Effective January 1, 2018, the Craft Beverage Modernization and Tax Reform Act of 2017 recalibrated the federal excise tax for certain alcoholic-beverage producers such as breweries, wineries, and distilleries from January 1, 2018 to December 31, 2019.
A bipartisan group of lawmakers had sought to make the tax cut permanent while also significantly increasing the existing production cap, but with time running out before it was set to expire, only managed to secure a one-year extension of the existing CBMA through 2020.
The CBMA was originally passed as a two-year provision in the Tax Cut and Jobs Act of 2017. The legislation reduced the amount that all distilleries paid on the first 100,000 proof gallons from $13.50 to $2.70 (a proof gallon is a gallon of spirits at 50% alcohol).
Thousands of breweries and wineries received similar reductions, though in their cases the cuts were largely reserved for small producers. Under the CBMA, once production exceeds 60,000 barrels, a small brewer must pay the same $16 per barrel excise tax rate that the largest brewer pays at 90 million barrels. Proposed legislation (H.R. 1175 and S. 362) would have raised the threshold to 6 million barrels.
The result of an aggressive lobbying campaign over the past several years by a coalition of six trade associations representing the spirits, beer, wine and cider industries, together with their raw material suppliers, the relief provided by the CBMA was the first reduction in federal excise tax since the American Civil War.
Without the extension passed by the House earlier this month and that was subsequently included in the consolidated appropriations package approved by the Senate last week, most alcoholic-beverage producers would have seen their excise taxes, which are paid on top of normal corporate taxes, jump 400% starting in the new year.
Customs and Border Protection indicates that under the CBMA, reduced tax rates and/or tax credits are applicable to importations of certain limited quantities of distilled spirits, beer or wine imported from each assigning entity (as described in the CBMA).
Furthermore, CBP cautions that the allocations of the tax credits or reduced tax rates by the assigning entity to all importers may not exceed the quantities allowed by law.
Accordingly, to be eligible to receive a reduced tax rate or a tax credit, an importer must be able to substantiate that the assigning entity has assigned an allotment of its reduced tax rate or tax credits to the distilled spirits, beer, or wine imported by that importer.
With respect to CBMA claims on entries with a date of import in 2020, CBP advises importers to follow the 2018-2019 procedures and requirements currently in place and says that it will issue further instruction on CBMA 2020 claims early in the new year.
A Cumbersome Process
Owing to the temporary nature of the tax relief afforded by the legislation, CBP had no incentive to spend the millions of dollars required to automate the excise tax refunds and consequently the process involved remains exceedingly “cumbersome” according to the National Customs Brokers and Forwarders Association of America.
The group warns that determining and collecting the tax requires “a complex matrix of information which cannot be processed in CBP’s automated system, ACE” making it “an antiquated, resource-intensive exercise for both the trade and CBP.”
Claim filings must include a CBMA spreadsheet, controlled group spreadsheet, and a proper assignment certification. As a result, the NCBFAA asserts that more than three-quarters of CBMA claims being made under the present system contain missing or incorrect information.
Advocates of permanently extending relief had argued the move would also allow CBP to allocate sufficient funds needed to implement ACE functionality.