United States

Excise tax exemption for certain distilleries producing hand sanitizer

TAX ALERT  | 

On April 20, 2020, the Alcohol and Tobacco Tax and Trade Bureau (TTB) released a newsletter announcing its plans to update previously-issued guidance in order to extend exemptions and waivers to certain distilleries who wish to produce alcohol-based hand sanitizers. The newsletter also provides updates on TTB laboratory services impacted by COVID-19.

March 26 guidance

On March 26, 2020, the TTB issued guidance (TTB G 2020-1A) (“the March 26 guidance”) temporarily waiving certain formula approval requirements for the manufacture of hand sanitizer and expediting certain permit requirements. The guidance superseded prior guidance clarifying that the formula approval waiver applied to the hand sanitizer formula consistent with the Food and Drug Administration guidance, providing an exemption for distilled spirit plants (DSPs) requesting approval for receiving denatured or undenatured distilled spirits in bond from another DSP, providing guidance and exemptions for state and local governments to obtain tax-free alcohol, and offering a streamlined application process for hospitals, blood banks, sanitariums, certain pathological laboratories, non-profit clinics, and qualifying educational institutions. These initial waivers were approved through June 30, 2020. 

The March 26 guidance does not affect the requirement that a producer of alcohol have a permit with the TTB to produce or manufacture products containing distilled spirits. The guidance applies to taxpayers who have existing permits with the TTB to operate either as Alcohol Fuel Plants (AFPs) or Beverage DSPs. AFPs and beverage DSPs must continue to keep records of their operations, including any undertaken as authorized under the exemption. The TTB has also exempted those taxpayers who operate under an industrial alcohol user permit from the requirement that they request approval from TTB to increase the quantity of denatured ethanol that they may procure.

CARES Act

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (“the CARES Act”). See prior alert. The CARES Act allows for the temporary waiver of federal excise tax on distilled spirits used for, or contained in, hand sanitizer that is produced and distributed in accordance with the FDA requirements. The exemption provided in the CARES Act do not affect the requirement that alcohol producers have a permit with the TTB to produce or manufacture products containing distilled spirits. The exemption provided under the CARES Act is effective for calendar year 2020. 

The March 26 guidance and the CARES Act generally provided the same exemption from tax for alcohol producers wishing to manufacture hand sanitizer. The one disparity is that the TTB exemption is effective through June 30, 2020 and the CARES Act authorizes the exemption through Dec. 31, 2020. 

Newsletter

TTB’s April 20, 2020 newsletter recognizes the difference between its previous guidance and the CARES Act and alerts taxpayers that the TTB is working to update its guidance and also provide guidance on the additional flexibilities of the CARES Act. In the interim, the TTB is extending any exemptions, waivers, or other authorizations currently provided in the March 26 guidance, through December Dec. 31, 2020.

Laboratory Services

The TTB has temporarily closed all laboratory services until further notice. Therefore, the TTB will not be processing product samples or paper submissions sent to their laboratories via mail. Formulas that do not require laboratory sample analysis and required supporting documentation may still be submitted electronically.

Takeaways

Distilled spirits permittees involved in manufacture of hand sanitizer at their facility or as a supplier of alcohol for this purpose should consult with their tax advisers regarding applicable exemptions from tax and TTB permit requirements. The TTB’s April 20, 2020 newsletter serves to align the TTB’s March 26 guidance with the subsequently enacted CARES Act exemption. It also notifies taxpayers of TTB laboratory closures and its inability to process certain formula applications that require product samples; however, the TTB will continue to process formulas that do not require laboratory samples.  

AUTHORS


HAVE A COVID-19 TAX RELIEF QUESTION?


STAY INFORMED - Tax alerts and insights