New Wine Excise Tax Credit Raises Questions
While many in the industry have celebrated the passage of the Craft Beverage Modernization and Tax Reform components of the Tax Cuts and Jobs Act of 2017, there are a lot of lingering questions about how TTB will interpret these new laws.
Many wineries, for capacity reasons or otherwise, have wine made at a facility other than their own bonded winery. Up through December 31, 2017, such wine was eligible for a small producer tax credit because the law stated that the credit was available for wine “produced at qualified facilities in the United States” provided that other prerequisites were met. 26 U.S.C. Sec. 5041(c)(1). TTB interpreted this statute in a manner that allowed a small winery to apply a tax credit on wine produced for it at another bonded winery, so long as that wine was transferred in bond to the small producer and removed from that bonded facility.
Under the new law, wines “which are produced by the producer” and removed from bond in 2018 and 2019 are eligible for a tax credit. 26 U.S.C. Sec. 5041(c)(8)(A). It is unclear if, in drafting the law in this manner, Congress intended to prohibit a winery from claiming a tax credit on wines produced for it at another winery. To date, TTB has not issued any guidance on this front.
In short, if you are a winery that has some wine made at a winery other than your bonded premise, that wine may not be eligible for a tax credit under the new law, though further action from TTB is needed to say so conclusively. We’ll be sure to keep our readers informed of any developments.
NOTE – Hat tip goes to Liz Holtzclaw of Holtzclaw Compliance, who raised this issue in a comment on the WineBusiness.com website!