Source: https://blog.tracyjonglawfirm.com/transfer-beer-breweries-not-ownership/
Timestamp: 2020-06-02 21:17:18
Document Index: 464887765

Matched Legal Cases: ['§ 25', 'art 25', 'art 25', '§25', 'art 25', 'art 7', '§ 25', '§ 25']

TRANSFER OF BEER BETWEEN BREWERIES NOT OF THE SAME OWNERSHIP - Tracy Jong Law Firm
August 16, 2018 Tracy Jong
This Procedure also includes guidance regarding the effect of transfers of beer between breweries not of the same ownership on the applicability of the reduced beer excise tax rates included in the recently enacted legislation. TTB previously issued guidance related to this topic on its website (https://www.ttb.gov) under the Craft Beverage Modernization Act and Tax Reform webpage, which is included in this Procedure for ease of reference.
Prior to the Act’s passage, the IRC authorized the transfer of beer without payment of tax only between breweries belonging to the same brewer. This provision of the IRC remains in effect; see 26 U.S.C. 5414(a). The TTB regulations setting forth requirements relating to transfers of beer between breweries of the same ownership are found at 27 CFR 25.181 through 25.186.
The Act’s amendments to 26 U.S.C. 5414, now provide that beer may be removed from one bonded brewery without payment of tax for transfer to another bonded brewery not of the same ownership, and that the transferred beer 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 when:
Under new subsection (b), the receiving brewer is liable for the tax on beer lost in transit, effective from the time of removal from the transferor’s bonded premises, or from the time of divestment of interest, whichever is later.
Prior to the Act’s passage, the term “bonded brewery” was not used in the IRC or in TTB’s regulations. The IRC at 26 U.S.C. 5401(b) requires all brewers, unless otherwise exempted, to execute a bond prior to commencing operations. The IRC at 26 U.S.C. 5551(d)(1) exempts certain brewers from the bond requirement. Under section 5551(d)(2), however, any brewer exempt from the bond requirement shall be treated as if sufficient bond has been furnished. Accordingly, for purposes of this Procedure, TTB will consider brewers that have furnished a bond as well as brewers that are exempt from furnishing a bond under 26 U.S.C. 5551(d)(1) to have “bonded breweries” for the purposes of 26 U.S.C. 5414. We use the term “brewery” in this Procedure to refer to breweries that are covered by a bond as well as breweries where the brewer is exempt from the bond requirement.
PROCEDURE FOR TRANSFERRING BEER BETWEEN BREWERIES
Mark all copies of the original invoice with the words “Reconsigned to ______________,” followed by the name and address of the brewery to which the beer is reconsigned.
The shipping brewer will use the transfer invoice in preparing the daily records required under 27 CFR 25.292 and in preparing the monthly Brewer’s Report of Operations (BROP, TTB F 5130.9) or, if applicable, the Quarterly Brewer’s Report of Operations (QBROP, TTB F 5130.26). The receiving brewer (including a brewer to whom beer was returned or reconsigned in transit) will use the transfer invoice showing beer received from another brewery without payment of tax (or returned to it) in preparing the required daily records, as outlined at § 25.292, and in preparing the BROP or, if applicable, the QBROP.
✔ Line 19, “Removed without payment of tax to other breweries and pilot brewing plants of same ownership” on TTB F 5130.9, or
✔ Line 11, “Beer removed without payment of tax as outlined under Subpart L of part 25,” on TTB F 5130.26.
✔ Line 5, “Beer received in bond” on TTB F 5130.9, or
✔ Line 3, “Beer received in bond,” on TTB F 5130.26.
In general, a brewer may transfer beer without payment of tax from one brewery to another brewery in the brewer’s packages or in bulk containers, as described under 27 CFR 25.181 through 25.185. Brewers must mark, brand, or label brewer’s packages or bulk containers as provided by Subpart J of part 25 of the TTB regulations (§§25.141 through 25.145); see Section 6 below for details.
