By: Parker Banta, CPA and Derek Gray, CPA
Federal Excise Tax Rate
Late Monday night, the long-awaited $900 billion coronavirus relief package was overwhelmingly passed. Neatly buried in the nearly 6,000-page bill are provisions that will permanently reduce the Federal Excise Tax (FET) rate on spirits sold by distillers across the United States. This news comes as a huge relief for many small distilleries who have been anxiously waiting to see if legislation would be passed prior to the December 31, 2020 expiration of the temporary excise tax cuts.
The tax cut was first introduced in 2017 under the Craft Beverage Modernization and Tax Reform Act (CBMTRA) which reduced the FET rate per proof gallon on a distiller’s first 100,000 gallons produced from $13.50 to $2.70. This rate cut sought to lower the barriers of entry for many smaller distillers to compete in a vastly growing industry. As this vital tax break was less than ten days from expiring, Congress has stepped in just in time to not only extend these cuts but make them permanent. This action will give small and medium-sized distillers peace of mind moving forward and will eliminate one of the largest unknown variables as distillers forecast and budget for future periods.
PPP Loan Funding
Another provision for craft distillers arising from the relief package is a second round of Paycheck Protection Program (PPP) loan funding. The bill allocates an additional $248 billion of PPP aid targeting small businesses (businesses with less than 300 employees, down from 500 employees on the previous round of PPP funding).
Potential borrowers that satisfy the “Necessity Test” will be eligible for loan forgiveness as their funds are used towards certain costs (such as payroll and rent). Small craft distilleries whose revenues have been affected by the Coronavirus are highly encouraged to pursue these loans.
The additional PPP funding along with permanent excise tax breaks are a welcome gift this holiday season as the country’s small craft spirit producers look forward to 2021 and transition to a post-COVID world.
If you have any questions or concerns regarding the upcoming tax bill, please consult your local Blue & Co. tax advisor. However, if you do not have a Blue & Co tax advisor and have questions regarding the upcoming tax bill, please feel free to contact the authors at:
Parker Banta, CPA
Derek Gray, CPA