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The FET Situation: An Overview
Does anyone know what is happening with the FET????
Do we have any feelers??
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17 Replies
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Last I heard was the next best bet is the annual tax extenders bill that will get passed at the end of the year. Similar to last year. At this point I think it is safe to say that nothing of substance legislatively is going to happen until after the election is over and settled.
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Sure would be nice to get a little good news. I’m pretty worried next year is going to be even harder than this year. From what I’ve heard from suppliers is that material and shipping costs are going to go up. A tax increase on top everything is really going to hurt.
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Any news from anywhere on this?
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Saw this on the Ohio Craft Brewers FB page
It looks like CBMTRA is going to make it through in the most recent federal legislation. Senator Rob Portman has been instrumental in making this happen and would like to share the news directly with our breweries on a conference call tomorrow (Monday, December 21) at noon. If you’d like to be on that call please email me for the call-in details at mary@ohiocraftbeer.org
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Just discovered the new covid relief and 2021 government funding bill contains a permanent FET reduction for distilled spirits.
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Passed both Houses as a Permanent Bill (no more extensions). Now off for The Presidents signature probably later today. -Cheers
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Combining this permanent FET reduction with the pandemic related precipitous drop in sales, I owe practically no alcohol tax at all. WIN-WIN
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I take it that with the last belated signature last night, this is finally set in stone. Thanks for all the hard work of everyone working on this.
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Members of our ownership worked directly on drafting the language of the legislation with DiSCUS. Our goal, which was successful, was to use verbiage that directly impacts craft distillers, not just people putting booze in a package. Specifically, we tried to address the private label conundrum, which we did. We focused on the definition of the word “processing” to enable small suppliers an opportunity at collecting their tax relief, even if they are sourcing some or all product, or utilizing outside facilities for packaging, etc. At the end of the day, If you are bringing in product and changing it with your actions in anyway (barreling for aging, proofing down, redistilling, blending, etc.) you qualify and should fight for your right for relief.
A lot of people from many organizations worked really hard to make these opportunities for all of us a reality, and personally from myself and our whole team here I would like to thank anyone who reached out to representatives or participated in other ways to make this happen. If anyone has questions about the CBMTRA reach out to Swonger’s staff at DISCUS and they will get on the phone or email you back ASAP and help clear anything up for you.
Remember, none of us are actually competing with each other. It is us vs. Kentucky. Any marketshare we take from the big boys is a win for all of us. But there is a big responsibility here for us all to put out stellar product. That way, when someone takes a chance on your fine swill, they will still be willing to try other small producers as well. Now that we have relief, it is on us to focus on stellar product industry wide. We should hold others accountable when they aren’t, and help them to become able to do so.
Cheers,
Anon
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Thanks for the thanks. We reached out many, many times to our reps. and senators. We also went to DC (two owners, three kids, and a son in law) and met with one of our senators in person to drive home the message. He actually listened for so long I ran out of points to make. It was a fascinating look into the sausage factory, plus a cool tour.
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Ill say it again, thanks for making this a priority. Thats exactly what we needed. ACSA and ADI rallied troops, DISCUS rallied troops, we squeaked and squeaked and squeaked and we got the grease! It wouldn’t have happened without dozens and dozens of businesses like yours leading the charge.
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Are you sure of this? The legislating makes specific reference to processing operations, other than bottling, as set forth in §5002(a)(5). That section provides, in pertinent part:
(5)Processor(A)In general [a term I hate] TheThe term “processor”, when used with respect to distilled spirits, means any person who manufactures, mixes, or otherwise processes distilled spirits, (B)Rectifier, bottler, etc.,
The term “processor” includes (but is not limited to) a rectifier, bottler, and denaturer.
