For certain brewers, wine makers and distillers, the gift-giving season did not necessarily end in December. The Alcohol and Tobacco Tax and Trade Bureau (TTB) recently announced it has adopted changes that may impact the tax reporting and federal compliance requirements of certain alcohol manufacturers. The relief is a direct response to recent changes to the Internal Revenue Code as a result of the Protecting Americans from Tax Hikes Act of 2015 (known as the “PATH Act,” for those that enjoy these governmentally-generated acronyms). Neither modification is terribly earth-shattering nor likely to cause the producers and their alcohol loving customers to break out in instantaneous celebration, but the changes will eliminate some of the existing regulatory obstacles experienced by startup brewers, distillers and wine makers, and the manner that taxes of producers are reported and paid.
First, the PATH Act amendments provide an exemption to the federal bond requirements for certain manufacturers. Commencing with the first calendar quarter of 2017, the TTB has eliminated the requirement of existing brewers, distillers and wineries to file bonds covering operations or withdraws of distilled spirits or wines from non-industrial use, or beer, for those manufacturers who do not reasonably expect to be liable for more than $50,000 in taxes imposed on their products for the present year of operations, provided that the producer did not pay more than $50,000 in taxes from production or withdraw during the immediately prior year of operation.
There are two caveats: first, the manufactures must be paying their excise tax on a semi-monthly, quarterly or annual basis; and second, the product must be produced for non-industrial purposes. (In other words, if you cannot drink it, you must still obtain a bond to produce it). This exemption is available to both new applicants and existing proprietors, but the taxpayer must make a request for exemption of the bond requirements. For those in the process of obtaining their basis permit or notice, the TTB has initiated a new application process for both new paper and electronic applicants, which provides the applicant with the ability to indicate that the licensed operations will not generate more than the threshold permitted level of excise tax. Existing proprietors who meet the eligibility requirements may also benefit from the new changes. The TTB announcements include direction for these producers to file either a paper or an electronic request (via Permits Online) for an exemption from the bond requirement. Timing is an issue for present manufactures: the TTB has indicated that it will not process bond waivers of an applicant until its final tax payments for the calendar year 2016 have been processed – another reason to contact your accountant or finalize the information with your controller as soon as possible.
A second form of relief has been implemented for those distillers, wineries and breweries whose expected excise tax liability for the calendar year is projected to be less than $1,000. For these eligible manufacturers, the PATH Act amendments authorize a new annual tax return period, likewise beginning calendar year January 1, 2017, which eliminates the necessity of filing returns on a semi-monthly or quarterly basis. As is the case with the bond waiver requirements, the TTB imposed a caveat: taxpayers can only take advantage of the limited reporting requirement if their excise tax liability for 2016 (or in later years of election, in the immediately preceding year) was not more than $1,000. For distillers, brewers or wine makers with more than one operating location, the tax liability from all facilities combined must be less than $1,000 in order to use the annual return period. Unlike the bond waiver, no advance approval from the TTB is required, and eligible taxpayers may elect the option for an annual filing by making the appropriate designation on the tax form. Timing is crucial: the annual tax return deadline is generally January 14, 2017.
These modifications will certainly not benefit all producers, but for startups and smaller manufacturers, the changes should be welcomed, as an effort to eliminate at least part of the regulatory checklists that all owners otherwise endure. For those who are interested, further information is available in TTB Guidance 2016-4 on the TTB website. You may otherwise contact yours truly, Christopher P. Baker, chair of the Hospitality and Beverage Control practice team of Varnum at (248) 567-7425 or [email protected] for more information.