By Elizabeth Hans McCrone
When talks resume in January on the president’s 2014 budget proposal, there are some in the industry who fear that an excise tax increase on wine could be included as a means to add revenue to the federal coffers.
Excise taxes are indirect taxes collected by federal, state and local governments on the sale of certain goods like gasoline, tobacco and alcohol. While the formulas for levying such taxes are complex, in terms of alcohol, the higher the percentage per unit, the greater the tax. Current federal excise tax rates for wine, beer and spirits can be found here.
In its present form, the president’s proposal contains no new taxes on wine. But according to Michael Kaiser, the Communications Director for WineAmerica, the budget is a fluid document. He says some closest to its source have urged wine advocates to be on the alert.
“There’s nothing official yet, but everything’s on the table,” confirms Kaiser. “Congressional staffers have told us, unofficially, to have excise tax increases on our radar.”
Kaiser maintains that the current rates of $1.07 on a gallon of wine containing less than 14 percent alcohol and $1.57 per gallon above 14 percent are not objectionable to most in the industry. “Our position is, we don’t want them lowered and we don’t want them to go up,” he says.
Kaiser notes that one of the real concerns in a shifting tax scenario may be for smaller producers of wine, those making less than 250,000 gallons annually, who might lose the tax credit of up to .90 per gallon they’re currently receiving from the feds.
Jacob Halls, a tax attorney with the Caraker Law Firm based in Missouri, agrees. He says such a move is potentially devastating for boutique wineries.
“It would be very damaging,” asserts Halls. “They set their price levels based on that credit. Smaller wineries realize less true profit from their sales as it is. They’re not rolling in dough. I wouldn’t say it’s like living paycheck to paycheck, but more like season to season.”
Carolyn Smith Driscoll is a Senior Manager with the Research Tax Credit Group within Moss Adams LLP, Certified Public Accountants. She’s cautious about jumping to any conclusions regarding wine excise tax changes, noting, “… the reality is that federal excise taxes on wine have not been increased since 1991.” Driscoll concurs, however, that discontinuing the tax credit for small producers would have a significant impact.
“As the credit currently stands, the savings can be as much as $90k per year, which allows smaller wine producers to create jobs and make capital investments to grow their business,” Driscoll states. “Additionally, if the small producer credit were not available, many small wineries could be forced out of business by the inability to get sufficient bond coverage.”
Driscoll points out that those who might actually feel the pinch under the president’s current proposal are producers of distilled spirits. Under existing law, producers receive a tax credit for flavoring or wine additives contained in distilled beverages. The president’s proposal would repeal that credit.
Distilled spirits advocates are reacting with legislation of their own. Representative Rick Larsen (D-WA) has introduced the Distillery Excise Tax Reform Act of 2013, which would reduce excise taxes for small producers from $13.30 per gallon proof to $2.70 – an 80 percent decrease.
Other excise tax issues are on the federal landscape as well. On September 19th, 2013 U.S. Senators Patrick Leahy (D Vt.) and Charles Schumer, (D-N.Y.) jointly introduced the CIDER Act – Cider Investment and Development through Excise Tax Reduction – to promote that industry in both states. The legislation encourages the development of hard ciders by raising allowable alcohol levels from 7 to 8.5 percent, which would change the definition of the beverage to allow for more favorable excise tax rates.
The fate of these bills, as with the president’s budget proposal remains up in the air. January 15 is the deadline for approval of the federal budget. Until the details shake out, many in the industry are keeping their proverbial fingers crossed.
Drea Helfer, owner of DH Wine Compliance says there shouldn’t be significant accounting changes in her business no matter what happens, but “if they’re going to raise excise taxes, I hope the money goes to improving processes at the TTB (Alcohol and Tobacco Tax and Trade Bureau). It would be great to see more programs on education and to provide more prompt service on all fronts.”