What to Know about TTB Excise Taxes for Distilled Spirits Plants

If you work in the distilled spirits industry, you may likely already know that TTB calculates federal excise taxes for Distilled Spirits Plants ("DSP's”) based on a unit of measurement known as a "proof gallon". As a DSP, it is incredibly important to understand the difference between a "wine gallon" and a "proof gallon" for TTB reporting and recordkeeping purposes.

A wine gallon is a standard one gallon of liquid, while a proof gallon is calculated based on the volume of liquid in relation to the proof of the distilled spirits. For example, 1 liquid or “wine” gallon of distilled spirits at 100 proof is 1 proof gallon, and 1 wine gallon of distilled spirits at 80 proof is 0.8 proof gallons. Simply put, measuring spirits in proof gallons allows for a measurement focused on the overall alcohol content of the product. For DSP operations, proof gallons will need to be calculated for Monthly Report of Processing Operations, Monthly Report of Storage Operations, and Monthly Report of Production Operations filings.

While proof gallons are used to calculate federal excise tax liability, it is also important to understand the different federal excise rates and how they apply to proof gallons. Distilled Spirits Plants may receive a reduced federal excise tax rate on taxpaid removals of the first 100,000 proof gallons distilled and/or processed in a calendar year, subject to some exceptions contained in TTB rules and regulations. This reduced excise rate is $2.70 per proof gallon for the first 100,000 proof gallons in a calendar year. After 100,000 proof gallons, the federal excise rate increases to $13.34 per proof gallon for the next 22,230,000 proof gallons in a calendar year. Anything beyond that is subject to a default federal excise tax rate of $13.50 per proof gallon.

Understanding how to calculate federal excise tax liability based on proof gallons and applicable rates is imperative, as it directly determines when DSP federal excise tax returns are due to TTB. Below is a quick overview of federal excise tax filing frequency for a DSP:

• DSP's who are reasonably expected to be liable for not more than $1,000 in federal excise taxes for the calendar year and were not liable for more than $1,000 in the preceding year can file and pay federal excise taxes on an annual basis.

• DSP's who are reasonably expected to be liable for not more than $50,000 in federal excise taxes for the calendar year and were not liable for more than $50,000 in the preceding year can file and pay federal excise taxes on a quarterly basis.

• DSP's who are reasonably expected to be liable for more than $50,000 in federal excise taxes for the calendar year must file and pay on a semi-monthly basis.

  
  

In addition to semi-monthly excise filing, DSPs that are liable during any calendar year for $5 million or more in federal excise taxes are required to pay excise taxes through Electronic Funds Transfer (EFT), which can result in failure to deposit penalties if not deposited timely.

To learn more about federal compliance obligation for DSP's, visit TTB’s website (Distilled Spirits Industry | TTB: Alcohol and Tobacco Tax and Trade Bureau) for more information or contact an attorney with experience in this area.