This week, the Alcohol and Tobacco Tax and Trade Bureau (TTB) published TTB Procedure 2023-1 Transfer of Beer Between Breweries Not of the Same Ownership, which finalized guidance regarding the transfer of beer, without payment of tax, from one brewery to another brewery not of the same ownership.
Way back when, only breweries of the same ownership could transfer beer between them without payment of tax. However, beginning in 2018, the Craft Beverage Modernization Act (CBMA) provisions of the Tax Cuts and Jobs Act of 2017, allowed the transfer of beer without payment of tax between breweries not of the same ownership. This statutory change was originally limited to two years, then extended, and has now been made permanent.
Procedure 2023-1 reissues that guidance contained in Procedure 2018-1, which expired, with some minor updates. It also reissues guidance regarding the effect of transfers of beer between breweries not of the same ownership on the applicability of the reduced beer excise tax rates included in the Craft Beverage Modernization Act.
You’ll (or your lawyer or accountant) will want to give it a once over. But here is the section regarding reduce rates:
When Reduced Rates are Applicable
The Act sets forth a reduced excise tax rate of $16 per barrel on the first 6 million barrels of domestically produced beer brewed by a brewer and removed during the calendar year. In the case of a brewer who produces not more than 2 million barrels of beer during the calendar year, the Act also provides a reduced rate of $3.50 per barrel on the first 60,000 barrels of beer which are removed for consumption or sale during the calendar year and which have been brewed or produced by such brewer at a qualified brewery in the United States. In all other cases, a tax rate of $18 per barrel applies when the beer is removed for consumption or sale.
Additional rules under the Act at 26 U.S.C. 5051(a)(5) regarding controlled groups and treatment as a single taxpayer also may affect a brewer’s eligibility for the reduced tax rates. In general, a brewer may apply a reduced excise tax rate on beer under the Act only when it is the producer of the beer being removed for consumption or sale; a brewer may NOT apply a reduced excise tax rate on beer under the Act when transferred beer is merely received and then removed for consumption or sale, except as noted below.
Transfer of Domestically Produced Beer in Bulk | A brewer that receives domestically produced beer in bulk would not be entitled to take a reduced rate of tax upon removal of the beer for consumption or sale if the receiving brewer only makes de minimis changes to the bulk beer (such as adding carbon dioxide) or only bottles or packages the bulk beer into consumer containers. In such cases, the applicable tax rate upon removal for consumption or sale would be $18 per barrel.
For purposes of taking the reduced rate of tax allowed by the Act, beer is considered to have been “produced” if it is lawfully brewed or produced at a qualified brewery premises, including beer brewed by fermentation or produced by the addition of water or other liquids during any stage of production. A brewer who receives domestically produced beer, and who adds water or other liquids may be eligible for a reduced tax upon removal for consumption or sale on the entire volume of the finished product. In such cases, the receiving brewer is now considered the producing brewer and may thus remove the finished product at either $3.50 or $16 per barrel, depending on the brewer’s eligibility for the reduced tax rates. As stated above, a brewer’s inclusion in a controlled group or an arrangement that triggers the single taxpayer rules will affect the brewer’s eligibility for the reduced rates.
TTB does not consider the operation of blending to be “production” for the purpose of taking the reduced tax rates allowed by the Act; however, if a brewery bottles and removes a beer that is a blend of beer of its own production with beer produced by another brewery not of the same ownership, it may use the applicable reduced tax rate only on the portion of beer it produced and not on the portion received from the other brewery. The portion of the beer received from the other brewery would be removed at the tax rate of $18 per barrel.
Transfer of Domestically Produced Packaged Beer | A brewer receiving packaged beer (beer packaged in consumer containers—bottles, cases, or kegs) that has been transferred without payment of tax from a brewer not of the same ownership is not entitled to remove the packaged beer at a reduced tax rate. The applicable tax rate for beer that was transferred without payment of tax in bottles, kegs, or other consumer containers from a brewer not of the same ownership would be $18 per barrel upon removal for consumption or sale.
However, a brewer who transfers beer that was produced at its brewery to another brewery for bottling and/or storage, and subsequently receives the same beer back after bottling and/or storage, would be eligible to remove the beer from its brewery for consumption or sale at the appropriate reduced rate.