Craft Beverage Modernization and Tax Reform Act of 2017

To amend the Internal Revenue Code of 1986 to reform taxation of alcoholic beverages. 1. Short title; table of contents; rule of construction (a) Short title This Act may be cited as the Craft Beverage Modernization and Tax Reform Act of 2017 (b) Table of contents The table of contents of this Act is as follows: Sec. 1. Short title; table of contents; rule of construction. TITLE I—Production period Sec. 101. Production period for beer, wine, and distilled spirits. TITLE II—Beer Sec. 201. Reduced rate of excise tax on beer. Sec. 202. Use of wholesome products suitable for human food consumption in the production of fermented beverages. Sec. 203. Simplification of rules regarding records, statements, and returns. Sec. 204. Transfer of beer between bonded facilities. TITLE III—Wine Sec. 301. Reduced rate of excise tax on certain wine. Sec. 302. Adjustment of alcohol content level for application of excise tax rates. Sec. 303. Definition of mead and low alcohol by volume wine. TITLE IV—Distilled Spirits Sec. 401. Reduced rate of excise tax on certain distilled spirits. Sec. 402. Bulk distilled spirits. TITLE V—Funding Sec. 501. Increased funding for the Alcohol and Tobacco Tax and Trade Bureau. (c) Rule of construction Nothing in this Act, the amendments made by this Act, or any regulation promulgated under this Act or the amendments made by this Act, shall be construed to preempt, supersede, or otherwise limit or restrict any State, local, or tribal law that prohibits or regulates the production or sale of distilled spirits, wine, or malt beverages. I Production period 101. Production period for beer, wine, and distilled spirits (a) In general Section 263A(f) (1) by redesignating paragraph (4) as paragraph (5), and (2) by inserting after paragraph (3) the following new paragraph: (4) Exemption for aging process of beer, wine, and distilled spirits For purposes of this subsection, the production period shall not include the aging period for— (A) beer (as defined in section 5052(a)), (B) wine (as described in section 5041(a)), or (C) distilled spirits (as defined in section 5002(a)(8)), except such spirits that are unfit for use for beverage purposes. . (b) Conforming amendment Paragraph (5)(B)(ii) of section 263A(f) except as provided in paragraph (4), ending on the date (c) Effective date The amendments made by this section shall apply to interest costs paid or incurred in taxable years ending on or after December 31, 2018. II Beer 201. Reduced rate of excise tax on beer (a) In general Paragraph (1) of section 5051(a) (1) In general (A) Imposition of tax A tax is hereby imposed on all beer brewed or produced, and removed for consumption or sale, within the United States, or imported into the United States. Except as provided in paragraph (2), the rate of such tax shall be— (i) $16 on the first 6,000,000 barrels of beer— (I) brewed by the brewer and removed during the calendar year for consumption or sale, or (II) imported by the importer into the United States during the calendar year, and (ii) $18 on any barrels of beer to which clause (i) does not apply. (B) Barrel For purposes of this section, a barrel shall contain not more than 31 gallons of beer, and any tax imposed under this section shall be applied at a like rate for any other quantity or for fractional parts of a barrel. . (b) Reduced rate for certain domestic production Subparagraph (A) of section 5051(a)(2) (1) in the heading, by striking $7 $3.50 (2) by striking $7 $3.50 (c) Application of reduced tax rate for foreign manufacturers and importers Subsection (a) of section 5051 (1) in subparagraph (A)(i)(II) of paragraph (1), as amended by subsection (a) of this section, by inserting but only if the importer is an electing importer under paragraph (4) and the barrels have been assigned to the importer pursuant to such paragraph during the calendar year (2) by adding at the end the following new paragraph: (4) Reduced tax rate for foreign manufacturers and importers (A) In general In the case of any barrels of beer which have been brewed or produced outside of the United States and imported into the United States, the rate of tax applicable under clause (i) of paragraph (1)(A) (referred to in this paragraph as the reduced tax rate (B) Assignment The Secretary of the Treasury, in consultation with the Secretary of Health and Human Services and the Secretary of the Department of Homeland Security, shall, through such rules, regulations, and procedures as are determined appropriate, establish procedures for assignment of the reduced tax rate provided under this paragraph, which shall include— (i) a limitation to ensure that the number of barrels of beer for which the reduced tax rate has been assigned by a brewer— (I) to any importer does not exceed the number of barrels of beer brewed or produced by such brewer during the calendar year which were imported into the United States by such importer, and (II) to all importers does not exceed the 6,000,000 barrels