The pandemic relief deal brokered by Congress includes a temporary tax waiver that would make it cheaper for spirits producers to make hand sanitizer.
The Distilled Spirits Council of the United States, a trade group representing both major and craft liquor producers, pushed Congress to waive the federal alcohol excise tax for the use of undenatured alcohol—used to make alcoholic beverages—in hand sanitizer. Denatured alcohol, which is used to make products not meant for consumption, is already exempted from the excise tax.
The deal, which must still win approval from both chambers of Congress, would waive the tax for 2020, according to a summary of the legislation released by Senate Finance Committee Chairman Chuck Grassley (R-Iowa). The tax break is one of several industry-specific perks included in the package, which also would provide rebate checks to most Americans and fix the 2017 tax law’s “retail glitch” that has kept restaurants and retailers from immediately writing off the cost of interior improvements.
The inclusion of the hand sanitizer provision appears to be a late decision: a draft version of the bill text obtained by Bloomberg Tax Wednesday morning didn’t include it, but a subsequent draft added the provision. The spirits council said Wednesday that in order for the tax waiver to be applicable, the FDA will have to update its guidance, allowing distillers to use undenatured alcohol to make hand sanitizer.
Brian Facquet, founder of Prohibition Distillery in New York, said the excise tax waiver would make it easier for him to shift operations over to hand sanitizer, which has seen an increase in demand during the pandemic.
“Now I know I can do good,” Facquet said. “It’s a big fricking deal.”
The federal excise tax on distilled spirits is currently set at $2.70 per gallon for the first 100,000 proof gallons produced in a calendar year. Manufacturers pay $13.34 for every additional gallon up until they make 22.23 million gallons. Any alcohol produced beyond that threshold is taxed at a rate of $13.50 a gallon.
The excise tax break would be the latest action the federal government has taken to allow liquor producers to shift operations: The Alcohol and Tobacco Tax and Trade Bureau announced last week that any permitted distillery could switch over to manufacturing hand sanitizer or ethanol for use in sanitizer production without any additional approval.
The shift to hand sanitizer production and possible tax relief may not be enough to save some small distillers, which have seen demand drop off with restaurants and bars closing or shifting to carry-out operations.
Twin Valley Distillers in Maryland already shifted its operations, but is facing a cash crunch that will likely force owner Edgardo Zuniga to go out of business in about a month.
“I would like to charge $10 for a 4 ounce bottle of sanitizer, but my principles won’t allow me,” Zuniga told Bloomberg Tax Wednesday. “We are trying to help the community.”
—with assistance from Colin Wilhelm