The Tax Cuts and Jobs Act of 2017 (TCJA) is the most sweeping piece of tax legislation in decades.
All businesses and individuals will be effected by the changes included in the bill. Specifically, there are items in the bill that will impact businesses in the alcohol industry, both positively and negatively. How will your wine, beer, or spirits business be affected? Let’s take a look.
Uniform capitalization (UNICAP) rules require certain expenses be allocated from the income statement to the balance sheet. In other words there are costs that cannot be deducted and taxable income will increase as a result. As part of the UNICAP rules, interest may need to be capitalized. For example, if something has a production period exceeding two years then the interest expense allocable to that product will fall under UNCIAP regulation. Under the TCJA, the aging period for beer, wine, and distilled spirits are excluded from the production period for purposes of UNICAP rules on interest expense. Keep in mind, though, that this will expire after 2019.
The TCJA reduces the excise tax rate on the production of beer for both large and small brewers. Historically, small brewers paid an excise tax of $7 per barrel on the first 60,000 barrels produced and large brewers paid an excise tax of $18 per barrel. Under the new law, small brewers will pay $3.50 per barrel on the first 60,000 barrels produced and large brewers will pay $16 per barrel on the first 6 million barrels produced and $18 per barrel on any additional barrels produced. Like the uniform capitalization rules changes, these changes are only in effect for 2018 and 2019.
The TCJA also impacts the excise tax on wine production as well. Historically, qualifying wine producers received an excise tax credit 90 cents per gallon on the first 100,000 gallons produced. To qualify for the credit, the wine production could not exceed 250,000 gallons of wine. The TCJA removed 250,000 gallon production limitation. In other words, all wine producers will be eligible for this tax credit. Another positive change is that still wines of 15% and 16% alcohol will now be taxed at $1.07 per gallon rather than $1.57 per gallon. Again, these changes are only in effect for 2018 and 2019.
Small distilleries will also benefit from changes in the TCJA. All distilleries would historically pay an excise tax of $13.50 per proof gallon. That is no longer the case. Under the new law, a tiered tax rate has been created. The first 100,000 gallons produced will be taxed at $2.70 per gallon; the next 22,130,000 gallons are taxed at $13.34 per gallon; and any additional production will be taxed at $13.50 per gallon. As you can see, this is a large benefit for the smaller distillers. Like the changes above, this is only effective for 2018 and 2019.
If you produce beer, wine, or distilled spirits you will be impacted by the recent tax reform bill. While there are both good things and bad things about the new tax law, it looks as though the changes for those in the alcohol industry are generally pretty good. For more information about how your business will be impacted by the new law, give us a call at 856-667-4100.
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Associate Partner
Ren III provides tax, accounting, and advisory services to a broad range of clients, with a specialty for manufacturers, title insurance companies, and professional service providers.
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