The PATH Act – What to Expect Beginning January 2017
On December 18, 2015, the Protecting Americans from Tax Hikes Act of 2015 ("the PATH Act”) was signed into law. Among other things, The PATH Act contains changes to certain statutory provisions regarding excise tax due dates, bond requirements, and the definition of wine eligible for the “hard cider” tax rate, all of which are regulated by the Alcohol and Tobacco Tax and Trade Bureau (“TTB”). Although the Act was signed in December 2015, the TTB related changes do not take effect until January 1, 2017.
What are the main TTB changes in the PATH Act?
New Bond Exemption:
Beginning on January 1, 2017, taxpayers who pay taxes annually or quarterly will be exempt from the requirements to file bonds covering operations or withdrawals of distilled spirits or wines for nonindustrial use, or beer. Practically speaking, this means that if you will have under $50,000 in taxable liability this year (as well as the year prior) you will not be required to have a bond. Note, this does not mean your tax liability will go away, you just won't be required to have a bond.
However, this begs the important question – just because you are not required to have a bond, should you have one anyway? In general, annual bond premiums are fairly low (typically a few hundred dollars per year, depending on the size of the operation). Because of this, I know that many industry members who won’t be required to have a bond are getting one anyway, just in case they expand production and need a bond in the future if/when they cross the $50,000 tax liability mark. That way, the industry member would not need to submit the new bond paperwork to TTB. Although filing a new bond with TTB is not necessarily a big ordeal in itself, the processing time can vary considerably and can be difficult to predict.
Excise Tax Filing Changes:
The PATH Act also authorizes a new annual excise tax return period. Beginning in 2017, eligible taxpayers who reasonably expect to be liable for not more than $1,000 in taxes imposed with respect to distilled spirits, wine, and beer for the calendar year (and who were liable for not more than $1,000 in such taxes in the prior calendar year) can pay those taxes annually, rather than quarterly.
Hard Cider Definition Changes:
Additionally, the PATH Act changes the definition of wine that is eligible for the “hard cider” classification tax rate by increasing the ABV limit from under 7% to under 8.5%, and by authorizing the use of pears, pear juice concentrate, and pear products and flavorings. It also increases the allowable carbonation level from 0.392 to 0.64 gram of carbon dioxide per hundred milliliters of wine.
If you have questions about your TTB bond requirements for the upcoming year, I highly recommend you review the guidance which TTB provided earlier this year for additional information.