Two-year reduced tax rate on brewers and winemakers in new tax legislation

The new tax laws signed by President Trump make numerous temporary changes to the taxes imposed on beer, wine, and distilled spirits. These provisions will sunset after 2019.

1. Reduced Rate of Excise Tax on Beer

Section 13802 of the new tax legislation amends Section 5051 of the Internal Revenue Code to reduce the amount of federal excise tax imposed on brewers and importers of beer.

The new law reduces the tax on beer from $18 per barrel to $16 per barrel on the first six million barrels brewed by the brewer or imported by the importer. Beer brewed or imported in excess of the six million barrels would be taxed at $18 per barrel.

For small brewers producing less than 2 million barrels of beer, the tax would be reduced from $7 per barrel to $3.50 per barrel for the first 60,000 barrels. The additional barrels would be taxed at $16 per barrel.

2. Reduced Rate of Tax on Certain Wine

Section 13804 of the new tax legislation would modify the credit found in Section 5041(c) of the Internal Revenue Code for small domestic producers of wine. The new law allows foreign and domestic producers of wine to claim the credit, regardless of the gallons of wine produced. The new law also allows the credit for sparkling wine producers.
Under the new law, the credit for wine produced in, or imported into, the United States during the calendar year would be:

• $1.00 per wine gallon for the first 30,000 wine gallons of wine; plus
• $0.90 per wine gallon for the next 100,000 wine gallons of wine; plus
• $0.535 per wine gallon on the next 620,000 wine gallons of wine

The new law also provides special credit rates for hard cider, as well as rules for allowing foreign producers of wine to assign the credit to importers of the wine.

3. Exempt the Aging Period of Beer, Wine, and Spirits from UNICAP Rules Related to Interest

The Uniform Capitalization (“UNICAP”) rules under Section 263A of the Internal Revenue Code require certain direct and indirect costs allocable to real or tangible personal property produced (or acquired for resale) to be included in inventory or capitalized into the basis of the related property.

In the case of property that is customarily aged (e.g., tobacco, wine, and whiskey) before it is sold, the production period includes the aging period. The new law excludes the aging periods for beer, wine, and distilled spirits from the production period for purposes of the UNICAP interest capitalization rules.

Thus, under the provision, producers of beer, wine, and distilled spirits would be able to deduct interest expense (subject to any other applicable limitation) attributable to a shorter production period.