Co-Packing Resources:
Federal Excise Tax
on Beer and Seltzer
The Alcohol and Tobacco Tax and Trade Bureau has taxation authority over alcohol producers in the United States. This article discusses the Federal beer excise tax, how the rate is calculated, tax refunds and credits, and a specific situation where a producer is not taxed on their production.
Alcohol production and taxation is segmented into a few categories: beer, wine, spirits, and non-beverage alcohol. The specific tax rates, bond requirements, and filing rules vary by the type of alcohol and the size of the producers.
The beer category also includes hard seltzers, sake, and other non-distilled beverages where the alcohol is derived from malt or malt alternatives such as sugar. Wine as a category covers non-distilled alcohol fermented from fruit and fortified wines up to 24% alcohol by volume. The spirits category covers any alcohol product that is concentrated through distillation, regardless of the source. Finally, non-beverage products, such as fuel alcohol, are regulated by not taxed by the TTB and must be processed in a way that makes them unfit for human consumption.
Who pays the tax?
The Federal excise tax on beer and seltzer is reported and paid by the producer of the product on a volume basis, not by the brand owner. The tax rate varies by the size of the producer and is as low as $3.50 per beer barrel for brewers producing less than 60,000 barrels per year, or approximately 25.4 cents per 12 oz case. The tax becomes payable by the producer when the beer is removed from their facility. The tax rate goes up significantly over 60,000 barrels, as shown in the table below.
A US beer barrel (“bbl”) is equal to 31 gallons and is the measure for taxation of brewers in the United States.
| Total annual production by the brewer: | Excise tax rate: |
|---|---|
| Less than or equal to 2,000,000 barrels | $3.50 per barrel, for the first 60,000 barrels $16.00 per barrel for each barrel over 60,000 |
| Greater than 2,000,000 barrels | $16.00 per barrel, for the first 6,000,000 barrels |
All other removals, including:
|
$18.00 per barrel |
Table source: https://www.ttb.gov/tax-audit/tax-and-fee-rates
The tax is a real cost of goods for your co-packer, just like the case trays or other supplies they might provide. The Nations includes excise tax as a line item in our proposals, because we believe that is the most direct and transparent way to show that expense as part of your case cost.
We have seen some other co-packers roll this cost into their facility tolling fee. That approach is valid, as long you know the excise tax is being reported and paid, and as long as you are credited for any returned products.
Is there a tax refund if products are returned to the manufacturer?
Generally speaking, yes, the brewery or co-packer can claim a credit on excise taxes, but only if the distributor is issued a full credit or refund when they return the products. The credit cannot be claimed if the product is destroyed by the distributor, or if they do not get a full refund.
Note that consignments and sales with a right of return of alcohol are explicitly illegal, but a “bona fide return of products for ordinary and usual commercial reasons arising after the product has been sold” is acceptable. For example, an order shipped with the wrong products or defective products would be valid reasons for a return for credit.
If your products are returned to the manufacturer but you later ship them out to another distributor, then the tax expense is a wash for the manufacturer. On the other hand, if they were returned because of a defect for destruction, or if they won’t be shipped out again for any reason, then you should expect a credit on the excise tax amount that was paid in advance, even if it was hidden or embedded in the tolling fee or other line items.
Brewery-to-Brewery Transfers
The very last line in the tax rate table above is interesting. The TTB generally imposes excise tax when beer is removed from the place of production, including when it moves to an on-site taproom. The TTB does allow transfers between licensed breweries without payment of tax, analogous to a customs “transfer in bond”. This rule allows breweries to produce intermediate stages of beer and transfer in bulk without payment of tax to another company for processing and packaging.
However, if the product is not transferred in bulk (i.e., if it is already in a keg, can, or bottle), or if it is only packaged,and not further processed by the receiving brewery, then it does not count as “production” for the receiving brewery. The applicable tax rate in this situation is the default of $18 per barrel.
A common transfer example:
Many producers purchase high-ABV seltzer base from large, specialized breweries. The base is shipped from one brewery to another in large bulk tankers and further processed by dilution and blending to produce a flavored seltzer.
This is a specific scenario that we have dealt with as a contract producer. In the past, both for contracts and brewery collaborations, we have produced and transferred beer to another brewery without payment of tax, for use in their taproom. The receiving brewer takes on the responsibility of reporting and paying the highest level tax rate upon removal from their inventory.
Rest assured though, if you work with The Nations we will calculate, file, and pay the appropriate excise taxes for your products, or explicitly advise you if we believe you will have an excise tax reporting requirement. This article and any feedback during your project are guidance based on our research experience with TTB formula and label approval, but they are not a substitute for advice from an attorney familiar with your state and Federal alcohol regulations.