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Hand Sanitizer Shortage Prompts Distillers to Seek Tax Exemption (1)

March 19, 2020, 7:56 PMUpdated: March 19, 2020, 8:56 PM

Distillers are asking Congress to help make it easier for spirits producers to shift toward producing hand sanitizer during the new coronavirus pandemic.

The industry has already gotten some help from the federal government: The Alcohol and Tobacco Tax and Trade Bureau announced on Wednesday that any permitted distillery could switch over to manufacturing hand sanitizer or ethanol for use in sanitizer production without needing any additional permit or authorization.

Now the industry is seeking an excise tax waiver that would make it cheaper for them to use undenatured alcohol—which is used for making alcoholic spirits for consumption—to make hand sanitizer. Denatured alcohol, which has added chemical ingredients to prevent humans from drinking it, is already exempted from that excise tax and is commonly used in laboratories and to make hand sanitizers.

Spirits producers do have the capability to produce hand sanitizer that meets the specifications prescribed by the World Health Organization, said Brian Facquet, founder of Prohibition Distillery in New York.

“We’re asking if Congress can figure it out now,” Facquet told Bloomberg Tax. “If they can say, ‘By the way guys, there’s zero tax, go do what’s good for the public,’ then I think you would have more distillers making it.”

Stimulus Negotiations

The Distilled Spirits Council of the United States wants the excise tax change to be part of upcoming stimulus legislation intended to address the economic effect of the virus. The national trade group’s members include many craft producers, as well as Bacardi, Jagermeister, and Campari Group, the maker of Skyy Vodka, Grand Marnier, and other well-known liquor brands.

The federal alcohol excise tax is currently set at $2.70 per gallon for the first 100,000 gallons produced in a calendar year. Manufacturers pay $13.34 a gallon up for every additional gallon up until they make 22.23 million gallons. Any alcohol produced beyond that threshold is taxed at $13.50 a gallon.

The spirits group has been talking with Senate Majority Leader Mitch McConnell’s office and the Trump administration about the issue, said Chris Swonger, the group’s president and CEO.

McConnell’s office didn’t return a request for comment.

Spirits producers aren’t the only ones asking Congress to help them out. Clean energy groups and a coalition of companies that promotes carbon capture technology have each asked for industry-specific tax provisions to be included in upcoming coronavirus relief legislation.

Economic Challenges

Alcohol producers have been hit hard by the pandemic, which has led many restaurants and bars to close their doors or shift to carry-out operations in order to prevent the spread of the virus.

“Many of these distilliers, they are suffering massive economic impact,” Swonger told Bloomberg Tax.

The push for a waiver for hand sanitizer production comes alongside a broader push from the wine, beer, and distilled spirit sector for help from Congress. Several alcohol industry groups wrote to lawmakers Wednesday asking for various economic assistance measures, including a one-year excise tax holiday, a suspension of payroll taxes, and loan assistance.

“Absent relief, a large number of distilleries, breweries, wineries, and cideries may be forced to permanently close their doors as a result of COVID-19,” the groups wrote.

Facquet, who produces gin, vodka, whiskey and bourbon cream at his distillery in the Catskill Mountains, said sales have gone down by 90% over the last week. He is interested in shifting production over to hand sanitizer, but would like to see a tax break to make that easier.

“What we are hoping for is that we are all able to pitch in,” Facquet said.

(Updates with details from alcohol industry letter beginning in 13th paragraph.)

To contact the reporter on this story: Kaustuv Basu in Washington at kbasu@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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