As of 1 January 2018, a dramatic reduction on excise taxes for ‘craft’ (as defined by production volumes) wine, spirits and beer came into force. This is the first time in 80 years that the US government has cut taxes on wine, and it is poised to have a dramatic effect on the wine market, including for producers of wines outside the US.
Wine imports could suddenly become a lot more desirable to the entire three-tier system, because the new law effectively frees up margin, and allows imported brands to compete better with domestic products.
What is still unclear
There’s a lot that’s undefined and the TTB (Alcohol and Tobacco Tax and Trade Bureau) is working on developing guidelines. There’s no clarity on when or how the credit will be accounted for. In fact, the US Customs service is waiting for TTB guidance too. Also unclear is how TTB will track the production quotas for exporters and how to define “the first XXX” gallons when a given winery or distillery may be producing products for multiple importers.
Advice for producers
Producers need to start a conversation with their importers to find out how they will be handling the change. And more importantly, how to allocate the savings. It is unlikely the reductions will be reflected in retail prices to consumers, but could be redirected to brand support in the marketplace. It will be important for each supplier to sharpen their negotiating skills to push for getting the money allocated to support volume building programs such in-store tastings and other on-the-street promotion.
The nitty gritty
- It’s not a tax reduction, per se, rather it is a tax credit;
- The credit gets assigned to the entity paying the excise tax, that in turn must elect to receive it. So in the case of an exported brand, that would be the importer, not the supplier/winery/distillery:
- The law is only for two years and expires 31 December 2019;
- The credit is tiered as per the charts below;
- Still wines containing not more than 16% alcohol-by-volume (from 14% abv) will be taxed at a rate of $1.07 per wine gallon; previously, 16% abv wines were taxed at $1.57 per wine gallon. This is a bonus for producers of Amarone and other high alcohol products; and
- Credit applies to sparkling wine as well.
The charts below, courtesy of MHW Ltd., illustrate the potential savings, depending on volume. Suffice to say, this is a huge reduction across the board.
Steve Raye, president
- The law itself. (Craft Beverage Modernization Tax Act) Search for “Modernization” to go direct to the wine part) https://www.congress.gov/bill/115th-congress/house-bill/1/text
- The latest guidance from TTB (Sign up for email notifications of further guidance) https://www.ttb.gov/alcohol/craft-beverage-modernization-and-tax-reform.shtml