What Brewers and Distillers Shipping DtC Need to Know About Taxes

Delaney McDonald
April 6, 2021

This blog was last updated on April 6, 2021

It’s an exciting time for brewers and distillers entering the DtC shipping market. The wine industry has been utilizing this market for years, growing it to a $3.7 billion industry annually. But, this opportunity comes with added concerns and regulatory requirements. From licensing to managing restrictions on how much an individual consumer can purchase in a given period of time, these requirements must be complied with to engage in this market.

Taxes are one of the most basic aspects of beverage alcohol regulation, and so it’s no surprise that they make up a lot of DtC alcohol shipping regulation and compliance. DtC shipping creates a unique sales scenario requiring the shipper to recognize and manage a tax burden that is more complex than if selling through the three-tier system. This extends to both a state’s excise taxes and sales taxes.

Three-tier and DtC sales tax differences

The three-tier system has more parties involved so the tax burden is spread around, where a DtC sale excludes wholesalers and retailers so it absorbs all the tax burden.

In the three-tier system, excise taxes are generally paid by the “first party to own” the product in a state. When a supplier distributes their product into a state, that “first party to own” will be their wholesaler. And the retailer who makes the final sale to the consumer, is then responsible for collecting and remitting the state’s sales taxes.

In order to ensure they don’t lose out on tax revenue and are creating fairness between the DtC market and the three-tier system, states have created rules for allowing DtC shipping of alcoholic beverages by building in tax liabilities on DtC shippers.

If a winery, brewery, distiller or retailer were to enter a state’s DtC market, they would have the same tax burden as they would if they were selling through the state’s three-tier system, both excise and sales taxes.

Excise taxes for DtC shippers

When brewers and distillers enter the DtC market, they will need to manage excise tax payments in many more states. But, the excise tax filings for DtC shippers are often less rigorous than excise tax filings for the TTB or a producer’s home state.

Filing generally entails recognizing the total volume that has been shipped DtC, calculating that against the relevant state’s excise tax rates, and filing the return with taxes paid on time. Many states will also require the DtC shipper to provide summaries detailing all of their orders in that period, such as the name and address of who they shipped to and how much that consumer purchased. But instituting good order tracking practices or using a service like Sovos ShipCompliant that specializes in alcohol taxes and remittances, this burden can be easily managed.

Sales taxes for DtC shippers

With three-tier distribution, the final sale to the consumer will be made by the licensed retailer. But in a DtC sale, it eliminates the retailer, so the DtC shipper has to manage the local sales tax liability. 

They have this liability because most states require prospective DtC alcohol shippers to “voluntarily” register as a sales tax collector in that state—and if they don’t, they won’t receive the DtC shipping-specific license needed to ship into that state. This combined with varying state sales tax rates can create a complicated, multistate sales tax burden for DtC shippers.

Once the seller (DtC shipper) has calculated and collected the correct amount of sales tax from their consumers, they must then file the appropriate returns and remit all of the taxes they’ve collected to the state. Notably, in recent years many states have adopted specific filing processes for remote sellers as they’ve adopted economic nexus rules. But it can still be complicated for a remote seller to manage sales tax filings in states where they don’t have physical presence.

Take Action

For a more in-depth review of the tax burden for brewers and distillers shipping DtC, read our whitepaper, A Guide to Direct-to-Consumer Taxes for Brewers and Distillers.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Delaney McDonald

Share this post

2025 tax filing season
North America Tax Information Reporting
November 21, 2024
Top 5 FAQs to Prepare for the 2025 Tax Filing Season

This blog was last updated on November 21, 2024 While “spooky season” may be over for most of us, the scariest time of year for many businesses is right around the corner: tax filing season. As they brace themselves for the flood of forms, regulatory updates, and tight deadlines, the fear of missing a critical […]

dtc shipping law updates
North America ShipCompliant
November 13, 2024
DtC Shipping Laws: Key Updates for Alcohol Shippers

This blog was last updated on November 13, 2024 When engaging in direct-to-consumer (DtC) shipping of alcohol, compliance with different state laws is paramount and so keeping up with law changes is critical. In 2024, the rules in several states for DtC have already been adjusted or will change soon. Here is a review of […]

sales tax vs. use taxes
North America Sales & Use Tax
November 8, 2024
Sales Tax vs. Use Tax, Explained. Who Reports What, and When?

This blog was last updated on November 19, 2024 One of the core concepts in sales tax compliance is also one of the most frequently misunderstood: the differences between sales tax and use tax. These tax types may look similar on the surface, but knowing the differences is essential for staying compliant and avoiding costly […]

2025 bond project
North America Tax Information Reporting
November 4, 2024
2025 NAIC Bond Project – The Insurer’s Guide

This blog was last updated on November 14, 2024 The regulatory landscape for insurance companies is undergoing significant changes with the Principles-Based Bond Project which is set to take effect on January 1, 2025. These changes, driven by the National Association of Insurance Commissioners (NAIC), will impact how insurance companies classify and value bond investments, […]

E-Invoicing Compliance EMEA VAT & Fiscal Reporting
November 1, 2024
VAT in the Digital Age Approved in ECOFIN

This blog was last updated on November 7, 2024 The long-awaited VAT in the Digital Age (ViDA) proposal has been approved by Member States’ Economic and Finance Ministers. On 5 November 2024, during the Economic and Financial Affairs Council (ECOFIN) meeting, Member States unanimously agreed on adopting the ViDA package. This decision marks a major […]