(6)Certain operations not treated as processing – In applying paragraph (5), there shall not be taken into account any process which is the operation of a distiller. [That is well defined in subsection (4)]
____________________________
It is not clear to me that storage is considered as processing operation. Provisions like “a processor includes (but is not limited to) a rectified and bottler” are not helpful. They do not say what else may be included under the umbrella of the phrase “not limited to.” And statements like “the term processor means any person who manufactures, mixes, or otherwise processes distilled spirits” are obviously circular, i.e., of course as processor is someone who processes, but what qualifies as processing, mixing, manufacturing for purposes of determining eligibility for the reduced rate?
Because the language is not clear, TTB will have to issue regulations which it purports comport to the intent. You may wast to fight for the right, as you put it, but courts are loathe to impose their judgement where an agency has some grounds of its different judgment. So make sure that you fight for what you want when TTB issues the notice of proposes rulemaking. That is your best shot if TTB takes a narrower view than you do of what congress intended.
Previous regulations have not rigorously defined what processing is. It was not necessary because that distinction was largely an accounting convenience. But now there is a tax consequence, so TTB will have to determine if aging is a processing operation (done in the storage account) for purposes of the reduced rate. It will have to determine if adding water, without anything else, is processing. Ditto for filtering.
That is why I have elsewhere said that you will have to wait for the other shoe, the regulations, to fall before you can known what constitutes processing for purposes of determining eligibility for the reduced rate. Do you have any documents which show the legislative intent that you describe? If so, bring them to the table when TTB proposes regulations.
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I am certain of my organizations understanding of the legislation. If you are uncertain of your interpretation [or ours, which you clearly are] I encourage you to reach out to DISCUS like I mentioned in my previous post. Most of our work was specifically on the definition of processor to expand it to cover all types of craft operations (dilution for barreling, dilution for bottling, blending and packaging, and a myriad of others). I never told anyone to blindly violate regulations, nor did I tell anyone to make drastic business decisions on an assumption of receiving a credit. I told them to aggressively pursue their right to a credit because their rights are more expanded than they realize, and it is on them to research for their business.
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Apologies if you think I said you told anyone to violate. I certainly do not think you did and I certainly did not intend to say that. Let me expalin in a little more detail the reasons for my concern.
I think that this is not an individual pursuit, which you know from the efforts you put into getting what you wanted. My point is that, since the law is not clear about what is included in processing – that is why I asked if you had evidence of intent – the provisions of regulation will determine what will be construed as processing and what will not, and that persons who have a horse in the race should pay attention to how that unfolds.
Why do I raise this question? I’m not even wagering on the race. But I’ve got a lot of clients who buy some of their spirits in bulk and then bottle them with little further other “processing,” at least as that term is currently employed in the regulations. It is my understanding that prior to the new law, TTB had a very broad view of processing, as that term was used in connection with determining eligibility for the reduced rate, and that it included the act of bottling, which is an operation that takes place in the processing account and so is a processing operation. However, I have that understanding only from an informal, and therefore nonbonding, comment from Regulations and Rulings. So, it appears to me that the wording of the statute, which excludes bottling, curtails rather than expands eligibility. Congress, for some reason, stuck the bottling exclusion into the language of the statute.
Now, because congress is not knowledgeable about the details of what, under the laws, is and is not processing of distilled spirits, someone obviously lobbied to exclude bottling. Who was that? You say you lobbied for the widest possible interpretation. But it is clear to me that someone did not. And therein lies the question. What was the intent of that exclusion?
TTB will say what it thinks the intent was when it issues the regulations and there is a simple rule that applies to that – they get to make the rule. Once an agency with the power to make regulations does so, the courts give great deference to the agency’s interpretation and are loathe to get bogged down in detailed disputes. So the time to be active is the period during which TTB is considering the regulations. That is now, not after the fact, because after the fact, if you have lost eligibility, you are screwed. Certainly screwed? No, but you are unlikely to prevail in any fight you chose to make. Why? Because the fight was fought when the regulations were issued, when everyone had a chance to get their two-cents worth in, and when TTB considered all of that before making the regulations final.
