The Craft Beverage Modernization and Tax Reform Act (“CBMTRA”) was passed as part of the Tax Cuts and Jobs Act. The CBMTRA implements certain tax breaks to reduce the tax burden on independent craft brewers and spur industry growth and collaboration. The CBMTRA is applicable to business operations conducted on and after Jan. 1, 2018, and is due to sunset at the end of 2019.
Some of the key provisions of the CBMTRA affecting craft breweries include the following:
- General Excise Tax on Beer. The excise tax on beer is $16 per barrel (down from $18 per barrel) on the first six million barrels brewed by the brewer or imported by the importer. Barrels in excess of six million are taxed at $18 per barrel.
- Excise Tax on Beer from Small Brewers. For brewers producing less than two million barrels of beer per year, the excise tax is reduced to $3.50 per barrel (down from $7 per barrel) for the first 60,000 barrels. Barrels in excess of 60,000 are taxed at $16 per barrel.
- Transfer of Beer Under Bond Between Breweries. Beer may still be transferred tax-free between breweries owned by the same person, but now, beer may also be transferred between breweries under any of the following situations: (i) the same person or persons own a controlling interest in each brewery; (ii) a brewery that owns a controlling interest in another brewery; and (iii) independently owned breweries where the transferor has relinquished all interest in the beer that is transferred and the transferee accepts responsibility for payment of the tax.
- Production Period for Beer. Any aging period for beer is excluded from the definition of “production period” for purposes of the uniform capitalization rules governing the capitalization of interest. Accordingly, brewers may now immediately deduct interest expenses (subject to any other applicable limitations) attributable to the aging period, rather than being forced to capitalize such expenses, as was the case under prior law.
Members of Taft’s Tax practice are available to discuss in more detail planning opportunities and issues arising from the CBMTRA that may affect the craft beer industry.