Jedd Haas Posted December 20, 2021 Share Posted December 20, 2021 There was some previous discussion about what constituted "processing" when a DSP bottled spirits produced at another DSP. In particular, it was questionable as to whether simply proofing down the spirits was "processing" or not, relative to qualifying for reduced excise tax rates. TTB has issued some updated guidance and the answer is a clear NO. However, if the spirits are filtered, that does count as processing. Here is the full text of the guidance, see the section in bold below. NEW TR-D12: What domestic activities constitute “processing” for the purpose of determining eligibility for the reduced distilled spirits tax rates provided in 26 U.S.C. 5001? Reduced tax rates are allowed on distilled spirits that are distilled or processed by a DSP and removed by a DSP during the calendar year. A DSP is considered a processor of distilled spirits if it “manufactures, mixes, or otherwise processes distilled spirits” or “manufactures any article.” See 26 U.S.C. 5002(a)(5)(A). “The term ‘processor’ includes (but is not limited to) a rectifier, bottler, or denaturer.” See 26 U.S.C. 5002(a)(5)(B). For distilled spirits removed after December 31, 2021, “[a] distilled spirit shall not be treated as processed [for reduced rate purposes] unless a process described in [26 U.S.C. 5002(a)(5)(A)] (other than bottling) is performed with respect to such distilled spirit.” See 26 U.S.C. 5001(c)(5). For purposes of the reduced rates, a DSP is considered a processor of distilled spirits if it: manufactures distilled spirits, mixes distilled spirits with materials including flavors, wines, water (except that the addition of water during the normal process of bottling for the purpose of ensuring label proof does not constitute “processing” for reduced rate purposes), or other distilled spirits of any type, and/or otherwise physically changes the distilled spirits inside the container, including filtering distilled spirits to remove material from those distilled spirits. Processing does not include changing the marks or labels on distilled spirits containers or repacking containers of distilled spirits without physically changing the distilled spirits inside the containers. Note: Eligibility for the reduced tax rates or new tax credits may be limited by application of the single taxpayer or controlled group rules. Originally issued on 12/14/2021Updated on 12/14/2021* Source: https://www.ttb.gov/alcohol/craft-beverage-modernization-and-tax-reform-cbmtra#TR-D12 There are also two other new guidance sections on transfers in bond: https://www.ttb.gov/alcohol/craft-beverage-modernization-and-tax-reform-cbmtra#TR-D10 and https://www.ttb.gov/alcohol/craft-beverage-modernization-and-tax-reform-cbmtra#TR-D11 1 Link to comment Share on other sites More sharing options...
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