US Craft Beverage Modernization and Tax Reform Act passes in Congress

21-Dec-2017 - Last updated on 21-Dec-2017 at 10:19 GMT

The newly-passed bill would lower the federal excise tax on barrels of beer, wine, and spirits starting in 2018. ©GettyImages/Ivankish

The US Congress has passed the Craft Beverage Modernization and Tax Reform Act of 2017 (CBMTRA), a bill that will cut the federal excise tax on beer, spirits, and wine producers effective on Jan. 1, 2018.

A number of bipartisan lawmakers as well as organizations within the US craft beverage industry including the Brewers Association (BA), the Distilled Spirits Council (DISCUS), and the Wine Institute have supported the bill since it was introduced on Jan. 30, 2017.

A win for small beer

The bill will reduce the federal excise tax on beer from $7/barrel to $3.50/barrel for the first 60,000 barrels for brewers producing less than two million barrels of beer annually. For all other brewers and beer importers, the tax will be reduced to $16/barrel (from $18/barrel) on the first six million barrels, and the bill maintains the current $18/barrel rate for barrelage over six million.

Additionally, CBMTRA increases collaboration between brewers by permitting transfer of beer between bonded facilities without tax liability.

The reductions in barrel taxes represent more than $142m in annual savings, allowing small brewers to reinvest the extra capital into their breweries and operations, according to the BA.

“America’s small, ‘Main Street’ brewers—6,000 strong and located in every state and virtually every congressional district in the country—are incredibly pleased Congress has recognized that they have great growth potential,” BA president and CEO, Bob Pease, said.

“Our expectation is that small brewers will use their savings related to the recalibration of the federal excise tax on beer to invest in their breweries, expand their operations, create more jobs and hire more American workers.”

In addition, the bill would simplify beer formulation and label approvals by exempting common beer ingredients (e.g., wholesome fruits, vegetables and spices) from lengthy TTB approval processes.

Impact on wine and spirits makers

The legislation includes several benefits for wineries including expanding the excise credit to all wineries regardless of production size (ranging from $0.535 to $1 per gallon on the first 750,000 gallons of production). And for the first time, sparkling wine will also qualify for these tax credits.

Taxes on wines with 14% to 16% ABV will be lowered from $1.57 per gallon to $1.07, according to the Wine Institute.

“This legislation will greatly benefit our (California) 4,700 wineries which produce 85% of our nation’s wine,” Robert P. (Bobby) Koch, president and CEO of Wine Institute, said.

“We are the epitome of value-added agriculture and our wine and vineyards represent a long-term commitment that is uniquely tied to the land, generating jobs, tax revenue, trade, tourism, and international appeal.”

President and CEO of DISCUS, Kraig R. Naasz, said the bill’s passage would create a more equitable tax structure for craft alcohol producers by reducing the federal excise tax for the first 100,000 proof gallons.

The newly-passed bill also exempts the spirits aging process from interest expense capitalization rules, he added.

“This legislation reduces the federal excise tax on distilled spirits producers for the first time since the Civil War, which will enable the more than 1,300 operating distilleries nationwide to re-invest in their businesses and stimulate job growth in their communities,” Naasz said.