Bottled In Bond

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Re: Bottled In Bond

Unread postby delaware_phoenix » Tue Apr 06, 2010 6:56 pm

The Federal tax on distilled spirits is $13.50/proof gallon. That's one wine gallon at 100 proof. A wine gallon at 107 proof is 1.07 proof gallons. The gov't uses the term "wine gallon" to refer to the quantity we all call a gallon. A case of 12 x 750 ml bottles, is 9 liters which is 2.377 wine gallons. So a case of whiskey bottled at 80 proof is 1.9 PG, and has $25.67 in Federal tax on it. About $2.14 a bottle. A case of 120 proof is 2.85 PG and has $38.51 in tax, so $3.21 a bottle. To be quite honest, distributors seem to get a big piece of the pie.

Once a bottle is withdrawn from bond the tax is due. Federal taxes are due twice a month. I have a certain kind of bond coverage ("withdrawal coverage") that allows me to withdraw product from bond (because it was sold) and pay in the next filing date. I imagine most distilleries have this coverage.

Transfer of a barrel from the storage account to the processing account (ie bottling) occurs completely within bonded premises (otherwise it wouldn't be bottled in bond). There are monthly reports every DSP must file that summarize the activity of what's been produced, what's in storage, and what's been bottled. Certainly if things don't add up, the local TTB agent will be paying a visit to see what's up and find out why there's so many more angels at your DSP as compared to all the others.
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Re: Bottled In Bond

Unread postby Bourbon Joe » Tue Apr 06, 2010 9:32 pm

Thank you for a most wonderful explanation.
Joe
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Re: Bottled In Bond

Unread postby Clayton » Wed Apr 07, 2010 7:53 am

bourbonv wrote:The bonding period is 20 years. This means that after the whiskey is made it is entered into a bonded warehouse for agining. This is a good thing because it allows for the "Angel's Share" to happen without that lost volume being taxed - or a I should say within some limitation, untaxed. There is a formula that tells the tax man how much whiskey there should be in a barrel after a set period of time and if a barrel falls below that limit, then the distiller still pays the tax on what should be there by the government formula. Of course if there is more in a barrel they still pay the taxes on the excess. However since 1984, the guager has played a lesser role and the government allows the tax to be paid on the overall dump so the excess in some barrels makes up for the shortage in others. It works out to be pretty close to the government formula. Still, if you purchase a single barrel of whiskey from a distiller and it falls below the amount called for, you will pay the taxes on the missing whiskey and if there is more than called for you will pay taxes on the extra.

Now after the whiskey is aged and dumped, the distiller gets to bottle the whiskey and pay the taxes when the bottles are shipped. This is one of the big changes from the 1950s that also raised the bonding period from 8 years to 20 years. The advantage here is that the distiller does not ship until the whiskey is sold so if they have whiskey that is over aging they can bottle it and keep those bottles in bonded storage until they sell it.


Hi Mike

With the 20 year bonding period does that mean if I want to make an 8 year old whiskey it has to stay in bond for another 12 years to say fulfill the bonding period? Or does it not matter and I can make 4 year old + and release it to the market, anytime, as long as it's within a 20 year period? Alternately I could put a whiskey into bond and keep it there for 20 years in barrel, going on to release my 20 year old whiskey to market..
It's a fascinating subject to me, although to some extent I feel as though I've opened Pandora's Box!!!
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Re: Bottled In Bond

Unread postby bourbonv » Wed Apr 07, 2010 9:11 am

Twenty years is the maximum period for bonding. You can take the whiskey out of bond anytime you want to, you just have to pay the tax when you do so.
Mike Veach
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Re: Bottled In Bond

Unread postby Clayton » Wed Apr 07, 2010 9:15 am

bourbonv wrote:Twenty years is the maximum period for bonding. You can take the whiskey out of bond anytime you want to, you just have to pay the tax when you do so.


