In October 14, 1978, President Jimmy Carter signed into law H.R. 1337, an Act that, among other things, fundamentally changed the legal landscape for homebrewers in the United States. H.R. 1337 amended section
5053(e) of the Internal Revenue Code, providing a limited tax exemption for beer produced “for personal and family use and not for sale.” While most homebrewers are aware that homebrewing is legal, subject to certain limitations, many do not have a comprehensive understanding of section 5053(e). The goal of this article is to provide a clear and thorough analysis of section 5053(e), the federal homebrewing exemption statute. While the article will not necessarily examine prospective legal issues that could arise under section 5053(e) (in fact, section 5053(e) has never been litigated, to my knowledge), I hope that it will serve as a general reference tool to improve the homebrewing community’s understanding of the federal law which makes it possible for us to legally practice our craft.
The article will first discuss the basic statutory context within which section 5053(e) is situated. Second, the article will look to the language of the exemption statute, clause by clause, analyzing the legal significance of each. Throughout the article, I will call the reader’s attention to various related state-law issues. In addition, I will use linked legal citations throughout in order to provide interested readers with the source material I used in writing the article.
Basic Statutory ContextAlcoholic beverages are heavily regulated and taxed in the U.S. Section 5053(e) is situated among provisions in the Internal Revenue Code governing excise taxes on alcoholic beverages. You’ve probably noticed that this article terms section 5053(e) an “exemption.” This is because section 5053(e) does not create or otherwise guarantee a “right” to homebrew. Any federal law purporting to establish such a right would likely contravene the
Tenth and
Twenty-First Amendments, given that by most indications, regulating alcohol in that manner is exclusively a state right. Rather, section 5053(e) exempts homebrewed beer from certain federal excise taxes.
States are free to regulate homebrewing in addition to, and in spite of, most federal laws. For example, states may levy their own excise taxes or penalties on homebrewed beer, or -- in the extreme -- they may ban homebrewing entirely.
Given this basic statutory context, let’s turn to the language of section 5053(e).
(e) Beer for personal or family use
Subject to regulation prescribed by the Secretary, any adult may, without payment of tax, produce beer for personal or family use and not for sale. The aggregate amount of beer exempt from tax under this subsection with respect to any household shall not exceed:
(1) 200 gallons per calendar year if there are 2 or more adults in such household, or
(2) 100 gallons per calendar year if there is only 1 adult in such household.
For purposes of this subsection, the term “adult” means an individual who has attained 18 years of age, or the minimum age (if any) established by law applicable in the locality in which the household is situated at which beer may be sold to individuals, whichever is greater.
“Subject to regulation prescribed by the Secretary”The Secretary in section 5053(e) means “the Secretary of the Treasury . . . [,]”
see 23 U.S.C. § 7701(a)(11), who has a legislative grant of authority to administer and enforce internal revenue laws. This clause is pretty much boilerplate introductory language recognizing that the Secretary may prescribe “all needful rules and regulations for the enforcement of [internal revenue laws].”
See id. § 7805(a). Nonetheless, it is still significant because, as will be seen below, rules and regulations prescribed by the Secretary provide clarification on the precise meaning of section 5053(e).
“any adult may”Only adults may legally produce homebrewed beer under Section 5053(e). The operative term here is “produce.” The statute is silent on whether a minor can legally purchase raw ingredients for beer, which is likely a state issue anyway. Section 5053(e) defines adult, but the definition is somewhat quaint and requires further analysis.
When it was originally signed into law in 1978, the definition of adult at the end of section 5053(e) had different effects depending on the minimum drinking age in a particular jurisdiction. That changed with the
National Minimum Drinking Age Act (“NMDAA”) of 1984. The NMDAA amended the Federal Aid Highway Act (“FAHA”) by subjecting states to a ten percent decrease in annual highway funding apportionment if they did not establish a minimum drinking age of 21. In constitutional law parlance, the NMDAA was an exercise of Congress’s “conditional spending” power. The constitutionality of the NMDAA was challenged by the state of
South Dakota in 1987 in South Dakota v. Dole, 483 U.S. 209 (1987), but the U.S. Supreme Court held that the NMDAA was a valid exercise of Congress’s conditional spending power that did not otherwise run afoul of the Constitution, namely the Tenth and Twenty-First Amendments.
Today, every state in the U.S. has a minimum legal drinking age of 21. Accordingly, for the purposes of section 5053(e), adult means a person who is at least 21 years old.
“without payment of tax“Ordinarily, a person who produces beer for sale, i.e. a “brewer” as defined in section
5052(d), is subject to a federal excise tax. According to Black’s Law Dictionary, an excise tax is “[a] tax imposed on the manufacture, sale, or use of goods . . . .” The federal excise tax rate for brewers is currently “$18 for every barrel containing not more than 31 gallons and [] a like rate for any other quantity or fractional parts of a barrel.”
26 U.S.C. § 5051(a)(1). There is a reduced excise tax rate for smaller brewers: “In the case of a brewer who produces not more than 2,000,000 barrels of beer during the calendar year, the per barrel rate of the tax imposed by this section shall be $7 on the first 60,000 barrels of beer which are removed in such year . . . .”
Id. § 5051(a)(2).
Under section 5053(e), homebrewers are expressly exempted from paying federal excise taxes on beer they produce for personal and family use and not for sale. The Code goes even further to clarify the contours of homebrewers’ exempted status by expressly stating that the definition of brewer does “not include any person who produces only beer exempt from tax under section 5053(e).”
Id. § 5052(d).