to which the reduced tax rate applies, (ii) procedures that allow the election of a brewer to assign and an importer to receive the reduced tax rate provided under this paragraph, (iii) requirements that the brewer provide any information as the Secretary determines necessary and appropriate for purposes of carrying out this paragraph, and (iv) procedures that allow for revocation of eligibility of the brewer and the importer for the reduced tax rate provided under this paragraph in the case of any erroneous or fraudulent information provided under clause (iii) which the Secretary deems to be material to qualifying for such reduced rate. (C) Controlled group For purposes of this section, any importer making an election described in subparagraph (B)(ii) shall be deemed to be a member of the controlled group of the brewer, as described under paragraph (5). . (d) Controlled group and single taxpayer rules Subsection (a) of section 5051 (1) in paragraph (2)— (A) by striking subparagraph (B), and (B) by redesignating subparagraph (C) as subparagraph (B), and (2) by adding at the end the following new paragraph: (5) Controlled group and single taxpayer rules (A) In general Except as provided in subparagraph (B), in the case of a controlled group, the 6,000,000 barrel quantity specified in paragraph (1)(A)(i) and the 2,000,000 barrel quantity specified in paragraph (2)(A) shall be applied to the controlled group, and the 6,000,000 barrel quantity specified in paragraph (1)(A)(i) and the 60,000 barrel quantity specified in paragraph (2)(A) shall be apportioned among the brewers who are members of such group in such manner as the Secretary or his delegate shall by regulations prescribe. For purposes of the preceding sentence, the term controlled group more than 50 percent at least 80 percent (B) Foreign manufacturers and importers For purposes of paragraph (4), in the case of a controlled group, the 6,000,000 barrel quantity specified in paragraph (1)(A)(i) shall be applied to the controlled group and apportioned among the members of such group in such manner as the Secretary or his delegate shall by regulations prescribe. For purposes of the preceding sentence, the term controlled group (C) Single taxpayer Pursuant to rules issued by the Secretary, two or more entities (whether or not under common control) that produce beer marketed under a similar brand, license, franchise, or other arrangement shall be treated as a single taxpayer for purposes of the application of this subsection. . (e) Effective date (1) In general Subject to paragraph (2), the amendments made by this section shall apply to beer removed after September 30, 2019. (2) Proration For purposes of the fourth calendar quarter of 2019, the Secretary of the Treasury (or the Secretary's delegate) shall issue such guidance, rules, or regulations as are deemed appropriate to provide that the amendments made by this section are applied on a prorated basis for purposes of beer removed during such quarter. 202. Use of wholesome products suitable for human food consumption in the production of fermented beverages (a) In general Not later than the date that is 1 year after the date of the enactment of this Act, the Secretary of the Treasury or the Secretary of the Treasury's delegate shall amend subpart F of part 25 of subchapter A of chapter I of title 27, Code of Federal Regulations, to ensure that, for purposes of such part, wholesome fruits, vegetables, and spices suitable for human food consumption that are generally recognized as safe for use in an alcoholic beverage and that do not contain alcohol are generally recognized as a traditional ingredient in the production of fermented beverages. (b) Definition For purposes of this section, the term fruit (c) Rule of construction Nothing in this section shall be construed to revoke, prescribe, or limit any other exemptions from the formula requirements under subpart F of part 25 of subchapter A of chapter I of title 27, Code of Federal Regulations, for any ingredient that has been recognized before, on, or after the date of the enactment of this Act as a traditional ingredient in the production of fermented beverages. 203. Simplification of rules regarding records, statements, and returns (a) In general Subsection (a) of section 5555 The Secretary shall permit a person to employ a unified system for any records, statements, and returns required to be kept, rendered, or made under this section for any beer produced in the brewery for which the tax imposed by section 5051 has been determined, including any beer which has been removed for consumption on the premises of the brewery. (b) Effective date The amendments made by this section shall apply to any calendar quarters beginning more than 1 year after the date of the enactment of this Act. 204. Transfer of beer between bonded facilities (a) In general Section 5414 5414. Transfer of beer between bonded facilities (a) In general Beer may be removed from one 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— (1) any removal