The Craft Beverage Modernization Act (“CBMA”) provisions of the Tax Cuts and Jobs Act of 2017 reduced excise taxes levied against all alcoholic beverage producers, large and small, foreign and domestic. In 2020, Congress made those tax cuts permanent and transferred responsibility for administering CBMA imported alcohol provisions from U.S. Customs and Border Protection (“CBP”) to the Treasury Department effective December 31, 2022. Domestic industry takes direct advantage of CBMA benefits when paying tax to TTB. However, foreign producers and importers will soon have to navigate a new system to take advantage of CBMA tax credits.
In June 2021, the Treasury Department submitted to Congress a report on its proposed system for alcohol imports to submit CBMA refund claims (see full report here). Beginning in 2023, importers will no longer be eligible for lower CBMA tax rates at the time of entry, but rather importers must pay the full tax rate and later submit refund claims to the Treasury for the lower rates based upon assignments from foreign producers. Treasury intends for the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) to administer the new CBMA import claims program.
The CBMA requires foreign producers to allocate or assign applicable tax benefits to U.S. importers, who then elect whether or not to take advantage of the lower tax rates. For example, under the CBMA, each foreign distilled spirits producer receives up to a total of $4,620,000 in tax benefits in the form of reduced rates assignable to U.S. importers on the first 22,230,000 proof gallons of imported product; each foreign wine producer receives up to $451,700 on the first 750,000 wine gallons imported; and each foreign brewer receives up to $12,000,000 on the first 6,000,000 barrels imported.
To administer this program, TTB plans to develop two separate modules in a forthcoming online filing system, “MyTTB.” First, foreign producers seeking to assign CBMA tax benefits for their products to U.S. importers will provide information directly to TTB through an online registration module. Each foreign producer would be assigned a TTB registration number, which allows for tracking of CBMA tax benefits. Second, an import claims module will allow U.S. importers to submit refund claims to TTB for CBMA tax benefits. These two modules will allow TTB to track and validate claims data submitted at the time of importation against the required assignments provided by foreign producers.
Under the CBMA, Treasury has the authority to revoke foreign producers' and importer's eligibility for tax benefits when “erroneous or fraudulent information” is provided in a claim. To help TTB recover amounts paid on invalid claims, Treasury plans to either (a) require that importers filing CBMA refund claims have a separate bond covering the amount of liability that could be over-claimed by importers or (b) establish, through rulemaking, that importers' existing custom bonds (both principal and surety) are liable.
TTB plans to allow importers to file claims on either a quarterly or an annual basis, instead of requiring claims on each individual entry. TTB will calculate the amount of the refund for each period by taking the amount of tax paid to CBP for the importer's removals from Customs' custody during the relevant period and subtracting the amount of tax that would have been imposed if the importer had been eligible for assigned tax benefits when the tax was paid. TTB will pay interest on refunds, as required by the CBMA.
Although the TTB's proposed 2023 CBMA Import System remains in its infancy, foreign producers and domestic importers should be aware of how they can take full advantage of tax credits.
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