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Are You Sure You Need a Wine Bond?
Washington, D.C.—Everyone in the wine industry knows that any business involved with alcohol is heavily regulated at the state and federal levels. On Dec. 18, 2015, that regulatory weight got a little bit lighter for approximately 80% of the wineries across the country. That was the day U.S. president Barack Obama signed the Consolidated Appropriations Act (also known as the Fiscal Year 2016 Omnibus Appropriations Bill) into law. Unbeknownst to most wineries, one section of the law, the Protecting Americans from Tax Hikes Act of 2015 (a.k.a. “the PATH Act”) included changes to excise tax due dates, bond requirements and the definition of wine eligible for the “hard cider” tax rate. Wineries should note, however, that these changes will not take effect until January 2017.
Changes in excise tax due dates
According to an announcement issued by the Alcohol and Tobacco Tax and Trade Bureau (TTB) on Jan. 14, “Section 332 of the PATH Act changes the excise tax due dates and eliminates bond requirements for certain eligible taxpayers.” The announcement continued, “Taxpayers who reasonably expect to be liable for not more than $1,000 in taxes imposed with respect to distilled spirits, wines and beer for the calendar year (and who were liable for not more than $1,000 in such taxes in the preceding calendar year) can pay those taxes annually rather than quarterly.”
Under present regulations, wineries that expect to owe up to $50,000 per year in federal excise taxes have to file and pay those taxes on a monthly basis. Under the new law, those wineries will be permitted to pay their taxes on a quarterly basis. According to Michael Kaiser, director of public affairs at WineAmerica, “The new law allows for those wineries to now file and pay their taxes on a quarterly basis, rather than by month. Additionally, those producers liable for not more than $1,000 per year may pay taxes annually, rather than quarterly.”
In order to determine the size winery that pays less than $1,000 in excise taxes or up to $50,000 in taxes under current regulations, one must look at the formulas employed by TTB. A winery holding a TTB basic winery permit and producing up to up to 100,000 gallons may qualify for the small producers tax credit, which reduces the excise tax rate from $1.07 to 17 cents for wine with less than 14% alcohol.
Thomas K. Hogue, who is responsible for answering questions addressed to the TTB, told Wines & Vines, “If a winery produced wine and removed 150,000 wine gallons, the first 100,000 would be at the reduced rate of 17 cents (or $17,000), and the remaining 50,000 wine gallons would incur the full rate of $1.07 (or $53,500). If a winery produces 150,000 to 250,000 gallons per calendar year, a sliding scale is used to determine the credit based on production and applied on the first 100,000 wine gallons removed. The credit is reduced by 1% for every 1,000 gallons produced in excess of 150,000 (i.e., the more wine made, the smaller the credit). If a winery produces over 250,000 wine gallons, there is no credit.”
Consequently, a winery producing 5,880 gallons of wine (or 2,473 cases) has an excise tax payment due of just under $1,000. The size winery that would owe just under $50,000 would be 130,840 gallons (or 55,021 cases). The first 100,000 gallons is taxed at 17 cents per gallon; the remaining 30,840 gallons is taxed at $1.07 for a total of $49,990.80 in taxes ($17,000 plus $32,998.80 = $49,998.80).
Changes in bond requirements
The PATH Act states that alcohol producers eligible for annual or quarterly filing of excise taxes as of Jan. 1, 2017, will be “exempt from the requirement to file a bond covering their operations or withdrawals of distilled spirits, wines for non-industrial use or beer.” Kaiser stated these changes will affect the majority of wineries across the country. “A winery that has a tax bill below $50,000 won’t have to maintain a wine bond,” he stated, “and that can save a winery from $100 to $1,000, depending on the size of the winery.” Kaiser noted that TTB is working on regulations to implement the new law, and he stressed, “Nothing will change to the existing law until the new law goes into effect in 2017.”
Mary Beth Williams, president of Williams Compliance and Consulting Group outside Richmond, Va., noted that the premium small wineries pay for their wine bond is often between $100 and $200 per year. “That’s not a lot of money,” she said, “but every little bit helps. With small wineries, often the winery owner is the grapegrower and the winemaker and the sales person in the tasting room. An additional benefit to small wineries is that it’s one less regulatory headache.”
Changes to the definition of ‘hard cider’
An increasing number of wineries across the country are now making cider as a part of their product line. For the purposes of alcohol excise taxes, the new legislation defines a hard cider as a wine produced primarily from apples, apple juice concentrate, pears or pear juice concentrate combined with water; with an alcohol content between 0.5% and 8.5% alcohol by volume and a carbonation level that is not above 6.4 g/L. The upper limit for alcohol content in hard cider will remain at its current rate of 7% until the legislation goes into effect Jan. 1, 2017.
Funding changes for TTB
According to WineAmerica, the TTB has had a 10% reduction in its workforce since 2007, in spite of the fact that TTB is “the third-biggest revenue generator in the entire federal government, taking in an estimated $23 billion in revenue.”