from one brewery to another brewery belonging to the same brewer, (2) any removal from a brewery owned by one corporation to a brewery owned by another corporation when— (A) one such corporation owns the controlling interest in the other such corporation, or (B) the controlling interest in each such corporation is owned by the same person or persons, and (3) any removal from one brewery to another brewery when— (A) 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 (B) the transferor has divested itself of all interest in the beer so transferred and the transferee has accepted responsibility for payment of the tax. (b) Transfer of liability for tax For purposes of subsection (a)(3), 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. . (b) Removal from brewery by pipeline Section 5412 pursuant to section 5414 or by pipeline (c) Effective date The amendments made by this section shall apply to any calendar quarters beginning more than 1 year after the date of the enactment of this Act. III Wine 301. Reduced rate of excise tax on certain wine (a) In general Section 5041(c) (1) in the heading, by striking for small domestic producers (2) by amending paragraph (1) to read as follows: (1) Allowance of credit (A) In general There shall be allowed as a credit against any tax imposed by this title (other than chapters 2, 21, and 22) an amount equal to the sum of— (i) $1 per wine gallon on the first 30,000 wine gallons of wine, plus (ii) 90 cents per wine gallon on the first 100,000 wine gallons of wine to which clause (i) does not apply, plus (iii) 53.5 cents per wine gallon on the first 620,000 wine gallons of wine to which clauses (i) and (ii) do not apply, which are produced by the producer and removed during the calendar year for consumption or sale, or which are imported by the importer into the United States during the calendar year. (B) Adjustment of credit for hard cider In the case of wine described in subsection (b)(6), subparagraph (A) of this paragraph shall be applied— (i) in clause (i) of such subparagraph, by substituting 6.2 cents $1 (ii) in clause (ii) of such subparagraph, by substituting 5.6 cents 90 cents (iii) in clause (iii) of such subparagraph, by substituting 3.3 cents 53.5 cents , (3) by striking paragraph (2), (4) by redesignating paragraphs (3) through (7) as paragraphs (2) through (6), respectively, and (5) by amending paragraph (6), as redesignated by paragraph (4) of this subsection, to read as follows: (6) Regulations The Secretary may prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations to ensure proper calculation of the credit provided in this subsection. . (b) Controlled group and single taxpayer rules Paragraph (3) of section 5041(c), as redesignated by subsection (a)(4), is amended by striking section 5051(a)(2)(B) section 5051(a)(5) (c) Allowance of credit for foreign manufacturers and importers Subsection (c) of section 5041 (1) in subparagraph (A) of paragraph (1), by inserting but only if the importer is an electing importer under paragraph (6) and the wine gallons of wine have been assigned to the importer pursuant to such paragraph into the United States during the calendar year (2) by redesignating paragraph (6) as paragraph (7), and (3) by inserting after paragraph (5) the following new paragraph: (6) Allowance of credit for foreign manufacturers and importers (A) In general In the case of any wine gallons of wine which have been produced outside of the United States and imported into the United States, the credit allowable under paragraph (1) (referred to in this paragraph as the tax credit foreign producer (B) Assignment The Secretary of the Treasury, in consultation with the Secretary of Health and Human Services and the Secretary of the Department of Homeland Security, shall, through such rules, regulations, and procedures as are determined appropriate, establish procedures for assignment of the tax credit provided under this paragraph, which shall include— (i) a limitation to ensure that the number of wine gallons of wine for which the tax credit has been assigned by a foreign producer— (I) to any importer does not exceed the number of wine gallons of wine produced by such foreign producer during the calendar year which were imported into the United States by such importer, and (II) to all importers does not exceed the 750,000 wine gallons of wine to which the tax credit applies, (ii) procedures that allow the election of a foreign producer to assign and an importer to receive the tax credit provided under this paragraph, (iii) requirements that the foreign producer provide any information as the Secretary determines necessary and appropriate for purposes of carrying out this paragraph, and (iv) procedures that allow for revocation of eligibility of the foreign producer and the importer for the tax credit provided under this paragraph in the case of any erroneous or fraudulent information provided under clause (iii) which the Secretary deems to be material to qualifying for such credit. (C) Controlled group For purposes of this section, any importer making an election described in subparagraph (B)(ii) shall be deemed to be a member of the controlled group of the foreign producer, as described under paragraph (3). . (d) Effective date (1) In general Subject to paragraph (2), the amendments made by this section shall apply to wine removed after September 30, 2019. (2) Proration For purposes of the fourth calendar quarter of 2019, the Secretary of the Treasury (or the Secretary's delegate) shall issue such guidance, rules, or regulations as are deemed appropriate to provide that the amendments made by this section are applied on a prorated basis for purposes of wine removed during such quarter. 