How to Claim the New TTB Tax Credits for Wine Stored at a Bonded Wine Cellar
March 7, 2018
By Olivia Leigh, Director of Alcoholic Beverage Licensing
Practical guidance for Industry Circular 2018-1
Last week, TTB released Industry Circular 2018-1, which gives wineries the temporary ability to remove wine tax paid from a bonded wine cellar (BWC, also commonly referred to as a third party warehouse or bonded wine warehouse), as if it was still on the winery’s premise. The significance of this guidance is that many wineries were accustomed to paying taxes at the time of shipping to customers because warehouses could previously take credit on a winery’s behalf under the Small Producer Tax Credit.
Because of a drafting error, this is no longer the case as of January 2018, but many wineries have inventory that was previously moved in-bond to BWCs with this procedure in mind. TTB recognizes that it would be costly and difficult to require wineries physically move their inventory back just to comply with the new tax law. This guidance was issued by TTB in an effort to provide an alternative, paper transfer of inventory in lieu of physical transfer. However, all alternate procedure transfers must be completed by June 30th, 2018.
For example, let’s say Winery ABC generally utilizes Warehouse XYZ for in-bond storage and fulfillment of orders. Previously, Warehouse XYZ would remove wine tax paid at the time of shipping and take the small producer tax credit on the winery’s behalf. Under the new tax law, Warehouse XYZ cannot take the tax credit on Winery ABC’s behalf. However, this law was implemented so quickly that Winery ABC still has inventory at Warehouse XYZ that has not been tax paid yet, but is tax credit eligible. A sample of how they would use the TTB alternate procedure is below:
- Warehouse XYZ creates Bill of Lading (BOL) documenting in-bond, paper-only transfer of Winery ABC’s inventory back to Winery ABC’s licensed premise. This BOL must reference that the transfer is pursuant to the alternate procedure in Industry Circular 2018-1. The warehouse also documents this bond-to-bond transfer on their TTB F 5120.17.
- Winery ABC documents receipt of in-bond inventory on TTB F 5120.17.
- Winery ABC documents removal of this same inventory as tax paid on TTB F 5120.17 and remits excise tax payment via TTB F 5000.24.
- Winery ABC creates BOL transfer documenting shipment of tax paid inventory back to Warehouse XYZ. Again, this BOL must reference that the transfer is pursuant to the alternate procedure in Industry Circular 2018-1.
- All transfers under the alternate procedure must be completed no later than June 30th, 2018.
We highly recommend that if your winery qualifies for the tax credit and wishes to take advantage of the alternate procedure you coordinate with your BWC as soon as possible.
Still not sure how tax credit works under the new laws? Check out some FAQs below:
Q: Can I still ship wine in-bond to my BWC where they pay taxes and take the credit on my behalf, then bill me back later?
A: You can still utilize a BWC, but they cannot take the tax credit on your behalf as of 2018, which was common practice under the small producer tax credit. Wine has to be produced and removed by that producer to be eligible for tax credit. However, BWCs can still remove your wine tax paid at the full tax rate and bill your winery back.
Q: If another winery is producing wine for us under an approved trade name so the label reads “Produced by Winery ABC”, are we eligible to take advantage of the alternate procedure (Industry Circular 2018-1)?
A: No. Only the producing winery may take the credit. There is no transfer of credit or taking credit on another winery’s behalf allowed.
Q: If my winery has two facilities and one of them only produces while the other primarily bottles and stores, can that second facility take the tax credit even though the wine wasn’t produced there but they are commonly owned?
A: TTB has not specifically provided clarification on this question at this time.
We’ll be back with more Q&A as further guidance is released, but generally recommend a more conservative approach to the new tax credit if you are in doubt as to what you can or cannot claim. If you need any assistance on TTB matters, please contact us for a consultation.