxed at $1.07. Still wine above 14% and less than 21% alcohol by volume is taxed at $1.57 per gallon,” Kaiser noted. The new structure would raise the threshold for table wine from 14% to 16%.

• Increased carbonation tolerance levels for low-alcohol wines.

“Current law provides a tolerance for still wine of 0.392 grams of carbon dioxide per 100ml of wine, which is generally taxed at $1.07 per wine gallon. Wines exceeding this limitation are taxed as “sparkling wine” at either $3.30 or $3.40 per wine gallon. This bill would increase that tolerance to 0.64 grams of carbon dioxide per 100ml of wine.”

Wine Institute sent the following statement about H.R. 4934 to Wines & Vines:

“Federal alcohol excise tax policy has not been addressed in 25 years and is in need of reform. There are now more than 8,000 wineries all across the country that are being held back by outdated policy. This legislation will provide much needed capital for these businesses to invest in equipment, hire new employees, innovate new products and continue to grow. Wine Institute fully supports the effort to comprehensively reform all alcohol excise tax policy, and this legislation is an important part of that process.”

Rep. Thompson’s April 14 statement said the bill would “allow our wine community, which produces the finest wines in the world, to keep pace with changing consumer demands in the years ahead.”

At deadline, co-sponsor Rep. Reichert’s office had not responded to Wines & Vines requests for comment.

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