Thanks again Mike, to me it's quite hard to get my head around but yourself and other very patient BE members are so helpful, it's truly appreciated.
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Re: Bottled In Bond

Unread postby p_elliott » Wed Apr 07, 2010 9:33 am

Mike

What happens on a pappy 23 at 20 years they have to pay the tax at 20 years and can let it age the remaining three years then don't have to pay the tax when they bottle it? Or what?

Paul
Last edited by p_elliott on Wed Apr 07, 2010 12:07 pm, edited 1 time in total.
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Re: Bottled In Bond

Unread postby bourbonv » Wed Apr 07, 2010 11:51 am

Legally that is what is supose to happen, However, I asked Julian about this and he said the Government allows him to pay the taxes when he dumps it. I assume the same is true for the few other products over 20 years old. I would say in practice the government is un-officially allowing a unlimited bonding period. Since there are so few products over 20 years, it is not a major concern and would probably cost the government more to force the issue than to allow the extra years.
Mike Veach
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Re: Bottled In Bond

Unread postby p_elliott » Wed Apr 07, 2010 12:10 pm

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Re: Bottled In Bond

Unread postby delaware_phoenix » Wed Apr 07, 2010 7:36 pm

Mike, do you have a link to those CFRs (Code of Federal Regulations)? Just curious as I haven't looked in those sections, and it could be in some other place.

And I'm sure most producers don't really want to bother the end consumer with the minutiae of the taxation schedule, or the reporting. It really isn't that interesting. Except to people like me who figure that the big producers (i.e., anyone making more booze than me :D ) really do not weight every barrel in the rickhouse for their quarterly report. My guess is they use a dipstick and proof selected barrels to represent a sample of the overall warehouse.

I fantasize about a barrel scale like Jim Rutledge used when those folks were choosing their special barrel.
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Re: Bottled In Bond

Unread postby cowdery » Fri Apr 16, 2010 7:12 pm

There are many taxes on distilled spirits but the primary one is the federal excise tax (FET). The FET on distilled spirits is historic, as it was the first internal revenue tax levied by the United States of America on its citizens. All taxes before then had been on international trade, considered an external tax.

The citizens showed their gratitude with the Whiskey Rebellion in 1794.

The tax is, theoretically, levied on still output. There were various formulas at first, including simply still capacity. An excellent book on the subject is The Whiskey Rebellion; George Washington, Alexander Hamilton and the Frontier Rebels Who Challenged America's Newfound Sovereignty, by William Hogeland.

Today the rate is $13.50 per proof gallon. A proof gallon is one gallon of 100 proof spirit. Everybody pays this, not just whiskey-makers, but with un-aged products they pay it right away. As Mike explained, although it's theoretically levied on everything you produce and owed when you produce it, there are various deferrals, credits and formulas that effectively mean you're paying it on whatever you bottle, when you bottle it, although when a distillery makes a bulk sale that tax has to be paid, by the producer not the buyer, when the barrels leave the warehouse.

Since the rate is based on proof, products such as liqueurs that have lower alcohol content pay less per bottle, even though the products themselves are quite expensive. There is only about half as much FET on a bottle of Bailey's as there is on a bottle of Ten High. The FET alone on a 750 ml bottle of 80 proof spirit is about $2.15.

That's one reason why distilleries aren't as free with free samples as some other manufacturers are. Since the tax is not based on sales, you pay just as much tax on the freebies as you do on the bottles you sell.

There are no "government men" anymore, the Treasury Agents who held the keys to the distillery and had to unlock it every morning before people could go to work, that went out in the early 1980s. Now it's all done by computer auditing of the company's records. Distilleries have to be some of the most honest businesses going, since the government has constant access to their books.
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Re: Bottled In Bond

Unread postby dickelfanaustralia » Sat Jul 07, 2012 4:47 am

anyone had beam bonded 8 years? Im thinking of paying way pass booker's for it. I wonder if bonded is a gimmick these days to look old fashion. Do they really follow all those rules today?
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