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

WHAT IS NONBEVERAGE DRAWBACK?

An excise tax is levied on undenatured domestic and imported distilled spirits whether or not the spirits are used for beverage purposes (alcoholic beverages) or for nonbeverage purposes (flavorings, extracts, medicines, chemicals, etc.). Nonbeverage drawback is a "refund" or "draw back" of the distilled spirits excise tax when the spirits are used to manufacture nonbeverage products.

Nonbeverage drawback is authorized by Title 26 United States Code ("26 U.S.C.") which is commonly called the "Internal Revenue Code". The actual procedures and requirements to claim nonbeverage drawback are established by regulations in Title 27 Code of Federal Regulations ("27 CFR").

The present nonbeverage drawback system involves the following three basic steps:

  1. The Alcohol and Tobacco Tax and Trade Bureau ("TTB") National Laboratory in Rockville, MD determines whether a manufacturer's products are "beverage" or "nonbeverage". This step requires manufacturers to file formulas and samples with the TTB's national lab.

  2. The TTB National Revenue Center in Cincinnati, Ohio approves and authorizes the payment of the drawback to manufacturers of nonbeverage products. This step requires manufacturers to file a quarterly or monthly "claim for drawback" accompanied with "supporting data".

  3. TTB field offices located in "revenue districts" periodically send tax auditors to the nonbeverage product manufacturer's premises to conduct inventories of distilled spirits and inspect records to ensure compliance with laws and regulations.

Although this process appears to be rather simple and straight-forward, the nonbeverage drawback regulations actually contain nine (9) subparts and more than ninety (90) sections... some of which contain more than five (5) paragraphs per section!

Statistics
Each year the U.S. Treasury Department returns more than $200,000,000 in distilled spirits excise taxes to manufacturers of nonbeverage products as a nonbeverage drawback (refund) for the spirits used by the manufacturers.

Each year 500 to 600 entities register with the TTB as manufacturers of nonbeverage products ("MNBPs").

Unfortunately, many users of taxpaid spirits do not claim the drawback because they:

Many manufacturers who claim nonbeverage drawback often have technical and regulatory compliance problems that result in rejections of drawback claims and formulas, disallowance of drawback, and/or the imposition of fines and penalties by the TTB.

Although the TTB provides some regulatory and technical assistance to nonbeverage product manufacturers, the use of expert regulatory consultants who have industry experience and regulatory experience is preferred.

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What is the distilled spirits tax rate and the drawback rate?

Page last edited on 11/07/06

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