But what about state excise taxes? Recall that neither section 5053(e) nor any other federal law prohibits individual states from regulating homebrewing. Accordingly, states are free to impose excise taxes on homebrewed beer. On balance, states are free to create exemptions similar to those in section 5053(e). Pint of Law’s home state of Minnesota ordinarily levies a state excise tax on beer. But
Minnesota Statutes section 297G.07, subdivision 1(b), specifically provides that beer “naturally brewed in the home for family use” is exempted from the state excise tax.
Other jurisdictions have not taken such a lenient approach. For example, in Alabama and Mississippi, it is still illegal to homebrew. Sadly, under the Tenth and Twenty-First Amendments, it is these states’ prerogatives to ban homebrewing. For an “interesting” look at some of the Alabama legislators who recently voted down a proposal which would have legalized homebrewing,
click here.
Consult the laws in your jurisdiction to learn whether there are state-level excise taxes or penalties associated with homebrewing. Chances are, however, that if it is legal to homebrew in your state, there are likely state exemptions which mirror section 5053(e).
“produce beer for personal or family use”To qualify for the section 5053(e) exemption, beer can only be produced “for personal or family use.” For the purposes of section 5053(e), beer is legally defined as “ale, porter, stout, and other similar fermented beverages (including sake and similar products) of any name or description containing one-half of 1 percent or more of alcohol by volume, brewed or produced from malt, wholly or in part, or from any substitute therefore.”
26 U.S.C. § 5052(a). While this definition would make any BJCP judge, and most homebrewers, cringe (‘Ale, porter, and stout?! You don’t say!’), it covers the bases for purposes of section 5053(e). Just about anything today’s average homebrewer would consider to be beer would likely fit within the definition. Even the newer gluten-free beers brewed with 100% malted sorghum, a recognized substitute for malted barley, would qualify.
As for personal or family uses, we can easily accept that brewing and consuming homebrewed beer in one’s own home is among the uses contemplated by the plain language of section 5053(e). But what about uses that stray further from the plain language? What about uses, or “removals,” as termed in the Code, outside the home, such as homebrew competitions or club meetings?
Other subsections in section 5053 provide little insight, especially considering that just about every other subsection is only applicable to a commercial brewery, which necessarily precludes application to homebrewing.
Regulatory provisions prescribed by the Secretary offer some guidance.
Title 27, part 25.206 of the Code of Federal Regulations includes within the meaning of personal and family use, “use at organized affairs, exhibitions or competitions such as [homebrewing] contests, tastings or judging.” “Organized affairs” probably covers most, if not all, of the legitimate uses associated with homebrewing. “Exhibitions” and “competitions” are really just thrown in for good measure.
States also have the right to regulate uses with regard to homebrewing. In a rather extreme example, law enforcement officials shut down the 2010 Oregon State Fair homebrewing competition due to a rigid -- and newly minted -- interpretation of a thirty-some-year-old state law. The law at issue provided:
“No person shall brew, ferment, distill, blend or rectify any alcoholic liquor unless licensed so to do by the Oregon Liquor Control Commission. However, the Liquor Control Act does not apply to the making or keeping of naturally fermented wines and fruit juices or beer in the home, for home consumption and not for sale.”
Despite its three-decade history, in was only in 2010 that regulators and law enforcement began to read the law to literally limit uses to only home consumption. Accordingly, transporting homebrewed beer to the State Fair for competition or any other removal from the home was prohibited. While the Oregon use restrictions were ultimately relaxed by a
2011 legislative amendment to the until-2010-unproblematic law, state use restrictions such as the Oregon example are ordinarily valid.
“and not for sale”No. Selling. Period. There is always that enterprising homebrewer who thinks they’ve come up with a creative way around the prohibition on the sale of homebrewed beer.
See, e.g.,
Homebrew “Shares”. But selling, and just about anything that even hints of a sales transaction, amounts to illegal production, for which there can be both civil and criminal penalties.
Under federal law, unlawful production can result in either a $1,000 fine or imprisonment for “not more than 1 year,” or both.
26 U.S.C. § 5674(a).
State law penalties differ depending on the jurisdiction. In Minnesota, the civil penalties associated with illegal production are set forth in
Minnesota Statutes section 297G.18. Criminal penalties are set forth in section
297G.19 and include multiple types and levels of offenses.
“The aggregate amount of beer exempt from tax under this subsection with respect to any household shall not exceed: (1) 200 gallons per calendar year if there are 2 or more adults in such household, or (2) 100 gallons per calendar year if there is only 1 adult in such household.”
Although this is the most lengthy excerpt quoted for this article, this is the most straight-forward part of section 5053(e). Recall that section 5053(e) provides a limited tax exemption for beer produced for personal or family use. The most apparent limitation relates to the number of exempted gallons a homebrewer may produce in a given year.
Where there are at least two adults in a given household, the annual gallon limit which qualifies for the section 5053(e) exemption is 200 gallons. Where there is only one adult in a household, the annual limit is 100 gallons. A gallon is defined in section 5052(b) as the liquid measure of 231 cubic inches. “Calendar year” means the period from January 1 through December 31 of a given year, as opposed to a fiscal year or some other yearly measure.
Although Pint of Law is not aware of any homebrewer in the U.S. being the subject of federal action for producing in excess of the prescribed annual gallon limits, there is no reason to be cavalier about these limits. Brew and let brew, but don’t jeopardize the reputation of this excellent hobby by straying into unlicensed, and thus illegal, production territory. Again, there are both civil and criminal penalties for engaging in illegal production. There are also state and local penalties for engaging in unlicensed brewing.
ConclusionTitle 26, section 5053(e) of the United States Code changed the legal landscape for homebrewing in the U.S. by creating a limited excise tax exemption for homebrewed beer. I hope that this article has improved your understanding of the federal law which makes it possible for us to legally practice our craft.
Cheers!
Topic: Pint of Reference: A Guide To The Federal Homebrewing Exemption Statute (Read 58977 times)
