The Tax and Trade Bureau (TTB) has posted further information of interest to brewers as part of the continuing effort to provide guidance concerning the recently reduced excise tax rates. The new information follows and complete information is available on TTB’s Craft Beverage Modernization and Tax Reform page.
The Act says I may be eligible for a reduced rate of tax on beer that I “produce.” For purposes of the reduced rate of tax, what activity counts as “produced”? May I pay the reduced rate on beer that I’ve received in bond in containers (for example, bottles) and subsequently remove subject to tax? May I pay the reduced rate on beer that I’ve received in bond and bottled?
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. The entire volume of beer to which water or other liquids had been added will be considered “produced” for purposes of applying the reduced tax rates. TTB expects these production activities to be undertaken in good faith in the ordinary course of production, and not solely for the purpose of obtaining a tax credit.
Blending or combining two beers does not count as production for purposes of the reduced tax rate. Beer received in bond in containers and subsequently removed subject to tax, without any production activity occurring, is not eligible for a reduced tax rate. Beer received in bond and merely bottled is also not eligible for a reduced tax rate. The eligibility for the reduced rate is also subject to controlled group and single taxpayer rules in section 5051(a)(5), which may further limit the beer subject to the reduced rate upon removal by the brewer.