Federal Excise Tax for Wineries: What You Need to Know
From lovingly nurturing your vines to creating a perfectly balanced flavor, operating a winery requires you to juggle management skills and creative flair. While you've got winemaking down to a fine art, managing federal excise tax can become complex.
Meeting tax responsibilities and staying compliant is essential for every successful winery. Below, we'll explain everything you need to know about excise tax compliance, from wine tax rates to payment deadlines.
Understanding Federal Excise Tax for Wineries
In 1934, the federal government moved away from Prohibition-era bans on alcohol sales to the modern alcohol tax system. Since then, the federal government collects federal excise taxes on some goods and services, like fuel, tobacco, and alcoholic beverages.
Simply put, federal excise tax has two main goals:
To reduce the overconsumption of alcohol. When deciding how much to charge customers, you'll likely account for these taxes in your pricing structure.
To generate revenue for the federal government. In fact, the revenue gathered from alcoholic beverages totaled a whopping $10.2 billion in 2022.
As a winery owner, you'll pay excise tax directly to the government when you remove wine from a bonded cellar to sell to a wholesaler or directly to a consumer. The federal government taxes wine by the gallon, with rates varying between $1.07 per gallon for still wine with an alcohol content of 16% or lower and $3.40 per gallon for naturally sparkling wine.
However, failing to pay your taxes, underpaying, or filing your tax return late comes with potentially serious financial penalties which could significantly impact the financial health of your winery.
Federal Excise Tax Rates for Wineries
The federal excise tax rates for wineries vary significantly depending on the type of wine you produce and how much you make. Simply put, the type of wine you produce and the scale at which you produce it means that your experience with excise tax may differ from another winery.
For example, an established wine producer selling hundreds of thousands of gallons per year will likely pay much more tax per gallon than a start-up making smaller quantities. Let's take a look at winery tax rates by production volume and wine type to help you understand what you'll pay.
Tax Rates by Production Volume
Thanks to the Craft Beverage Modernization Act (CBMA), you may be entitled to claim wine tax credits depending on the volume of wine you produce during the calendar year. These tax credits apply per wine gallon, which means you'll pay a lower effective tax rate than the usual rate for your wine type.
The three tax credits are:
Volume of wine produced per calendar year Wine tax credit (per wine gallon)
First 30,000 gallons $1
Over 30,000 to 130,000 gallons $0.90
Over 130,000 to 750,000 gallons $0.535
You'll notice the wine tax credits reduce as the volume you make increases. This is good news for small-scale producers because you'll pay much less federal excise tax than companies producing vast quantities of wine per year. However, it's still worth understanding how your tax liabilities change as your company grows. As more people discover your products, you may need to amp up production, decreasing the wine tax credit you can claim.
For example, imagine you're a small winery producing less than 30,000 gallons of still wine per year containing 15% alcohol by volume. Usually, you'd pay $1.07 in federal excise tax per wine gallon. However, your low production volume entitles you to a $1 wine tax credit, reducing your effective tax rate to just $0.07 per gallon.
Now let's imagine a few years pass, and business is booming. To keep up with demand, you increase production to around 150,000 gallons per year. This change reduces your wine tax credit to $0.535 per gallon. Therefore, your effective tax rate will increase to $0.535.
Tax Rates by Wine Type
Your winery's type of product and its alcohol content impacts your tax rates. The higher the alcohol content, the higher the wine tax rate. This table shows the current rates for domestic wineries:
Type of wine Wine tax rate (per wine gallon)
Still wine: 16% alcohol by volume (ABV) or lower $1.07
Still wine: over 16% to 21% ABV $1.57
Still wine: over 21% to 24% ABV $3.15
Artificially carbonated wine $3.30
Naturally sparkling wine $3.40
Bear in mind that these figures don't include wine tax credits. If your winery produces 750,000 wine gallons per calendar year or less, you'll qualify for wine tax credits and won't pay the full rate.
It’s important to understand that you’ll need to calculate your tax liability for each product, which means that the process can be more complex if you produce and sell multiple different wines.
