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Section 5010 Alleviates Some of the Discriminatory Tax Treatment of Distilled Spirits
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Beer, wine and distilled spirits are not all taxed at the same rate. The federal tax rate on distilled spirits is almost three times the rate on wine and over two times the rate on beer.
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Section 5010 recognizes this differential tax treatment and attempts to alleviate some of the inequitable treatment of distilled spirits through component-based taxation.
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Various spirits products contain wine as part of their formulation. Under Section 5010, any wine-based alcohol used in finished distilled spirits products is taxed at the lower wine tax rate.
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Without Section 5010, any wine-based alcohol used in finished spirits products would be taxed at the higher distilled spirits rate.
Section 5010 Helps to Eliminate Part of the Double Taxation on Spirits
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Section 5010 also partially addresses the discriminatory treatment of distilled spirits that contain flavors with an alcohol base. Distillers, as well as many food and beverage manufacturers, purchase flavors containing alcohol for use in producing their finished products. Alcohol is a critical component acting as a solvent and biological stabilizer in food flavors.
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Section 5010 provides that the alcohol in flavors used to produce distilled spirits, not exceeding 2.5% of the alcohol content of the finished product, will not be taxed at the distilled spirits rate. If the alcohol contained in the flavors exceeds 2.5% of the finished product's alcohol content, that portion which exceeds 2.5% of the finished product's alcohol content will be taxed at the full distilled spirits rate. In contrast, other food and beverage manufacturers are not subject to any tax on the alcohol content of the flavors used in their products.
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Even though Section 5010 does not fully address this discriminatory tax treatment of spirits, without Section 5010, all of the alcohol contained in these flavors would be taxed twice -- once when used to produce the flavor and again when used to produce the finished distilled spirits product.
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No other industry in the United States economy is subject to this double taxation.
Distilled Spirits Council of the U.S., Inc.
September 1999
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Equal Opportunity Employer