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Federal Tax - when paid?


CountySeat

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We are working on profit/loss projections and wanted to make sure we understand exactly when the federal excise taxes are due.

Example:

We finish a spirit run, proof it down to 125 and fill a 53 gallon barrel. The excise tax on that 53 gallon barrel will be approximately $894.38. If we plan to aged the spirit for four years, when do we pay the tax.

My understanding is that we don't have to pay the tax on that barrel until we remove the spirit from the bonded premises which would leave two possibilities:

1. We bottle within the bonded premises and don't have to pay the tax until the spirit (now labeled and in bottles) is removed from the bonded premises (i.e. to be sold).

OR

2. We bottle outside the bonded premises in which case the tax must be paid when the aged spirit is removed from the bonded premises (i.e. to be bottled).

Is this accurate? We want to be sure because it will affect how we plan to age the spirit.

Thanks.

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Hi there,

You are correct that you don't pay excise on the barrels until that spirit is taken out of bond. You do need to have a surety bond to cover it while in bond, however.

Bottling operations are part of your processing account and should be done in bond. I think (but am not 100% sure), that your spirit must leave the bonded area in bottles with approved COLAs, unless your doing a Transfer in Bond (TIB), in which case you aren't paying excise on it anyways.

Disclaimer: I'm not a TTB agent and I reserve the right to get smarter.

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The answer depends on how you set up your bonded area. The tax liability exists on the booze as soon as it's made, and the total liability on your space cannot exceed the amount of your bond (whatever amount that is).

You then pay the tax, in two-week increments, whenever it leaves your bonded premises.

There's no reason not to include the bottling area under the bonded area. Generally I find it's much easier to figure tax on bottles and cases than in bulk quantities, and there is a space for "proof gallons bottled" on the monthly reports.

Again, not a TTB agent, but that's how I think it works.

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Also the option for quarterly excise payments exists if you anticipate (or have a proven track record for the previous year) owing $50,000 or less for removals per year

http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr;sid=b0f767f15457a2338962df1c70b3b0c1;rgn=div5;view=text;node=27%3a1.0.1.1.15;idno=27;cc=ecfr#27:1.0.1.1.15.9.175.12

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OK - thanks. I agree, we will likely have bottling in the bonded premises. I have a couple of followup questions on bonding and removing from the bonded premises:

1. What is the approximate cost of a bond? Is it paid on a yearly basis up front? Can anyone recommend a bonding company?

2. To remove spirits from the bond, is there any time lag? In other words, if we taste a few barrels today, determine that they are ready and bottle and label them is there any time lag from when we can sell? Can we simply move them out of the bonded premises and sell them (and then report the taxes for everything we moved out of the bonded premises)? Or do we have to seek permission to move out of the bonded premises, pay the tax, and then get approval to move the product out for sale.

Thanks!

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No problem,

Bonds are paid yearly and aren't more than a couple hundred dollars. We get ours through our same company we get liability insurance from, but there are lots of sureties out there.

There is no time lag or permission needed once you're operational. There is a separate part of the bond, the Withdrawals, that covers taxes on spirits that have been bottled and shipped, but not yet paid. As long as you don't exceed that liability, you're okay to do whatever.

It is up to you to record everything and submit it on your reports and excise tax payments. The TTB expects you to have comprehensive records, but they don't need to see them unless they come and audit you.

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Also keep in mind specific state laws with regard to lag between bottling and selling. In Illinois we can bottle, take out of bond, and start selling right away. In Iowa, for example, you have to ship all your bottles off to the State for tax processing (for lack of a better term) and receive them back before you can put them on your shelves.

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Also keep in mind specific state laws with regard to lag between bottling and selling. In Illinois we can bottle, take out of bond, and start selling right away. In Iowa, for example, you have to ship all your bottles off to the State for tax processing (for lack of a better term) and receive them back before you can put them on your shelves.

Wow

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