302. Adjustment of alcohol content level for application of excise tax rates (a) In general Paragraphs (1) and (2) of section 5041(b) 14 percent 16 percent (b) Effective date The amendments made by this section shall apply to wine removed during calendar years beginning after December 31, 2018. 303. Definition of mead and low alcohol by volume wine (a) In general Section 5041 (1) in subsection (a), by striking Still wines Subject to subsection (h), still wines (2) by adding at the end the following new subsection: (h) Mead and low alcohol by volume wine (1) In general For purposes of subsections (a) and (b)(1), mead and low alcohol by volume wine shall be deemed to be still wines containing not more than 16 percent of alcohol by volume. (2) Definitions (A) Mead For purposes of this section, the term mead (i) containing not more than 0.64 gram of carbon dioxide per hundred milliliters of wine, except that the Secretary may by regulations prescribe such tolerances to this limitation as may be reasonably necessary in good commercial practice, (ii) which is derived solely from honey and water, (iii) which contains no fruit product or fruit flavoring, and (iv) which contains less than 8.5 percent alcohol by volume. (B) Low alcohol by volume wine For purposes of this section, the term low alcohol by volume wine (i) containing not more than 0.64 gram of carbon dioxide per hundred milliliters of wine, except that the Secretary may by regulations prescribe such tolerances to this limitation as may be reasonably necessary in good commercial practice, (ii) which is derived— (I) primarily from grapes, or (II) from grape juice concentrate and water, (iii) which contains no fruit product or fruit flavoring other than grape, and (iv) which contains less than 8.5 percent alcohol by volume. . (b) Effective date The amendments made by this section shall apply to wine removed during calendar years beginning after December 31, 2018. IV Distilled Spirits 401. Reduced rate of excise tax on certain distilled spirits (a) In general Section 5001 (c) Reduced rate (1) In general In the case of a distilled spirits operation, the otherwise applicable tax rate under subsection (a)(1) shall be— (A) $2.70 per proof gallon on the first 100,000 proof gallons of distilled spirits, and (B) $13.34 per proof gallon on the first 22,130,000 of proof gallons of distilled spirits to which subparagraph (A) does not apply, which have been distilled or processed by such operation and removed during the calendar year for consumption or sale, or which have been imported by the importer into the United States during the calendar year. (2) Controlled groups (A) In general In the case of a controlled group, the proof gallon quantities specified under subparagraphs (A) and (B) of paragraph (1) shall be applied to such group and apportioned among the members of such group in such manner as the Secretary or his delegate shall by regulations prescribe. (B) Definition For purposes of subparagraph (A), the term controlled group more than 50 percent at least 80 percent (C) Rules for non-corporations Under regulations prescribed by the Secretary, principles similar to the principles of subparagraphs (A) and (B) shall be applied to a group under common control where one or more of the persons is not a corporation. (D) Single taxpayer Pursuant to rules issued by the Secretary, two or more entities (whether or not under common control) that produce distilled spirits marketed under a similar brand, license, franchise, or other arrangement shall be treated as a single taxpayer for purposes of the application of this subsection. . (b) Conforming amendment Section 7652(f)(2) section 5001(a)(1) subsection (a)(1) of section 5001, determined as if subsection (c)(1) of such section did not apply (c) Application of reduced tax rate for foreign manufacturers and importers Subsection (c) of section 5001 (1) in paragraph (1), by inserting but only if the importer is an electing importer under paragraph (3) and the proof gallons of distilled spirits have been assigned to the importer pursuant to such paragraph into the United States during the calendar year (2) by adding at the end the following new paragraph: (3) Reduced tax rate for foreign manufacturers and importers (A) In general In the case of any proof gallons of distilled spirits which have been produced