US Distilleries Producing Alcohol Hand Sanitizer?

Don’t miss out in a huge tax savings!

As the COVID19 outbreak began to gain traction in the US, and people began to adhere to social distancing practices, one of the first things to fly off the shelves of supermarkets were bottles of hand sanitizer. As stores now scramble to restock shelves, a few unlikely sources are stepping up to meet demand.

Craft distilleries such as Vikre Distillery in Duluth, MN and Dillon Small Batch Distillers in Beamsville, Ontario have begun to use their distilling capacity to convert their grain spirits not into drinks, but into hand sanitizer. Given that these distilleries have been providing their sanitizer for free, their simple act of altruism should not go without reward.

One of the major hurdles in distilled spirits production is the US Excise Tax imposed on all US distillers since prohibition. But, not every distiller of ethanol needs to pay excise tax. I will explain below.

US Federal Excise Tax was a product of prohibition — more accurately of the repeal of prohibition — which allowed for the production and sale of alcohol for beverage purposes in the US. All post-prohibition distilleries, wineries and breweries are levied a tax on their product. This tax, known as the Excise Tax, is a hotly contested issue in the modern era of craft spirits and beverages, but remains a steadfast requirement for any legal producer.

Originally this tax was an effort to curtail the unchecked growth of underground and clandestine alcohol producers. Given that these producers were largely unregulated, the tax came attached to several restrictions for production. Primarily, any alcohol product produced in the US needs to be deemed suitable for beverage purposes. Basically, it needs to be safe to drink, which sadly many spirits pre-prohibition were not (ie. bath tub gin). In the case of distilled spirits, producers needed to prove that their product was purely ethanol, free from dangerous impurities and did not include any harmful ingredients (some pre-prohibition alcohol products included some frightening ingredients including mercury, morphine and ether. Yikes.).

However, ethanol use stretches far beyond beverages. Hand sanitizer is but one of many uses for distilled alcohol. Alcohol is found in mouthwash, cold medications, window washing fluid and a host of other products. Realizing that these products were outside of the grasp of prohibition era restrictions, the US Tax and Trade Bureau (TTB) created a loop hole for producers of non-beverage alcohol products. For those producers, there is a massive tax rebate known as a drawback available for eligible products. Hand sanitizer, which is generally between 60–80% ethanol certainly falls into this category.

Federal Excise Tax on distilled spirits intended for beverage purposes is $13.50 per proof gallon of spirits — a not insignificant sum when you figure some distilleries produce at the scale of millions of proof gallons per year (a proof gallon is a gallon of product at 50% alcohol). Those producers of non-beverage alcohol products are eligible for tax drawback of $13.50-$1.00 — essentially $12.50 back per proof gallon of product produced.

The process of certifying a non-beverage alcohol product is fairly straightforward, though not entirely easy as you would expect from any government bureaucracy. For a regular distillery, the checks and measures required are practices already employed to calculate Excise Tax in the first place.

When I started a cocktail bitters company in 2012, I qualified all my products as non-potable — a strange distinction given that they were meant to be consumed. But as a non-beverage alcohol product, this extends to products that may be consumed, but not drunk in quantities on their own. In qualifying them, and keeping proper records, I received a hearty check back from the TTB every quarter, offsetting my Excise Tax paid on the spirits I used.

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Photo by Adam Jaime on Unsplash

Distilleries, if you are considering stepping up in this way to help with the hand sanitizer shortage, know that there is a way to recoup the lion’s share of your Excise Tax burden. For you efforts, you should be celebrated and paid for you time, but given the examples of distilleries offering their products for free, a the very least you should pay a minimum of taxes.

Resources

Start your journey (and I mean journey) here: https://www.ttb.gov/industrial

Get the fine print here: https://www.ttb.gov/sda-tutorial/sdamenu2sub2chd2

Medical student, molecular biologist and educator. I write about science and medicine.

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