The production of alcohol results in the assessment of an excise tax. In general, an excise tax is a tax on the manufacture, sale, or use of goods or the transfer of property. So, in addition to incurring a sales tax when a consumer purchases alcohol from a retailer in most states, alcohol is actually taxed prior to the sale. Unlike a sales tax, though, an excise tax is paid by the operation that produces the product. For alcohol manufactures, a federal excise tax and potentially a state excise tax must be paid. As a producer of alcohol products, it is important to understand when the operation becomes liable to the government for the excise taxes and when it must be paid.
Excise taxes at the federal level are paid to the Alcohol and Tobacco Tax and Trade Bureau through the National Revenue Center on returns filed for this purpose. For bonded wine premises, taxation occurs when the wine is removed for consumption or sale. This tax is imposed on producers or importers of wine that have less than 24 percent alcohol by volume. Should a producer exceed this alcohol content, then the producer would classify the product as a distilled spirit and be taxed accordingly. The tax rate on wine varies depending on the level of alcohol content and the total annual production of the winery. As the alcohol content increases, so does the tax rate per wine gallon. Additionally, there is a small domestic producers credit that applies to wineries who produce less than 250,000 wine gallons during the calendar year. This credit applies to the first 100,000 wine gallons produced and is reduced for every 1,000 wine gallons produced by the winery over 150,000 in a calendar year.
Excise taxes on beer are imposed on all beer brewed or produced, and removed for consumption or sale, within the United States or imported into the United States. The rate is $18 for every barrel containing not more than 31 gallons. However, if a brewer produces not more than 2,000,000 barrels of beer during a calendar year, the per barrel rate of tax imposed shall be $7 on the first 60,000 barrels of beer which are removed for consumption or sale by the qualified small producer.
Distilled spirits are subjected to an excise tax by the federal government when produced or imported into the United States at a tax rate of $13.50 on each proof gallon. The tax on distilled spirits actually attaches as soon as the substance exists, whether or not it is subsequently separated as pure or impure spirits. A credit against this tax is allowed on each proof gallon of alcohol derived from eligible wine or eligible alcohol-containing flavors which do not exceed 2.5 percent of the finished product on a proof gallon basis.
In addition to the above federal taxes, each producer must determine if it is subject to excise taxes in the state or states where it operates. Virtually every state assesses an excise tax on production of wine, beer, and distilled spirits. The rates, however, vary widely. We encourage you to call us with questions about excise taxes you have as an alcohol manufacturer.