Understanding the NJ Alcohol Tax
By Paul Lembo
You’ve perfected your batch. You’ve scouted your location. You’ve raised the capital. And now you are ready to venture into the wild, wonderful world of professional brewing.
But before you make that first pour, make sure you understand the state tax laws that apply to your sales.
In New Jersey, alcohol producers must pay not only state and federal taxes, but also an additional alcoholic beverage tax. These taxes can be significant, so it is critical to be aware of that expense when creating a financial plan and launching your enterprise.
Here’s what you need to know.
1. Understand the rates. Tax rates can change from year to year, but at current rates, craft brews are taxed on the state level at 12 cents for every gallon produced (not sold). That results in a tax of about $3.75 per barrel, which can add up as you begin to increase production.
In addition, liquor is taxed at $5.50 per gallon, while wine costs a producer 88 cents per gallon.
These are considered excise taxes, as opposed to sales taxes. With sales tax, the customer is responsible for paying the tax; the business collects it and sends it to the state. Alcoholic beverage taxes, on the other hand, must be paid directly by the brewery.
As a result, if you are launching a business producing alcohol, you must plan for how to account for that tax amount -- in addition to payroll, overhead and the cost of production -- when determining a price point for your product and considering how much to produce. Cash flow management is critical in this industry because you could be producing inventory that is not yet ready to be sold – but that is taxable once it is produced.
2. Get bonded. In every state, brewers are required to purchase an insurance bond to guarantee the tax will be paid. If the brewery fails to make its tax obligations, the bond covers the deficient amount. Work with a tax professional to ensure you purchase a bond in the correct amount, because if you purchase too small of an amount for your production level, your brewery could be found noncompliant.
There is no mandated rate for a brewer’s bond; each brewer must work with a tax professional to determine the correct rate and proper coverage for its specific situation.
Paul Lembo is a Manager in Wiss' Food & Beverage Industry Group with over eight years of experience in public accounting. Reach him at 973.994.9400 or firstname.lastname@example.org.