Beverage alcohol importers brace to pay more tax upfront

Beverage alcohol importers receiving federal excise tax deductions will now have to pay full rates taxes upfront and apply for refunds from the government quarterly.

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Spirits importers, for example, will go from paying $2.70 to $13.40 in excise tax per gallon when product hits the shores. Businesses will then have to wait a minimum of five months for the $10.80 per gallon difference to be refunded.  

This quickly adds up to millions of dollars that beverage alcohol importers will no longer have on hand to invest in business functions like inventory, sales, marketing, and operations. 

Here’s a quick glance at additional out of pocket cost exposure for beverage alcohol importers for each international supplier they buy from in 2023.

Since most importers source products from many suppliers, additional upfront tax expenses will multiply significantly. 

Extra Out of Pocket Costs

In every scenario, one thing is clear: Money that would have been used for business growth will now be out of reach.

Here are a few steps importers can take to protect their business and ease this financial burden:

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1) Leverage Smart Credit

Get more time to pay. Smart credit is a powerful option to maintain healthy cash flow when your business has added expenses. 

Koverly enables importers to pay their FX bills 30 days later without interest or fees. Koverly will pay the supplier when the bill is due and withdraw funds from the importers account 30 days later at no cost. Importers can also choose to extend terms beyond 30 days and payback Koverly in weekly installments.

With light underwriting that does not hit the business’ FICO and a defined, short-term repayment schedule, smart credit, such as KoverlyPay is designed to give businesses quick cash flow boosts without building debt. 

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2) Reduce FX Costs

Small adjustments in FX rates can save businesses thousands of dollars.  

Most importers are paying more than necessary for foreign currency transactions. Koverly follows the spot rate to bring competitive FX rates to businesses of all sizes - typically reducing FX costs by 6x and saving companies $4k-$6k for every million in foreign currency transactions.

3) Stop paying in USD

Approximately 60% of foreign trade by US importers is done in USD. If your company pays in USD, you are likely overpaying on exchange rates. 

Let's be clear, exchange rates still apply to international invoices presented in USD – the fees are simply added before the invoice is presented to you. 

This is to the importer’s disadvantage. 

Once a bill has been converted to USD, you have zero transparency into the rates applied for the conversion. As a result, there is no incentive to use a competitive rate. And in fact, every liberty to inflate them… significantly. 

Adding to this, bills presented in USD on payment terms use a “forward rate” - ie. an exchange rate set for a future date. And since no one knows what the future holds, forward rates are priced significantly higher than real-time spot rates. 

In the end, exchange rates are commonly inflated up to 10x for international bills in USD.  

Paying global bills in FX will save you money. Using Koverly for FX payments will give you full transparency into available rates and reduce your transaction costs.

A brief background on what’s happening and why…

Since 2016, most beverage alcohol importers have received excise tax reductions as a result of the Craft Beverage Modernization Act (CBMA), which were calculated and deducted at the time of payment by the Customs Border Patrol (CBP).

In 2020, congress voted for the U.S. Treasury to take over the CBMA from the CBP. The Treasury also changed the process for the CBMA tax relief program and assigned the Alcohol and Tobacco Tax and Trade Bureau (TTB) to oversee it.

In 2023, importers will have to pay full rates taxes upfront and apply for refunds from the government quarterly.

Here’s a breakdown of standard excise tax rates, CBMA reduced rates and how much importers will now need to pay upfront and request as a refund from the TTB. 

2023 CBMA Tax Rate Changes

Here are the first steps to get set up (and resources to help after that)…

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1) Producers Must Register with TTB

In order for importers to receive refunds their producers must register with the TTB and assign CMBA tax benefits to their US Importers.

Here’s the producers’ immediate to-do list:

• Register with the TTB (https://my.ttb.gov/)  
• Obtain their “Foreign Producer ID”
• Assign their US importers CMBA tax benefits
• Assign product allocations

Note - the TTB website is not translated, so some producers may need help navigating the website to register correctly.

Starting in October 2023, producers will also need to assign allocations to each US importer annually and must do so by December 31 of each year. If the producer misses the deadline, the importer will not receive CBMA benefits the following year.

It’s also important that the producers fill out the application correctly. If a foreign producer provides incorrect information, they will not be able to assign tax benefits up to three calendar years. Once a producer has its eligibility revoked once, the next revocation may be permanent. 

‍2) Importers Must Register with TTB

Importers must use the TTB Importer’s Portal, to submit CBMA refund claims. Claims will be based on the foreign producer’s assigned CBMA tax benefit. 

Initially, the importer portal was scheduled to launch in Q1 2023, but  as of January 1, 2023 the TTB does not expect the “MyTTB Importer portal” to launch before April 2023. This means importers may have to wait more than 3 months to submit for reimbursement. 

The TTB has not provided definitive guidance on expected refund processing times, but expects it will take 60 days for refunds to occur once the system is in full operation. 

Importers working with freight logistics companies like Elenteny Imports, can simplify this process by working through them to process registrations and file claims.

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Outside of this, updates to the process are ongoing. The best resource to know what to do and when to do it and get questions answered is through the TTB at https://www.ttb.gov/alcohol/cbma-imports.

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