dhdunbar Posted December 30, 2020 Share Posted December 30, 2020 I'm surprised not to find someone commenting on this, but perhaps it comes as no surprise. Here is what TTB has had to say, in summary: Temporary reduced tax rates and tax credits made available by the Craft Beverage Modernization Act (CBMA) are now permanent. While some CBMA provisions have been made permanent, statutory changes include restrictions on the transfer of bottled distilled spirits in bond, changes to the type of processing activities that qualify for reduced tax rates for distilled spirits, and changes to the single taxpayer provision. We will issue updated guidance in the near future. In the meantime, if you have questions about CBMA, please contact us. For more information on imported products, please contact U.S. Customs and Border Protection. The important stuff is about the permanent reduction. But do not ignore the phrase " restrictions on the transfer of bottled distilled spirits in bond, changes to the type of processing activities that qualify for reduced tax rates for distilled spirits, and changes to the single taxpayer provisions." I prefer to let TTB speak first, so I am not going to suggest an answer to what that might mean. But, if I were "sourcing bulk spirits" which I then bottle, I'd want to know before the first of the year what I need to do to make sure that I've "processed" them within the meaning of that term as it is used in the CBMA. I think - I've got to emphasis the I think - that after the amendments the CBMA has made, the reduced rate provisions of §5001(c) provides, in pertinent part, that the reduced rate applies to spirits which have been distilled or processed by such operation and removed during the calendar year for consumption or sale. However, a distilled spirit shall not be treated as processed for purposes of this subsection unless a process described in section 5002(a)(5)(A) (other than bottling) is performed with respect to such distilled spirit.’’ "Shall" means will. It is an instruction given to the tax collector! The "other than bottling" exclusion seems to preclude bottling from the processing operations that lead to the reduced rate. The problem with this approach is that, while we can read the regulations to say that some operations other than bottling are processing operations, the list we can make is not necessarily inclusive of all operations that may be construed to be qualifying processing operation. It's almost necesarry to list what you can do in the production and storage accounts and then say everything else is processing. But then, we still can't be sure that one of the leftovers might not be an operation that gives rise to the reduced rate. In the code, processing is described to be manufacturing, mixing, or otherwise processing distilled spirits [§5002((a)(5)(A)], which is of course circular - processing is processing tells us nothing - and so of little use. §19.1 defines processor to be, “Except as otherwise provided in 26 U.S.C. 5002(a)(6), any person qualified under this part who manufactures, mixes, bottles, or otherwise processes distilled spirits - yup, the damned circularity again. [The exceptions include apothecaries and retailers who mix drinks for immediate consumption on their premises]. I think it is a rabbit hole we do not want to pursue. None of these are trails that lead us out of the woods. Consider this. Storage while aging in oak is not a processing operation. It is a warehousing operation. Thus, TTB may hold that storing spirits, which are then further manufactured in the processing account, does not entitle the bottler to withdraw the spirits at the reduced rate of tax. You tell me the impact that would have on your operations. If I were forced to wager, and I do not bet on such things, I would wager that, for beverage spirits, if you did not distill the spirits, then the processing operations necessary to entitle you to the reduced rate, other than bottling, are operations that changes the class or type of the spirits. So, for vodka, the filtration of a neutral spirit not yet designated as vodka, through charcoal, according to a general use formula, to further purify it, thus changing the class and type from distilled spirits to vodka, could be construed to be a manufacturing operation. However, the filtration of bourbon might not be. This seems absurd, but it is not beyond possibility, because, unless TTB can rub the bottle and make a genie pop out, no operation conducted in storage can be processing. That would defy the organization of the system the law and regulations put into place. Things get hazy from here on, at least for me. You bottle in the processing account so you need to dump the spirits into the bulk account before you bottle them. When you do that, you create a dump record. However, you need only make batch records to report (1) the dumping of spirits that are to be used immediately and in their entirety in preparing a batch of a product manufactured under an approved formula; (2) the use of spirits or wines previously dumped - what is "use?" and (3) the use of any combination of ingredients under paragraph (b)(1) or paragraph (b)(2) of this section in preparing a batch of product manufactured under an approved formula. Formulas are required (§19.348) only when you blend, mix, purify, refine, compound, or treat spirits in any manner which results in a change of character, composition, class, or type of the spirits, or you produce gin or vodka by other than original and continuous distillation. So, it could be possible to receive spirits into the processing account on a dump record and transfer them to a bottling tank record without making a batch record. Example, dump bourbon out of barrels and bottle it without any further manipulation. Ditto for gin produced by original distillation. What then? In a debate, I could argue that §19.597, which is headed “Manufacturing records,” requires daily records of of the spirits, wines, and alcoholic flavoring materials received into the processing account for the manufacture of distilled spirits products. Since you must keep records of all spirits received into the processing account – the system demands that – the provisions of §198.597 imply that all spirts received in the processing account are received for the manufacturing of distilled spirits products. Such arguments are perhaps clever, but surely shaky and subject to challenge based on intent. Remember, none of the rules in part 19 were written while considering the the implications for reduced rates. There is simply no direct statement of what is processing. I am convinced it is something more than bottling; I am not convinced of what that something more might be. Here's an example - transfer rye whiskey from the original new charred barrel to an apple barrel. It may not change the class and type (for bourbon it would), so is that processing within the meaning intended by the reduced rate provisions. These are the sorts of issues that TTB must work out and work out soon. You are closing in fast on January 1 and not doing the minimum necessary to qualify could create tax liabilities. Now, that leads me to ask, if one has spirits already in a bottle, which one has not processed as required by some change to the type of processing activities that qualify for the reduced tax rate, what should one do now? Should one withdraw the spirits on determination of tax before close of business 12/31/2020? I do not know the answer. Maybe someone who was involved in making the reduction permanent can shed some light on that. 1 Link to comment Share on other sites More sharing options...
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