APPLICABILITY OF REDUCED RATES OF TAX FOR BEER TRANSFERRED BETWEEN BREWERS NOT OF THE SAME OWNERSHIP
The Act sets forth a reduced excise tax rate of $16 per barrel on the first 6,000,000 barrels of domestically produced beer brewed by a brewer and removed during the calendar years of 2018 and 2019.2 In the case of a brewer who produces not more than 2,000,000 barrels of beer during the calendar year, the Act also provides a reduced rate of $3.50 per barrel on the first 60,000 barrels of beer which are removed for consumption or sale during the calendar years of 2018 and 2019 and which have been brewed or produced by such brewer at a qualified brewery in the United States. In all other cases, a tax rate of $18 per barrel applies when the beer is removed for consumption or sale. Additional rules under the Act at 26 U.S.C. 5051(a)(5) regarding control groups and single taxpayers also may affect a brewer’s eligibility for the reduced tax rates. In general, a brewer may apply a reduced excise tax rate on beer under the Act only when it is the producer of the beer being removed for consumption or sale; a brewer may NOT apply a reduced excise tax rate on beer under the Act when transferred beer is merely received and then removed for consumption or sale, except as noted below.
For purposes of taking the reduced rate of tax allowed by the Act, beer is considered to have been “produced” if it is lawfully brewed or produced at a qualified brewery premises, including beer brewed by fermentation or produced by the addition of water or other liquids during any stage of production. A brewer who receives domestically produced beer, and who adds water or other liquids may be eligible for a reduced tax upon removal for consumption or sale on the entire volume of the finished product. In such cases, the receiving brewer is now considered the producing brewer and may thus remove the finished product at either $3.50 or $16 per barrel, depending on the brewer’s eligibility for the reduced tax rates. As stated above, a brewer’s inclusion in a controlled group or an arrangement that triggers the “single taxpayer” rules will affect the brewer’s eligibility for the reduced rates.
Records Substantiating Tax Rate and Losses in Transit
Brewers must maintain records evidencing such transfers, production activities, and the appropriate tax payment of such beer, as the brewer’s records must substantiate the tax rate applied. See also the provisions at 27 CFR 25.291 through 25.301.
The brewery to which beer is transferred is liable for the tax on beer lost in transit effective from the time of removal from the transferor’s bonded premises, or from the time of divestment of interest, whichever is later. If the transferred beer is reconsigned while in transit or returned to the shipping brewery, the brewery to which the beer is reconsigned or returned is liable for the tax on beer lost in transit. See also the provisions of 27 CFR 25.184.
The Act also provides that beer transferred between breweries not of the same ownership may be mingled with beer at the receiving brewery. See 26 U.S.C. 5414(b)(1). Thus, beer transferred without payment of tax between brewers not of the same ownership becomes part of the receiving brewer’s inventory and may be mingled with other beer on the premises.
As noted above, under provisions of the Act, a brewery may transfer beer in packages or bulk containers to another brewery not of the same ownership, without payment of tax. To ensure that beer transferred under the Act is appropriately marked, branded, and labeled, the requirements under 27 CFR Part 25, Subpart J apply when beer is transferred in brewer’s packages or in bulk containers. Additionally, brewers bottling or packing into consumer containers beer that was transferred in bulk containers are responsible for obtaining label approval when required under the Federal Alcohol Administration Act (FAA Act) and implementing regulations at 27 CFR part 7.
Transfer of Beer in the Brewer’s Packages
Beer transferred in brewer’s packages from one brewery to another brewery not of the same ownership must meet the minimal marking, branding, and labeling requirements set forth under the TTB regulations at §§ 25.141 through 25.143.
Domestically produced beer transferred in bulk containers from one brewery to another brewery not of the same ownership must meet the minimal marking requirements outlined under § 25.145. The term “bulk container” means any container of beer having a capacity larger than one barrel of 31 gallons.
The provisions of the Act related to the transfer of beer between breweries not of the same ownership are effective through December 31, 2019. Brewers that transferred beer on or after January 1, 2018, but prior to the issuance of this guidance, may vary from the specific requirements discussed in this Procedure for the beer transferred prior to the issuance of this guidance, provided that they have records sufficient to substantiate, to the satisfaction of TTB, any transfers made without payment of tax and any tax rate applied to beer received from another brewery and removed for consumption or sale
Brewery & Cidery