The appropriations bill includes $106.44 million in funding for TTB, which is an increase of $5 million over the past fiscal year. “TTB has been stretched very thin,” Williams commented. “This will be a welcome thing both for the industry and for TTB employees. It should help with label and formula approvals, and maybe with license amendments for wineries wanting to expand.”
Changes in excise tax due dates
According to an announcement issued by the Alcohol and Tobacco Tax and Trade Bureau (TTB) on Jan. 14, “Section 332 of the PATH Act changes the excise tax due dates and eliminates bond requirements for certain eligible taxpayers.” The announcement continued, “Taxpayers who reasonably expect to be liable for not more than $1,000 in taxes imposed with respect to distilled spirits, wines and beer for the calendar year (and who were liable for not more than $1,000 in such taxes in the preceding calendar year) can pay those taxes annually rather than quarterly.”
Under present regulations, wineries that expect to owe up to $50,000 per year in federal excise taxes have to file and pay those taxes on a monthly basis. Under the new law, those wineries will be permitted to pay their taxes on a quarterly basis. According to Michael Kaiser, director of public affairs at WineAmerica, “The new law allows for those wineries to now file and pay their taxes on a quarterly basis, rather than by month. Additionally, those producers liable for not more than $1,000 per year may pay taxes annually, rather than quarterly.”
In order to determine the size winery that pays less than $1,000 in excise taxes or up to $50,000 in taxes under current regulations, one must look at the formulas employed by TTB. A winery holding a TTB basic winery permit and producing up to up to 100,000 gallons may qualify for the small producers tax credit, which reduces the excise tax rate from $1.07 to 17 cents for wine with less than 14% alcohol.
Thomas K. Hogue, who is responsible for answering questions addressed to the TTB, told Wines & Vines, “If a winery produced wine and removed 150,000 wine gallons, the first 100,000 would be at the reduced rate of 17 cents (or $17,000), and the remaining 50,000 wine gallons would incur the full rate of $1.07 (or $53,500). If a winery produces 150,000 to 250,000 gallons per calendar year, a sliding scale is used to determine the credit based on production and applied on the first 100,000 wine gallons removed. The credit is reduced by 1% for every 1,000 gallons produced in excess of 150,000 (i.e., the more wine made, the smaller the credit). If a winery produces over 250,000 wine gallons, there is no credit.”
Consequently, a winery producing 5,880 gallons of wine (or 2,473 cases) has an excise tax payment due of just under $1,000. The size winery that would owe just under $50,000 would be 130,840 gallons (or 55,021 cases). The first 100,000 gallons is taxed at 17 cents per gallon; the remaining 30,840 gallons is taxed at $1.07 for a total of $49,990.80 in taxes ($17,000 plus $32,998.80 = $49,998.80).
Changes in bond requirements
The PATH Act states that alcohol producers eligible for annual or quarterly filing of excise taxes as of Jan. 1, 2017, will be “exempt from the requirement to file a bond covering their operations or withdrawals of distilled spirits, wines for non-industrial use or beer.” Kaiser stated these changes will affect the majority of wineries across the country. “A winery that has a tax bill below $50,000 won’t have to maintain a wine bond,” he stated, “and that can save a winery from $100 to $1,000, depending on the size of the winery.” Kaiser noted that TTB is working on regulations to implement the new law, and he stressed, “Nothing will change to the existing law until the new law goes into effect in 2017.”
Mary Beth Williams, president of Williams Compliance and Consulting Group outside Richmond, Va., noted that the premium small wineries pay for their wine bond is often between $100 and $200 per year. “That’s not a lot of money,” she said, “but every little bit helps. With small wineries, often the winery owner is the grapegrower and the winemaker and the sales person in the tasting room. An additional benefit to small wineries is that it’s one less regulatory headache.”
Changes to the definition of ‘hard cider’
An increasing number of wineries across the country are now making cider as a part of their product line. For the purposes of alcohol excise taxes, the new legislation defines a hard cider as a wine produced primarily from apples, apple juice concentrate, pears or pear juice concentrate combined with water; with an alcohol content between 0.5% and 8.5% alcohol by volume and a carbonation level that is not above 6.4 g/L. The upper limit for alcohol content in hard cider will remain at its current rate of 7% until the legislation goes into effect Jan. 1, 2017.
Funding changes for TTB
According to WineAmerica, the TTB has had a 10% reduction in its workforce since 2007, in spite of the fact that TTB is “the third-biggest revenue generator in the entire federal government, taking in an estimated $23 billion in revenue.”
The appropriations bill includes $106.44 million in funding for TTB, which is an increase of $5 million over the past fiscal year. “TTB has been stretched very thin,” Williams commented. “This will be a welcome thing both for the industry and for TTB employees. It should help with label and formula approvals, and maybe with license amendments for wineries wanting to expand.”
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