Important NEW RULES on tax consequences of wine in USA

[Roy Hersh]

This is wonderful, overall!

Now ... let's just hope it passes.


Majority of US Senators Support Comprehensive Alcohol Excise Tax Reform
52 Senators Co-sponsor Landmark Tax Reform Bill

by Michael Kaiser, Vice President

10.19.17

The Senate support for the Craft Beverage Modernization and Tax Reform Act of 2017 (S.236) has reached a majority. This week Senator James Inhofe (R-OH) and Senator Kamala Harris (D-CA) became the 51st and 52nd Senators to sign on as a co-sponsor with Senator Ron Wyden (D-OR) who introduced this bipartisan bill in January.

The Craft Beverage Modernization and Tax Reform Act was originally introduced in 2015. This bill seeks to lower the tax burden for all wineries, breweries and distilleries in the United States. It is the first bill proposed that would reform the federal excise tax system for all three major alcohol commodities and is a major part of WineAmerica’s legislative agenda. A companion bill (H.R. 747) has also been introduced by Representative Erik Paulsen (R-MN-3) and currently has 281 co-sponsors. The bill now has a clear majority of support in both the Senate and the House.

“Wine is truly an all-American beverage produced in all 50 states. There are now more than 10,000 wineries with grapes from over 670,000 acres preserving precious agricultural land, The American wine industry's total economic impact of nearly $220 billion includes 1.7 million jobs and $75 billion in wages,” said Jim Trezise, President of WineAmerica, “We are grateful that so many Senators see wine as an economic engine as well as a delightful beverage that enhances the quality of life.”

S. 236 contains the following provisions for wine:

Expands Tax Credits for All Wineries

Under present law, wine is subject to an excise tax of between $1.07 and $3.40 per gallon, based on alcohol content and carbonation level. Qualifying small domestic wineries producing 250,000 wine gallons or less are eligible for a tax credit (Small Producer Tax Credit) generally equal to 90 cents per gallon on the first 100,000 gallons produced, with that benefit phasing out between 150,000 gallons and 250,000 gallons. S. 236 would remove the phase out and replace the credit with a new tiered credit system for wine produced in the U.S., or imported, as follows:




1.00 credit for the first 30,000 wine gallons produced
$0.90 credit for the next 100,000 wine gallons produced (30,001 to 130,000)
$0.535 for the next 620,000 wine gallons produced (130,001 to 750,000)
All wine produced over 750,000 gallons will be taxed at the regular rate
Removes the existing prohibition against claiming the credit for naturally sparkling wines
Expands the Alcohol Threshold for Table Wine

Under current law, still wine is taxed at different rates based on alcohol content. Still wine containing not more than 14% alcohol by volume is taxed at $1.07. Still wine above 14% and less than 21% alcohol by volume is taxed at $1.57 per gallon. It is important to note that for labeling purposes alcohol content in wine may vary from the stated amount within certain tolerances, however no such tolerances exist for tax purposes. The bill would provide that wines up to 16% alcohol by volume qualify for the $1.07 tax rate, raising the threshold for table wine from 14% to 16%.

Increases Carbonation Tolerance Levels for Low Alcohol Wines

Current law provides a tolerance for still wine of 0.392 gram of carbon dioxide per hundred milliliters of wine, which is generally taxed at $1.07 per wine gallon. Wines exceeding this limitation are taxed as “sparkling wine” at either $3.30 or $3.40 per wine gallon. The bill would increase that tolerance to 0.64 gram of carbon dioxide per hundred milliliters of wine for wines produced primarily from grape or solely from honey and water (mead), which do not contain any other fruit and contains no more than 8.5% alcohol by volume.

WineAmerica has been working diligently with our alcohol association partners, as well as other related commodities, to pass the bill. The legislation is supported by the Brewers Association, Beer Institute, WineAmerica, Wine Institute, Distilled Spirits Council of the United States, American Craft Spirits Association, American Farm Bureau, National Association of Manufacturers, Hop Growers of America, National Barley Growers Association, National Barley Improvement Committee, Winegrape Growers of America, Can Manufacturers Institute, and Glass Packaging Institute.

[Eric Menchen]

raising the threshold for table wine from 14% to 16%.

I like Port, but I'm not in love with all the non-fortified wines that are now pushing 16%. I see this as a response to a bad trend in the wine industry.

Current law provides a tolerance for still wine of 0.392 gram of carbon dioxide per hundred milliliters of wine ...The bill would increase that tolerance to 0.64 gram ...

By my math, the original number is 3.92 grams/liter, which works out to 1.987 volumes of CO2. That's a lot, way higher than what Vinho Verde has. A lot of my beers would fit under the old threshold, as would a lot of British ales. The new threshold basically allows Prosecco to avoid the sparkling wine tax. Personally, I think the entire sparkling wine tax should just go away. Why is sparkling wine considered worse and worthy of a higher tax? But if we have this tax, why are we raising the threshold? It's not like there is a lot of still wine that was pushing that edge. I suppose this is somewhat in line with the EU definition, and now spritzig, frizzante, and pétillant wines would no longer be consider sparkling in the US. Should semi-sparkling be consider still or sparkling?

[Bradley Bogdan]

While I agree, Eric, that I don't tend to derive much enjoyment from hyper alcoholic, overly ripe wines, it also never struck me as making sense anymore to have a cutoff at 14% abv. That originally came into being at a time when unfortified wines were rarely, if ever, going to achieve that level of alcohol.

The purpose of taxes are twofold, IMHO. First, they are to generate revenue for govt to use to better the collective existence of the country. Obviously there's plenty of debate as to how that occurs and how much should occur, but that's neither here nor there. The second is to influence behavior, either through encouragement or discouragement. You have a child tax credit because the govt sees value in its citizens procreating and having more resources to raise those children. You don't tax fresh foods with most sales taxes because you don't want to discourage consumption. You tax cigarettes out the wazoo because there's a substantial cost to society for people to use them, so you want to both discourage their consumption as well as offset the financial cost to public health programs.

In the case of wine, I can see potential value in taxing different kinds of wine differently. I don't see how a cutoff of 14% abv provides any useful delineation between kinds of wine, as I'm just as likely to find a Heitz Cab at 13.9% as I am at 14.1% and treat them the same way.

While I can see potential value in taxing different wines differently, I also agree, Eric, that I don't understand the value of doing so. Does Port cause greater public costs to justify a higher tax? Does Champagne v. Prosecco? I'd find that hard to believe, but who knows!


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