Tax on Spirits Transferred in Bond in Bottles

[dhdunbar]

There has been some speculation about the new ability to transfer bottled spirits in bond.  Yes, it is now allowed.  But I want to give a warning; do not be too hasty in making business plans.  Wait until TTB issues some regulations.  While you will certainly be able to ship and receive bottled spirits in bond, it appears that bottled spirits that you receive in bond will not be eligible for the reduced tax rate unless you either produced or processed the spirits prior to their bottling.  That is my reading of the change.  I may be reading it wrong, but I think I am right.

Yes, TTB does allow a winery that receives bottled wine in bond to remove it at the tax rate (after the small producers credit) that would have applied if the shipping winery had removed it on tax determination for its winery.  But the law specifically provides for that.  I don't see any such provision in the language attached to the new reduced rates on spirits.  For spirits, congress specifically says the rate only applies to spirits produced or processed by the person making the removal.  So, if you want to send spirits you have produced or processed to another DSP  for bottling, say in 50 ml container or cans, you could do so, and if they returned the packages to you, you could remove them at the rate to which you are eligible at the time of removal.  That would appear to be the intent behind the recent changes.  It does not appear that congress intends to let a small distilled spirits plant  buy spirits in bottles from a large distiller, receive them by transfer in bond, and then remove them at the small distillers rate.  I suspect that most of the craft advocates among you will be glad for that.

So, my advice is reign-in any enthusiasm you may have for transfering bottled spirits in bond until TTB has its say on the matter.

 

Reply ↓

[Shilling]

Although I agree with you 100% on waiting for TTB additional and detailed guidance, I'm curious as to your interpretation on the tax rate. The rate of $2.70 will apply at removal and if bottles have been TIB'd they have not been removed...I don't see where production or processing comes into play.

EDIT: After re-reading your post, I see where you're coming from.

I believe the *intent* was to allow a DSP to move cased goods from their bonded production area to an offisite bonded warehouse for storage prior to distribution, etc, and that it was never intended to allow transfer between two separate DSP's but Congress doesn't always understand the nuances of what they are doing. All that being said, I do believe the 2.70 rate will apply based on the DSP finally removing the product regardless of the production or processing question.

[dhdunbar]

You can establish non-contiguous premises as a part of the existing DSP and use it for storage of spirits.  When the two locations are part of the same DSP, you can ship bottled goods from one to the other, and remove them from either location.  The thing is, you could do that before the change.  The problem, to which DISCUS has objected in the past, is the proximity TTB requires.  DISCUS lobbies for 200 miles; TTB allows 10.  

So, the intent has to be to allow a transfer of bottled goods between two separate DSP's.  I was not a fly on the wall to the discussions and so have no knowledge of what was discussed.  I suspect that the intent is to allow someone who either produces or processes a product to ship that product to a different DSP for bottling and receive the bottled goods back on its DSP premises.  That would allow someone to get spirits canned by another DSP, or get spirits bottled in a size for which they have no facility, and then accept the return of those spirits in bond prior to the time of removal. 

Removing bottled spirits, at the reduced rate, from a DSP which did not produce, process, or bottle the spirits, is the issue.   I don't see that the law allows that, but TTB may be able to read intent in a way that permits it.  That may also be a problem, because normally, when a change is made to the law, there is some record of meetings and hearings, etc, what is called legislative history,  wherein the intent is expressed, but I doubt that it exists here.

All of this is reading T-leaves.  We shall see what TTB thinks about what the law allows when TTB expresses its opinion.  That is not likely to be soon if the people who write the regulations are not working.

To see what TTB has to say about things, as they decide, visit https://www.ttb.gov/alcohol/craft-beverage-modernization-and-tax-reform.shtml.  Here is all that it has had to say to date.

• reduced tax rates on distilled spirits distilled or processed and removed during the calendar year or imported by the importer into the United States during the calendar year.  These rates are equal to $2.70 per proof gallon on the first 100,000 proof gallons removed or imported, and $13.34 per proof gallon on the next 22.13 million proof gallons removed or imported.  The tax rate for distilled spirits not subject to the reduced rates is $13.50 per proof gallon.
• The reduced tax rates or tax credits became effective January 1, 2018, and they apply to products removed in calendar years 2018 or 2019 regardless of when the products were produced.  (See the Act for the specific quantities of products eligible for the reduced tax rates or tax credits and any other limitations.)
• Foreign Manufacturer Election: In the case of distilled spirits produced outside the United States and imported, the Act provides for foreign distilled spirits manufacturers to assign the reduced tax rates to importers who elect to receive them.
• Amendment of Section 7652(f)(2): The Act amends section 7652(f)(2) of the IRC to provide that the reduced rates of tax for distilled spirits are not taken into account when determining the amounts covered into the treasuries of Puerto Rico and the U.S. Virgin Islands.
• Transfer in Bond of Non-Bulk Distilled Spirits: The Act authorizes the transfer in bond of distilled spirits between distilled spirits plants irrespective of whether the distilled spirits are transferred in bulk or non-bulk containers.
• Controlled Group: The Act provides that the quantities to which the credits and reduced rates apply shall be applied to the controlled group.  The Act also provides that an importer electing to receive an assignment of a credit or reduced tax rate from a foreign manufacturer shall be deemed a member of the controlled group of the foreign manufacturer.
• Single Taxpayer: The Act provides that two or more entities (whether or not under common control) that produce products marketed under a similar brand, license, franchise, or other arrangement shall be treated as a single taxpayer for purposes of the credits and reduced rates.
• Taxpayers continue to file taxes using TTB Form 5000.24 or TTB Form 5000.24sm, either on paper or through pay.gov.  No new tax return forms are required to pay taxes under the new tax provisions.

Stay tuned.

 

[Shilling]

The language proposed by TTB would have allowed the in bond transfer of bottles only "between bonded premises belonging to the same distiller", so I think it was really more about the distance restrictions.

Either way, I agree with you 100% on waiting for detailed TTB guidance on this section.

[indyspirits]

Bubbling an old post to the top. Has TTB issued any detailed guidance on this?

 

 

[Shilling]

Well, the short answer is no, but unless you are importing the reduction is really pretty straightforward. 

 

What specifically are you in need of?