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New Federal Bond Exemption for Breweries, Distilleries, and Wineries


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New Federal Bond Exemption for Breweries, Distilleries, and Wineries

On November 7, 2016, the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) announced that, beginning on January 1, 2017, breweries, distilleries, and wineries that owed $50,000 or less in federal excise taxes in the previous calendar year of operations and expect to owe $50,000 or less in federal excise taxes in the current calendar year of operations will be exempt from carrying a federal bond to ensure payment of such taxes.

In accordance with Section 332 of the Protecting Americans from Tax Hikes Act of 2015 (the “PATH Act”), which amended certain provisions of the Internal Revenue Code to create, among other things, this new bond exemption, TTB Guidance 2016-4 explains that this new bond exemption will altogether relieve qualifying existing breweries, distilleries, and wineries from the administrative burden of carrying, updating, and amending their federal bonds with TTB until they increase their current production to much greater levels. Indeed, as shown by the chart below, most craft breweries, distilleries, and wineries will qualify for this new bond exemption and continue to qualify for quite some time:

License Type               Federal Excise Tax Rate*            New Bond Exemption Limit
Brewery                          $7.00 per barrel**                                    7,142 barrels
Distillery                          $13.50 per proof gallon                           3,703 proof gallons
Winery                             $1.07 per wine gallon ≤ 14% ABV           46,728 wine gallons ≤ 14% ABV
                                                                                                                                      

* These federal excise tax rates are subject to change and are offered only for limited illustrative purposes.

** This federal excise tax rate applies only to the first 60,000 barrels produced by a brewery producing less than 2,000,000 barrels annually.

Start-Up Breweries, Distilleries, and Wineries

This new bond exemption will generally impact qualifying, start-up breweries, distilleries, and wineries in one of the following three ways, as TTB is requiring that federal applications submitted before the effective date of this new bond exemption still include a bond:

  1. If the federal application and the bond are submitted with TTB (a) before TTB created the new data field in Permits Online (i.e., TTB’s online licensing system) allowing an applicant to select whether it expects to qualify for the new bond exemption, and (b) before the effective date of the new bond exemption, then the applicant should notify TTB immediately that the applicant expects to qualify for that exemption. If the applicant qualifies for the new bond exemption, then TTB will return all bond-related materials to the applicant when TTB takes final action upon the application.
  2. If the federal application and the bond are submitted with TTB (a) after TTB created the new data field in Permits Online, and (b) before the effective date of the new bond exemption, then the applicant should select that data field during the application process. If the applicant qualifies for the new bond exemption, then TTB will return all bond-related materials to the applicant when TTB takes final action upon the application.
  3. If only the federal application is submitted with TTB after the effective date of the new bond exemption because the applicant selected the appropriate data field during the application process, then the applicant will not be required to amend or supplement the application with a bond.

Existing Breweries, Distilleries, and Wineries
On or after January 1, 2017, existing breweries, distilleries, and wineries may request to terminate their federal bonds by amending their federal licenses through Permits Online or via applicable paper forms. It is important to note that TTB cannot begin processing bond termination requests until it receives full payment for any and all remaining federal excise tax liability incurred in 2016.

Learn more about our Food and Beverage Practice Group or contact John Moran with questions.