Cider: What the Fed?Feb. 08, 2016
What is cider? Is it only cider if it’s made from apples? What if it’s made from pears? And how is it taxed? Is it taxed as a wine? As champagne? As its own product? And do state statutes refer to cider? If not, do states treat it like a wine? Or do they treat it like a beer? Does it matter? Can the author of this post stop asking questions and give us some answers?
Cider is becoming more and more popular. The laws and regulations surrounding it, however, are not remotely settled. First, the federal government’s definitions (yes, plural) vary from agency to agency, and sometimes even within a single agency. For example, in terms of identification standards, the TTB defines cider as a “fruit wine” derived wholly from apples. In order to qualify for the beneficial hard cider tax rate, however, the Internal Revenue Code defines “hard cider” as being derived primarily from apples or pears. But for TTB purposes, if it’s fermented pear juice, do not dare refer to it as a cider, because it can only be called a “perry.” (I know; I had never heard of “perry” either.)
Now, assume you produce a cider — what regulations would you follow to determine how to design your label and what size packaging you can use? The TTB, right? Nope (at least, mostly). The TTB defines “wine” as having 7% or higher ABV, so if your cider has less ABV (which most do for tax reasons discussed below), you have to deal with the FDA regulations. This is why you’ll often see nutritional information on labels for cider, but not for beer — the FDA, with some exceptions, requires it, but the TTB does not.
In a potential boon to the industry, the CIDER Act passed last year, reducing the tax for cider with an ABV of 7% or more. It reduced the tax pretty dramatically to $0.226 per gallon from its previous $1.07 per gallon or $3.30 per gallon, depending on carbonation levels. I suspect with the changes to the tax laws, we’re going to start seeing more cideries enter the market. To produce higher ABV cider (7% and above), it used to cost about $33 per barrel — the CIDER Act brought that down to about $7 per barrel. And for higher carbonation cider, the tax was about $102, which again, has been brought down to around $7. This gives cideries room to experiment more with the product and if there’s one thing we learned from craft beer, it’s that consumers love diversity in products.
What about the states, you ask? Great question. Most states treat cider like a wine, so cider producers will have to look to the wine statutes to figure out what they can and cannot do (and what their state tax rates are). Some states, however, treat it like a beer (e.g., Iowa). And in Pennsylvania, cider is a beer if below 5.5% ABV, but a wine if above 5.5% ABV. So if you’re a cidery and make products both above and below that threshhold, you’ll need a brewers permit and a winery license. Hooray, my Pennsylvania friends, you are a jack of all trades.
There are other quirks to state laws that you have to consider as a cidery. For example, if you’re in Minnesota and you want to sell on-sale and off-sale, you’ll need 51% of your ingredients to be from Minnesota. The Dormant Commerce Clause probably has something to say about the constitutionality of this requirement, but it has yet to be taken up. If you’re treated like a beer as a cidery, as in Iowa, you’ll be subject to the state’s brewer-wholesaler franchise laws, so good luck getting out of a distribution agreement.
The point is that if you want to open a cidery, make sure you’re talking to the right people.