outside of the United States and imported into the United States, the rate of tax applicable under paragraph (1) (referred to in this paragraph as the reduced tax rate (B) Assignment The Secretary of the Treasury, in consultation with the Secretary of Health and Human Services and the Secretary of the Department of Homeland Security, shall, through such rules, regulations, and procedures as are determined appropriate, establish procedures for assignment of the reduced tax rate provided under this paragraph, which shall include— (i) a limitation to ensure that the number of proof gallons of distilled spirits for which the reduced tax rate has been assigned by a distilled spirits operation— (I) to any importer does not exceed the number of proof gallons produced by such operation during the calendar year which were imported into the United States by such importer, and (II) to all importers does not exceed the 22,230,000 proof gallons of distilled spirits to which the reduced tax rate applies, (ii) procedures that allow the election of a distilled spirits operation to assign and an importer to receive the reduced tax rate provided under this paragraph, (iii) requirements that the distilled spirits operation provide any information as the Secretary determines necessary and appropriate for purposes of carrying out this paragraph, and (iv) procedures that allow for revocation of eligibility of the distilled spirits operation and the importer for the reduced tax rate provided under this paragraph in the case of any erroneous or fraudulent information provided under clause (iii) which the Secretary deems to be material to qualifying for such reduced rate. (C) Controlled group (i) In general For purposes of this section, any importer making an election described in subparagraph (B)(ii) shall be deemed to be a member of the controlled group of the distilled spirits operation, as described under paragraph (2). (ii) Apportionment For purposes of this paragraph, in the case of a controlled group, rules similar to section 5051(a)(5)(B) shall apply. . (d) Effective date (1) In general Subject to paragraph (2), the amendments made by this section shall apply to distilled spirits removed after September 30, 2019. (2) Proration For purposes of the fourth calendar quarter of 2019, the Secretary of the Treasury (or the Secretary's delegate) shall issue such guidance, rules, or regulations as are deemed appropriate to provide that the amendments made by this section are applied on a prorated basis for purposes of distilled spirits removed during such quarter. 402. Bulk distilled spirits (a) In general Section 5212 (1) by striking Bulk distilled spirits on which Distilled spirits on which (2) by striking bulk (b) Effective date The amendments made by this section shall apply distilled spirits transferred in bond in any calendar quarters beginning more than 1 year after the date of the enactment of this Act. V Funding 501. Increased funding for the Alcohol and Tobacco Tax and Trade Bureau (a) In general For necessary expenses of carrying out section 1111(d) of the Homeland Security Act of 2002 ( 6 U.S.C. 531(d) (1) for fiscal year 2017, $116,439,000, to remain available until September 30, 2018; and (2) for fiscal year 2018, $119,081,000, to remain available until September 30, 2019. (b) Availability of funds Of the amounts authorized to be appropriated under subsection (a), for each of fiscal years 2017 and 2018— (1) $5,000,000 shall be for the costs of accelerating the processing of formula and label applications; (2) $5,000,000 shall be for the costs of programs to enforce trade practice violations of the Federal Alcohol Administration Act ( 27 U.S.C. 201 (3) $5,000,000 shall be for the purpose of carrying out the provisions of this Act and the amendments made by this Act, including accelerating the processing of permit applications for non-industrial alcohol production and distribution.

Summary: Craft Beverage Modernization and Tax Reform Act of 2017 This bill amends the Internal Revenue Code, with respect to the tax treatment of certain alcoholic beverages, to: exclude the aging period from the production period for beer, wine, or distilled spirits for purposes of determining whether a taxpayer can expense, rather than capitalize, interest costs paid or incurred during the production period; reduce excise tax rates on beer and distilled spirits; modify the small wine producer tax credit to increase the amount of the credit, expand the producers that are covered, and specify an adjustment for hard cider; modify the alcohol content limitations that apply to certain wines for tax purposes; specify definitions for "mead" and "low alcohol by volume wine;" modify requirements for records, statements, and returns for certain breweries; and permit the transfer of beer between bonded facilities without payment of tax. The Department of the Treasury must amend applicable regulations with respect to the use of wholesome products suitable for human consumption in the production of fermented beverages.