By AJ Earley
You’ve probably heard about the elimination of bond requirements for small breweries/brewpubs, distilled spirit plants, and wineries that is set to take effect on January 1st, 2017. While this is exciting news, it’s important to make sure you understand the ins and outs of this new measure.
Navigating tax law for small business owners is already intricate enough, and things get extra complicated when any or all of your profits are from the sale of alcohol. As a brewer in New York, you might be wondering exactly what this means for you and your business.
First off, it’s important to understand that this is not the same thing as the temporary ruling set forth by the Department of Treasury in 2012 that stated that small businesses that brew, distill, or ferment alcohol are required to hold a much smaller bond ($1000) if they file quarterly and expected to be liable for less than $50,000 in taxes related to alcohol sales in the calendar year. This particular ruling was made in hopes that a decreased alcohol and tobacco surety bond would encourage small breweries to file quarterly instead of semi-monthly. Basically, the government was hoping to decrease the amount of work they had to do, and it was effective.
The recent bond elimination is a more permanent measure. It is similar in that it also applies to small businesses that file quarterly and reasonably expect to owe less than $50,000 in taxes on alcohol sales each year, but it differs in that the bond requirements are completely abolished for these businesses, and it also differs in origination. This particular measure is the result of The PATH Act being signed into effect by the president in December 2015.
The PATH (Protecting Americans from Tax Hikes) Act of 2015 changed Internal Revenue Code 1986, and it doesn’t just affect bond requirements. It also changes excise tax dues dates: if you are liable for less than $50,000 in alcohol-related taxes in the previous year and expect the same for the next year, you may file and pay taxes quarterly. If this amount is less than $1000 per year, you may pay taxes yearly.
While the law was signed at the end of 2015, it doesn’t take effect until January of next year. This means that you are not only liable for holding a surety bond for 2016, but also that you will need to submit a bond along with your application to operate a brewery, distillery, or winery if that application is submitted before January 1st, 2017.
It is unlikely that any application sent in between now and then will be processed before the exemption takes effect, but even still, if your brewery qualifies for the exemption during those dates the law will be bound to it. Your application will be processed without needing a bond approval and any bond submitted for those dates will be reimbursed before the operation application is finalized.
Existing breweries who are eligible for this exemption will be able to request termination of their bond requirements after January 1st, 2017. Both existing and new operations will be able to submit applications and requests via the TTB’s Permits Online system.
Depending on how your business is classified, you may not be exempt from bond requirements even if you meet the prior conditions. If you are incorporated you fall under more intricate and stringent tax laws, and LLCs may or may not qualify. Refer to your accountant’s expertise if you are a complicated entity that won’t be considered a small business.
It’s important to note that taxpaying brewers must notify the TTB that they are eligible for bond exemption, or that they are requesting their bond requirements be terminated. This exemption will not happen automatically so if you would like to exercise your rights on this matter you must make note of it in your applications or requests.
If you need further information, you may find TTB customer support online, or by calling (877) 882-3277.