On May 17, the Alcohol and Tobacco Tax and Trade Bureau (TTB) issued an Industry Circular, No. 2018-1A, clarifying that under the recently-enacted tax reform legislation (Tax Act), wineries may tax determine and tax pay wine they produce and that is stored untaxpaid at another bonded wine cellar or bonded winery as if the wine were removed from the producing winery’s bonded premises.
Among the Tax Act’s many changes to the Internal Revenue Code, the new legislation (which went into effect on January 1, 2018) prescribed new tax credits for wine and suspended (through 2019) the previous tax credit. The Tax Act also suspended the prior law’s transfer provision, which allowed small wineries eligible for tax credits to transfer their credits to another bonded winery. This threatened to leave small wineries transferring their wines to larger bonded wineries without their tax credits. To apply the tax credits to such wines under the Tax Act, the producing winery would need to physically bring the wine back to its premises and remove and tax pay the wine.
Earlier this year, TTB published Industry Circular 2018-1 in which TTB announced an alternate procedure (i.e., variance) stating that it would allow tax credits for wines stored at premises other than the producing winery’s bonded premises. Under the alternate procedure, the tax credits may be applied to wines contract-produced or stored in bonded wine cellars at premises other than the producing winery’s premises. Under Industry Circular 2018-1, though, the alternate procedure was set to expire on June 30, 2018.
Industry Circular 2018-1A extends the alternate procedure contained in Industry Circular 2018-1 through December 31, 2019, and also modifies Industry Circular 2018-1 to expressly provide that the alternate procedure applies to wine stored at a bonded winery; the prior version only referenced wine stored at a bonded wine cellar. Under the alternate procedure, wineries may tax determine and tax pay their wines stored untaxpaid at another premises without the winery needing to physically receive the wine in bond. Instead, the winery can simply take title to (and not physical possession of) the wine. The winery, and the bonded winery or wine cellar storing the wine, must each properly document the wine as received/transferred in bond (as applicable) and then removed taxpaid.