Filing Requirements for Federal Excise Tax
You'll need detailed records of your winery's operations to keep your business compliant. These records make it easier to fill out your tax returns accurately and help you demonstrate compliance if a TTB (Alcohol and Tobacco Tax and Trade Bureau) officer inspects your premises. Ensure your records include:
Report of Bonded Wine Premises Operations forms (form TTB F 5120.17)
Winegrower Report
Grape Crush and Purchase Report
Wine Importer Report
Federal Excise Tax Returns (form TTB 500.24)
Wineries must submit their federal excise tax returns by completing the TTB Form 5000.24. You can submit your form electronically by creating a Pay.gov account and selecting the correct TTB form. Alternatively, mail completed paper forms to:
TTB
Excise Tax
P. O. Box 790353
St. Louis, MO 63179-0353
Generally, you should submit your tax returns semi-monthly (twice per month). Semi-monthly tax periods run from the first to the 15th day of each month and from the 16th day to the final day.
However, you may be entitled to submit quarterly or annual returns, depending on how much federal excise tax you owe. You'll qualify for quarterly TTB tax filing if you owed $50,000 or less in federal excise taxes in the previous calendar year and don't expect to owe more than $50,000 in the current year. You can submit annual returns if you owed $1,000 or less in the preceding year and don't expect to pay more than $1,000 in the current calendar year.
Tax periods finish at the end of each semi-monthly period (the 15th and last day of the month), calendar quarter, or calendar year, depending on how often you submit tax returns. The due date to file your return is 14 days after the end of the tax period or 30 days after the end of the tax period for annual TTB tax filing. If the due date falls on a weekend or legal holiday, the deadline moves to the next working day.
Payment Processes for Federal Excise Tax
The deadline for paying your federal excise tax bill is the same as your filing deadline—the 14th day after the end of the tax period if you file returns bimonthly or quarterly. Wineries submitting annual returns must pay within 30 days of the end of the calendar year.
If you complete paper returns, you can attach a check or money order and mail it with your return. Alternatively, you can pay electronically via your Pay.gov account. You must pay online if your winery owes $5 million or more per year in federal excise tax.
The federal government uses the U.S. Postal Service postmark date to determine whether you submitted your return on time, so postal delays can potentially lead to late penalties. Avoid this issue by submitting electronic returns or using registered or certified mail to prove the mailing date of paper returns.
Benefits of Compliance With Federal Excise Tax
You’re already familiar with the consequences of noncompliance, but have you ever wondered what the benefits of compliance could be? For one, it maintains your winery’s reputation. Financially, remaining compliant means you avoid paying excise tax penalties equaling up to 25% of the tax you owe; not to mention the compound interest charged by the federal government.
However, compliance errors could also cause you to overpay and put your winery at a financial disadvantage. Correctly calculating your liability for craft and start-up wineries ensures you get the tax credits you're entitled to, leaving a larger budget for developing products and expanding your winery operations. This is why choosing a top-tier bookkeeper is vital, especially for budding wineries who may not have the internal resources to handle finances.
Partnering With Compliance Experts
While managing federal excise tax yourself is possible, the risk of potentially costly mistakes is relatively high—especially at the start of your winery's journey while you're still learning the ropes. An expert winery compliance partner helps ensure excise tax compliance, protecting you against over- and underpayments.
Comprehensive compliance services reduce the potential headache of meeting a broad range of responsibilities. For instance, the Balanced Business Group can help you file accurate tax returns and meet other compliance requirements, such as Winegrower and Grape Crush & Purchase Report submission. These services give you more bandwidth to do what you do best—creating high-quality wines for your customers.
Navigating Federal Excise Tax for Winery Success
Filing and paying your federal excise taxes for wineries is an essential item on your to-do list. Compliance lets you avoid penalties, maintain a strong reputation, and claim wine tax credits to reduce your bill. Unfortunately, the rules can be confusing if you're not a compliance expert.
The supportive team at the Balanced Business Group is ready and waiting to assist you with federal excise tax and other compliance issues impacting wineries. Our in-depth knowledge of industry-specific requirements allows us to take care of your compliance to-do list, freeing up your time for other essential activities. Contact us today to discuss how our comprehensive services can secure your winery's success.
