Helpful notes from the TTB’s guidance on transferring beer between breweries with different ownership
In addition to cutting excise taxes the Tax Cuts and Jobs Act made many improvements to alcoholic beverage regulation. One of these changes was an allowance for brewers/breweries of non-common ownership (different breweries) to transfer beer in-bond between on another. The old law just allowed for transfer between breweries belonging to the same brewer.
New brewery transfer language was part of an amendment to 26 U.S.C.§ 5414 which added language allowing transfer between bonded premises to the already existing language about transfer between breweries of common ownership. The benefit of allowing an in-bond transfer between breweries can’t be overstated. It allows breweries that are contract brewing to obtain a transfer of non-tax-paid beer between the brewer and the contracting brewery.
Under the amended 26 U.S.C. § 5414 additional situations in which beer can be transferred without being tax-paid arise:
Where both the breweries are owned by the same company/person (this was part of the old law);
Where both the breweries are owned by a company/person with a controlling interest in both breweries (this was added);
Where one of the breweries has that controlling interest in the other (this logically flows from the one above, and is also new);
And importantly, where both owners may be different companies, with different ownership, where the brewer making the beer divests itself of all interest in the beer and transfers it to the other brewer which accepts responsibility for the beer and payment of the tax.
This all flows from the new subsection b to the statute which reads:
(b) Transfer of beer between bonded facilities
(1) In general Beer may be removed from one bonded brewery to another bonded brewery, without payment of tax, and may be mingled with beer at the receiving brewery, subject to such conditions, including payment of the tax, and in such containers, as the Secretary by regulations shall prescribe, which shall include—
(A) any removal from one brewery to another brewery belonging to the same brewer,
(B) any removal from a brewery owned by one corporation to a brewery owned by another corporation when—
(i) one such corporation owns the controlling interest in the other such corporation, or
(ii) the controlling interest in each such corporation is owned by the same person or persons, and
(C) any removal from one brewery to another brewery when—
(i) the proprietors of transferring and receiving premises are independent of each other and neither has a proprietary interest, directly or indirectly, in the business of the other, and
(ii) the transferor has divested itself of all interest in the beer so transferred and the transferee has accepted responsibility for payment of the tax.
(2) Transfer of liability for tax
For purposes of paragraph (1)(C), such relief from liability shall be effective from the time of removal from the transferor’s bonded premises, or from the time of divestment of interest, whichever is later.
Note that this provision and allowance terminates December 31, 2019
This subsection shall not apply to any calendar quarter beginning after December 31, 2019.
It took the TTB a while to offer guidance on the issue, but they’ve put together TTB Procedure No. 2018-1 which provides guidance to the industry (craft brewers as well as other brewers) for transfer of the beer from one brewery to another where the breweries aren’t of the same ownership.
Noting the sunset clause, the TTB states in the procedure that it made more sense to provide guidance this way rather than amending the regulations for a provision that could ultimately fade out of existence come December 31, 2019.
The new procedure clarifies the regulation of this new transfer language and provides procedures for accomplishing the transfer. Of note in the procedure are the following issues
1. The law allows for mingling of the transferred beer at the receiving brewery.
2. Transferring may take place through packaged product such as barrels, kegs, cases, bottles or other “consumer containers” or in bulk containers (a container with a capacity larger than one barrel (31 gallons)).
3. Record keeping is paramount and an invoice needs to be used which includes:
- Name and address of shipping brewer;
- Date of shipment;
- Name and address of receiving brewer;
- For cases, the number and size of cases and the total barrels;
- For kegs, the number and size of kegs and the total barrels;
- For shipments in bulk containers, the type of container, identity of the container, and the total barrels.
4. Beer may be reconsigned in transit to another brewery but the shipping brewer must prepare a new invoice and void all the old invoices and note the reconsignment on the voided invoice.
5. Beer can be returned to the original brewery (considered a reconsignment).
6. NOTE THAT FOR BEER TRANSFERRED THE APPLICATION OF THE NEW REDUCED EXCISE TAX RATES IS SUBJECT TO CONDITIONS. SO TRANSFERRED BEER IS TAXED AT $18 NOT $3.50 or $16 UNLESS IT IS MIXED WITH WATER OR OTHER LIQUIDS TO MEET THE DEFINITION OF “PRODUCED” SUCH THAT THE REDUCED TAX RATES WOULD APPLY. BLENDING IS NOT “PRODUCED”:
TTB does not consider the operation of blending to be “production” for the purpose of taking the reduced tax rates allowed by the Act; however, if a brewery bottles and removes a beer that is a blend of beer of its own production with beer produced by another brewery not of the same ownership, it may use the applicable reduced tax rate only on the portion of beer it produced and not on the portion received from the other brewery. The portion of the beer received from the other brewery would be removed at the tax rate of $18 per barrel.
However, a brewer who transfers beer that was produced at its brewery to another brewery for bottling and/or storage, and subsequently receives the same beer back after bottling and/or storage, would be eligible to remove the beer from its brewery for consumption or sale at the appropriate reduced rate.
7. Losses of beer in transit that do not exceed 2% don’t need to be reported for allowance of the loss under most circumstances.