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