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

FREQUENTLY ASKED QUESTIONS ABOUT NONBEVERAGE DRAWBACK

1) My company has not previously claimed nonbeverage drawback. If we start claiming drawback now can we claim for past years usage of alcohol?

If you still have the necessary records to prepare the drawback claims and formulas for submission to the TTB and are able to support such claims with internal on-site records if inspected by the TTB, you can claim drawback for prior years usage of taxpaid spirits. Due to the statute of limitation no claim can be paid more than 6 years after the quarter in which the nonbeverage products were manufactured.

You must determine if it is economically worthwhile to file because late-filing penalties for claims and formulas for the prior years will be deducted from the amount of drawback allowed. (I've prepared and filed back-years of claims for clients who decided to start claiming drawback but also wanted drawback from prior years usage of spirits. You can contact me for assistance or more detailed information about claiming drawback for back-years.)


2) We are a small company and do not want to add a lot of government paperwork to our workload. Isn't there a lot of paperwork and documents involved for drawback?

Depending upon your current recordkeeping systems, little or no modification to existing procedures may be needed to comply with regulatory requirements. After the initial registration paperwork is prepared and filed there is only one simple pre-filled renewal form each year that must be mailed back to the TTB with a $500 annual registration payment called the "Special Occupational Tax" (SOT).  

New paperwork responsibilities would indeed involve preparing and filing nonbeverage formulas and quarterly (or optional monthly) nonbeverage drawback claims. However, there are several strategies and procedures that you can use to keep the formula filing to a bare minimum. Depending upon the number and kinds of products manufactured each quarter, drawback claims can be prepared in a matter of a few hours or few days each quarter using personal computer spreadsheet programs or; if desired; a mainframe program that can be designed specifically for preparing claims.

Many companies choose to out-source the responsibilities of the formula and/or drawback claim preparation and filing to third party consultants. (I provide assistance to companies that prepare their own claims and formulas AND I also provide complete claim and formula preparation and filing services to clients)


3) We use taxpaid 190 proof ethyl alcohol, do not claim drawback, and are not registered with TTB. Is this legal?

Registration is only required if you want to file claims for nonbeverage drawback. Furthermore, if drawback is not claimed, you are not required to comply with recordkeeping requirements of the nonbeverage drawback regulations. There are however disadvantages for your company if you do not claim nonbeverage drawback. (see below)


4) What are the disadvantages for a company that does not claim nonbeverage drawback?

If you do not claim nonbeverage drawback, your cost of 190-proof alcohol is 13-times higher than your competitors who claim drawback! (Your raw material cost for the alcohol is an additional $3.775 per pound tax compared to 28˘ per pound tax after drawback. Therefore, a flavor or extract at 50% alcohol content costs your company at least $12 per gallon more to produce than your competitors who claim nonbeverage drawback.)

Additionally, the risk of not filing nonbeverage formulas with the TTB lab is such that a manufacturer may unknowingly be manufacturing and selling flavors, extracts, or other products that are "fit for beverage use" and therefore would be violating the law for selling alcoholic beverages or potable alcoholic preparations without a permit and would be subject to fines and penalties.


5) Does "nonbeverage" mean alcohol "for nonbeverage uses"?

No. The term "nonbeverage" means your finished products themselves must be "unfit for use for beverage purposes". The term "unfit for use for beverage purposes" is commonly called "nonpotable". The product must be unfit (nonpotable) when diluted to 15% alcohol content by volume. Unless a product contains the types and quantities of ingredients which, without a doubt, make the product "nonbeverage" ("unfit"), a check for potability will be made by the TTB Lab when a formula sample is filed. The potability check is a basic "taste test" where the product is diluted to 15% alcohol by volume and paneled (tasted) by TTB lab personnel.


 

 

 


Page last edited on 11/06/06

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

Copyright© 1999-2006 Robert L. Anello