Robert L. Anello, Consultant
329 North C Street
Hamilton, OH 45013-3110
Phone: 513-894-4191
FAX: 513-894-4190

WHAT IS THE EXCISE TAX RATE AND THE DRAWBACK RATE?

The distilled spirits excise tax rate and the nonbeverage drawback rate is established by the Internal Revenue Code (26 U.S.C.).

Excise tax rate
The distilled spirits excise tax is currently $13.50 per proof gallon for domestic and imported distilled spirits.. ("Proof gallon" is explained below)

Nonbeverage Drawback Rate
The nonbeverage drawback rate is fixed by law at "$1 less than the distilled spirits tax rate". (Whenever the excise tax is increased by Congress the nonbeverage drawback rate still remains $1 less than the effective excise tax rate.)

Therefore, the nonbeverage drawback rate is $12.50 per proof gallon. ($1 less than $13.50) The $12.50 drawback of the $13.50 excise tax represents a 92.6% refund that is available to manufacturers of nonbeverage products.

What is a proof gallon?
As indicated above, distilled spirits are taxed on a "proof gallon" basis. The TTB's definition of "proof gallon" is:

"A gallon of liquid at 60 degrees Fahrenheit, which contains 50 percent by volume of ethyl alcohol having a specific gravity of 0.7939 at 60 degrees Fahrenheit (referred to water at 60 degrees Fahrenheit as unity), or the alcoholic equivalent thereof."

Many "non-technical" persons have difficulty comprehending the TTB's definition indicated above, and some may even call it typical government gibberish! Therefore, I'll provide a detailed, non-technical explanation starting with a term that is familiar to all...... the "wine gallon".

Most of us are familiar with a "wine gallon" because it denotes a volume measurement or container size..... a "gallon" of milk, gasoline, and.... of course, a gallon of wine!

Unlike a wine gallon, a "proof gallon" is not a container size measurement. It is a measurement of the ethyl alcohol content of a liquid in a wine gallon. The "proof gallon" content is calculated from the liquid's "proof".

"Proof" is based upon 50% ethyl alcohol content rather than 100% ethyl alcohol content. For example, when we buy 100-proof spirits the ethyl alcohol content is 50% by volume. Similarly, 190-proof spirits are 95% ethyl alcohol by volume, 40-proof is 20% alcohol by volume, etc..

Therefore, a wine gallon that contains a distilled spirit that is 100-proof (50% ethyl alcohol content by volume) contains 1.0 proof gallon. A wine gallon of a distilled spirit that is 190-proof (95% ethyl alcohol by volume) contains 1.9 proof gallons. Examples:

1 wine gallon X 100 proof = 1.0 proof gallons

1 wine gallon X 190 proof = 1.9 proof gallons

1 wine gallon X 50 proof = 0.5 proof gallons

Tax and drawback calculations
The majority of distilled spirits used in nonbeverage product manufacturing is 190-proof ethyl alcohol. Each wine gallon of 190-proof alcohol is taxed $25.65 as follows:

1.0 wine gallon X 190 proof = 1.9 proof gallons
1.9 proof gallons X $13.50 tax rate per proof gallon = $25.65 distilled spirits tax

The amount of nonbeverage drawback claimable for each wine gallon of 190-proof alcohol is $23.75 as follows:

1.9 proof gallons X $12.50 drawback per proof gallon = $23.75 drawback

The nonbeverage drawback reduces the $25.65 excise tax on each wine gallon to only $1.90!

$25.65 tax - $23.75 drawback = $1.90 effective tax after drawback

Most manufacturers of nonbeverage products (MNBP's) use 190-proof alcohol in 55-gallon drum quantities or tank truck quantities of 6,000 to 6,500 gallons. The amount of excise tax and nonbeverage drawback claimed can be quite large during a yearly period. For example:

A 55-gallon drum of 190-proof alcohol typically contains 102.6 proof gallons (54 wine gallons) and is taxed at $1,385.10 of which $1,282.5 can be claimed for nonbeverage drawback.

A 6,500-gallon tank truck of 190-proof alcohol contains 12,350 proof gallons and is taxed at $166,725 of which $154,375 can be claimed for nonbeverage drawback.

 

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Page last edited on 11/08/06

Robert L. Anello, Consultant
329 North C Street
Hamilton, OH 45013-3110
Fax: 513-894-4190
Phone: 513-894-4191

CopyrightŠ 1999-2006 Robert L. Anello