Breweries are responsible for federal, state, and local taxes. Although taxes are not glamorous, they are necessary for a successful business. We will explore the basics of brewery taxation and some variables to consider.
Types of Taxes
Federal Excise Tax
According to the Internal Revenue Service (IRS), a federal excise tax is “a tax imposed on the sale of specific goods, services, or activities.” Alcoholic beverages, including beer, fall under the federal excise tax. The Treasury Alcohol and Tobacco Tax and Trade Bureau (TTB) oversees the breweries’ taxation and tax determination. The current tax rates were established in 2018 and are based on annual production rates and per barrel.
- For domestic brewers producing less than two million barrels per calendar year:
- $3.50/barrel for the first 60,000 barrels and $16/barrel for 61,000 to two million barrels
- For domestic brewers producing over two million barrels per calendar year or U.S. importers with “an assigned reduced rate by a foreign brewer”:
- $16/barrel for the first six million barrels for all other breweries
- For domestic brewers who did not produce the beer, U.S. importers not “assigned a reduced rate by a foreign brewer,” or a brewer or importer who has depleted their reduced rates:
State Excise Tax
In the U.S., the median state excise tax is $0.20/gallon. This tax ranges from $0.02/gal in Wyoming to $1.29/gal in Tennessee. Each state has a different tax rate and may have additional taxes based on specific variables, including volume percentages or if the beer is sold wholesale or on-site. Taxes may also vary within each state depending on which county or city the brewery resides. Except for Alaska, Delaware, Montana, New Hampshire, and Oregon, breweries are responsible for the state’s general sales tax and excise tax rates. For specific 2023 state tax rates on beer per state, click here.
- Local Taxes
- Depending on the city and county the beer is produced in, you may be responsible for additional taxes. The brewery must multiply its retail sales by the local sales tax to calculate these taxes.
- Other Taxes to Consider
- If you operate a brewery with a taproom or tasting room with a wait staff, you are responsible for W-2 income taxes. However, any tips the staff makes could also result in a tax credit for the brewery’s portion of Social Security and Medicare taxes. Additionally, there may be a tax credit if you sell merchandise and/or food.
Many factors affect taxation, including the brewery’s business structure and the state and county they operate. Common issues faced by breweries are filing excise tax returns, failure to file, and tax determination. The TTB website is a great resource to help breweries file tax returns, including automated reminders and a link to Pay.gov to file returns electronically. The website also provides payment options if you have trouble paying the brewery’s taxes.
Taxes are a complex and integral part of running a brewery. The taxes you are responsible for are based on many variables, such as your production schedule, alcohol by volume, import/export plans, and whether you plan to operate a taproom. Contact the attorneys at Beer Law HQ. We will review your brewery’s taxable variables and help you create a tax strategy that works for you and your business.