TAX CREDIT FOR CERTAIN SMALL
DOMESTIC WINE PRODUCERS
Bonded Wine Premises Proprietors and Others Concerned:
Purpose. The purpose of this circular is to advise bonded
wine premises proprietors that an ATF ruling concerning the small
winery tax credit will be published in a future issue of the
Alcohol, Tobacco and Firearms Quarterly Bulletin. The ruling will
state that the small domestic wine producer tax credit authorized
by 26 U.S.C. 5041(c)(1) is available only to eligible proprietors
engaged in wine production operations and will read substantially
as follows:
Small Winery Tax Credit.
Background. The Bureau of Alcohol, Tobacco and Firearms (ATF)
has received inquiries concerning whether the tax credit for small
domestic wine producers authorized by section 11201 of the Omnibus
Budget Reconciliation Act of 1990 (the Act), Pub. L. No. 101-508,
104 Stat. 1388, is available to proprietors of bonded wine
premises that do not produce any wine but engage in non-production
activities such as the bottling or storage of wine produced by
another bonded wine premises proprietor.
As amended by the Act, section 5041(c)(1) of the Internal Revenue
Code of 1986 (26 U.S.C. 5041(c)(1)) provides that a person who
produces not more than 250,000 wine gallons of wine during the
calendar year shall be allowed a tax credit of up to $0.90 per
gallon on the first 100,000 gallons of wine (other than champagne
and other sparkling wines) removed with payment of tax during such
year for consumption or sale. The credit applies only to wine
produced at a qualified bonded wine premises in the United
States. The final rule published in the Federal Register by ATF
implementing the Act (T.D. ATF-307, 55 F.R. 52732 (December 21,
1990)), similarly provides that the tax credit is available to
persons who "produce" not more than 250,000 gallons of wine during
the calendar year. 27 C.F.R. 24.278(a).
The Act did not define what is meant by the term "produce" for
purposes of determining which persons are eligible to claim the
small winery tax credit. Consequently, there has been confusion
concerning whether the proprietor of a bonded wine premises that
does not produce wine in any amount qualifies for the tax credit
as a small domestic producer.
Pursuant to section 5351 of the Code, a bonded wine premises
includes premises established for the production, blending, cellar
treatment, storage, bottling, packaging, or repackaging of
untaxpaid wine, including the use of wine spirits in wine
production. However, section 5351 further provides that any such
premises engaged in "production operations" may be designated as a
"bonded winery." The Code does not specify what activities are
included in the term "wine production operations." However, in
T.D. ATF-307, the term "production" was defined for purposes of
determining if a proprietor's wine production is within the
250,000 gallon limitation established by section 5041(c)(1).
Specifically, section 24.278(e) states that production includes
"wine produced by fermentation" and also includes "any increases
in the volume of such wine due to the winery operations of
amelioration, wine spirits addition, sweetening, and the
production of formula wines."
ATF believes that the plain meaning of the term "produces," as
utilized in section 5041(c)(1) of the Code, Limits the
availability of the tax credit to eligible proprietors of bonded
wine premises engaged in wine production operations. In other
words, proprietors must actually produce wine during the calendar
year in order to take the small winery tax credit.
Held: The small domestic wine producer tax credit authorized by
26 U.S.C. 5041(c)(1) is available only to eligible proprietors
engaged in the business of producing wine. These proprietors are
required to have a basic permit under the Federal Alcohol
Administration Act, as amended [49 Stat. 978; 27 U.S.C. 203].
A proprietor who has a basic permit to produce wine but does not
produce wine during a calendar year may not take the small winery
tax credit on wine removed during such calendar year.
A proprietor who has obtained a new wine producers basic permit
may not take the small winery tax credit on wine removed until
wine is produced by such proprietor. "Wine production operations"
include those activities described in 27 C.F.R. 24.278(e).
Pursuant to 26 U.S.C. 7805(b), this ruling will be effective with
respect to removals of wine from bonded wine premises that occur
on and after October 1, 1991. This ruling will not be applied
with respect to removals from bonded wine premises that occur
prior to October 1, 1991.
Inquiries. inquiries concerning this circular should refer to
its number and be addressed to: Associate Director (Compliance
Operations), Bureau of Alcohol, Tobacco and Firearms,
650 Massachusetts Avenue, NW, Washington, DC 20226.
Director |