In December 2020, the US Congress voted to pass, and the President signed, the long-awaited Craft Beverage Modernization and Tax Reform Act (“CMBTRA”), making permanent the reduction in the federal excise tax (“FET”) rate paid by distillers.
The CMBTRA was originally signed into law on January 1, 2018 as a two-year tax break for producers, lowering the FET rate from $13.50 to $2.70 per proof gallon on the first 100,000 proof gallons. This tax break meant that many of the smaller and family-run producers could start investing in their businesses, buying equipment they previously couldn’t afford, taking a paycheck, and hiring additional staff.
Many distillers thought the bill was to be made permanent in 2019. Instead, Congress passed a one-year extension, maintaining the reduced FET rate, but leaving many distillers uncertain about the long-term permanence of the law. Without a permanent passage, the tax rate on spirits producers would increase by 400%.
Distilleries have lost almost 40% of their workforce due to pandemic. A significant tax hike in the current economic conditions could have been disastrous for the industry. The now permanent reduction in the FET rate will help producers survive the pandemic, and continue to create jobs and fast track their growth in the future.