Federal Tax Incentives:

Distilled Spirits Credit

Background 

 

The Distilled Spirits Credit is based on a calculation using the total number of cases of distilled spirits purchased and the average tax-financing cost per case. The term “distilled spirits”include  substance such as ethyl alcohol, ethanol, or spirits of wine in any form (including all dilutions and mixtures thereof from whatever source or by whatever process produced). See IRC § 5002(a)(8). However, the credit will vary depending on the proof of the alcohol.  Generally, the credit for the tax year is calculated by multiplying the number of cases of bottled distilled spirits purchased or stored during the tax year by the average tax-financing cost per case for the most recent calendar year ending before the beginning of the tax year. 

IRC §  5011(a) states, in general, the amount of the distilled spirits credit for any taxable year is the amount equal to the product of the following:

  • (1)in the case of—

    • (A)any eligible wholesaler, the number of cases of bottled distilled spirits—

      • (i)which were bottled in the United States, and

      • (ii)which are purchased by such wholesaler during the taxable year directly from the bottler of such spirits, OR 

    • (B)any person which is subject to section 5005 and which is not an eligible wholesaler,

    • the number of cases of bottled distilled spirits which are stored in a warehouse operated by, or on behalf of, a State or political subdivision thereof, or an agency of either, on which title has not passed on an unconditional sale basis, and

  • (2)the average tax-financing cost per case for the most recent calendar year ending before the beginning of such taxable year.

Number of Cases

Eligible Wholesaler

  • If you are an eligible wholesaler, enter the number of cases of distilled spirits that were bottled in the United States and purchased by you during the tax year directly from the bottler of the spirits.

  • An eligible wholesaler is any person who holds a permit under the Federal Alcohol Administration Act as a wholesaler of distilled spirits and is not a state or political subdivision thereof, or an agency of either. See IRC §  5011(b).

Ineligible Wholesaler

  • If not an eligible wholesaler, but you are subject to IRC § 5005 (distiller or importer of distilled spirits liable for the taxes), enter the number of cases of bottled distilled spirits which are stored in a warehouse operated by, or on behalf of, a state or any political subdivision thereof, or an agency of either, and for which title has not passed on an unconditional sale basis.

For purposes of this calculation, a "case" consists of twelve 80-proof 750-milliliter bottles. For any lot of distilled spirits that does not consist of cases of 80-proof 750-milliliter bottles, the number of cases in the lot is calculated as follows.

  1. Divide the number of liters in the lot by 9.

  2. Multiply the result by a fraction, the numerator of which is the stated proof of the lot and the denominator of which is 80.

  3. The result is the number of cases in the lot.

 

Example. You purchased a lot of ninety 500-milliliter bottles of 150-proof rum. The number of liters in the lot is 45 (0.5 liters x 90). Divide 45 by 9 and the result is 5. Multiply 5 by 150/80 (1.875). The result is 9.375, which is the number of cases in the lot.

Average Tax-Financing Cost

The average tax-financing cost per case for any calendar year is the amount of interest which would accrue at the deemed financing rate during a 60-day period on an amount equal to the deemed Federal excise tax per case. 

  • (1) The deemed financing rate for any calendar year is the average of the corporate overpayment rates section 6621(a) (determined without regard to the last sentence of such paragraph) for calendar quarters of such year.​

  • (2) The deemed Federal excise tax per case is $25.68. See IRC §  5011(c).

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