Processing other than bottling

[dhdunbar]

I now have it from two, independent,  sources that a credible TTB employee has stated, on two different occasions,  to private parties, that any processing operation other than the physical bottling of a spirit will make the spirits eligible for the reduced rate -  provided, of course, that you have not exceeded the 100,000 pg limit - and that TTB has said that " even adding water will count ... as to being a processor."  Again, that is a quote attributed to a responsible TTB employee in whom I place faith.  I have asked for, but not received, verification from that employee.  

The employee has no reason to make these statements unless the employee knows what TTB will do and what statements TTB has made to others, but has not yet to me or to industry at large.  Nevertheless, at least one national organization headed by a person who has every reason to be cautious about such information, has published it in a notice to its members.  

Therefore, unless I am drastically wrong, if you source whiskey or other products, which you then bottle, after reduction in proof, you would be eligible for the reduced rate as if you had distilled those spirits.  Presumably, if you bottled at the strength at which you receive them into your bond, you would not be eligible, unless you treat them in some other fashion that is deemed to be a processing operation other than bottling.  But if adding water qualifies, so to should filtration.  

One has to wonder why congress included the other than bottling provision when such minimal and nearly universal acts as reduction in proof trigger eligibility.  How many spirits are bottled at cask strength?  So what was intended?  That is a moot question if TTB takes this broad approach to the meaning of "other than bottle "in the temporary regulations it issues before formal rulemaking takes place.  

How much must you reduce proof?  TTB has not said, but consider this: Under long established rules, to be eligible for a small producers credit on wine that it removes from bond, a winery must have produced some wine during the year.  It need not have produced the wine on which it claims the credit.  Any production counts.  Since wine may be produced by amelioration or sweetening, adding some de minimis amount of water or  sugar to any tank, at any time during the year in which the claim is made, such addition qualifies a winery that does not otherwise produce wine during that year to claim the small producer's credit. 

Warning:  I give the wine example to demonstrate how little needs to be done by a winery to qualify for the credit.  The reduced rate on spirits is different.  The processing other than bottling operation applies to the spirits in the bottle.  Adding water to only one spirit batch during the year would not bring all spirits removed during the year under the same umbrella.  But the de minimis example seems applicable.  

Finally, you may want to ask TTB to confirm what I have written here.  Doing so might lead to a public statement more quickly.  Even if, in all but rare and unlikely instances, the "other than bottling" rule is not going to have any impact on the taxes due, it would be nice if TTB would state publicly what it is saying in private.