Because the process for approving regulations is, by design, long, TTB is likely to issue temporary guidelines pending adoption of the final rule. The rule making process, which is engrained in the Administrate Procedure Act. It is long because it is a deliberately deliberative process that allows public input. The law (26 U.S.C. 5) mandates the steps. It includes time for TTB to consider congressional intent; draft the regulations; compose and issue a notice of proposed rule making – which explains how TTB arrived at the regulations it proposes to adopt; for persons to comment on the proposed rules, which time is often extended at the request of organizations like the Distilled Spirits Counsel; and time for TTB to consider each of those comments and issue a final rule in which it explains why it accepted or rejected the proposals made in the comments it received.
Once it has gone through that process, unless you have the time and dollars to fight a battle you are not likely to win, the rule is “It is because they say it is.” That is a good thing, actually, because it protects you against TTB taking an arbitrarily different position somewhere down the line.
Now, because you were involved in the process, you know better than I do what the intent was. So, why was bottling excluded?
My intended message – pay attention to the rulemaking process and be prepared to fight then.
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Im a fan fo your work around here, no offense taken and none meant
It is my understanding that bottling was excluded so DSPs who need to ship to bottle can claim the credit, I will double check with our legal department up the chain and see if they’d be comfortable sharing more with me with the intention to share!
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@SlickFloss I would also be interested to see any documents you can share that back up the position you outline above.
In the meantime, I contacted TTB and asked about this issue. Here is my message to TTB and their response.
Message to TTB:
Comments: re: CBMA Your guidance states: “The 2020 Act makes permanent the reduced tax rates previously enacted on a temporary basis, with a change to the definition of eligible processing effective in 2022.”
I reviewed section 5002(a)(5)(A) and it is essentially a circular definition. Can you provide a list of “eligible processing” activities? Also, please comment on which of the following activities qualify:
1. Changing Class & Type. For example processing Neutral Spirits into Vodka.2. Mixing a flavored product. For example, adding flavors to whiskey to make a flavored whiskey.3. Filtration. For example, filtering whiskey purchased from another distillery prior to bottling.4. Blending spirits of different types together. For example, mixing Bourbon Whiskey with Rye Whiskey to create a blend of bourbon and rye.5. “Finish” aging in a different barrel type. For example, aging whisky in a rum barrel.
Please advise on which of the activities described above would qualify, and please also provide a list of other examples of qualifying processing activities.
TTB Response:
Thank you for your inquiry regarding the types of operations that are considered “processing” for purposes of the reduced tax rates for distilled spirits under 26 U.S.C. 5001(c). As reflected on TTB’s <https://www.ttb.gov/alcohol/craft-beverage-modernization-and-tax-reform-cbmtra> CBMA guidance page, changes to the type of processing activities that qualify for the reduced tax rates apply to distilled spirits removed after December 31, 2021. Under these changes, a distilled spirit shall not be treated as processed for purposes of the reduced tax rates unless a process described in 26 U.S.C. 5002(a)(5)(A) (other than bottling) is performed with respect to such distilled spirit. TTB will be issuing additional public guidance in the future regarding the types of operations that are treated as processing for this purpose. As additional information becomes available, it will be posted on the <http://www.ttb.gov/>TTB website.
Bottom line:
TTB has the remainder of the year to post clarification on eligible processing operations.
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Sooner rather than later. I’d argue that this is properly the subject of rulemaking, not of fiat. I read additional public guidance to mean a formal document like those found at https://www.ttb.gov/public-guidance. The last one of those was the one on “hand sanitizer.” It was not exactly a fount of clarity. It failed to answer basic questions like, “What about surface sanitizers that are produced under the regulations of the EPA, not the FDA?” See https://www.cdc.gov/infectioncontrol/guidelines/disinfection/disinfection-methods/regulatory-framework.html. :-). I would not be concerned about that because, if TTB suddenly decided to take issue, it would be kicking a sleeping dog that would awake with one hell of a bite.
But, on the issue of what is processing, I’d push for an answer – and for
rulemaking, which gives you input by law – sooner rather than later, because people need time to make or adjust business plans. After 12/31/2021 may seem like a long time away. It isn’t.
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