Alcoholic Beverage Control

The Montana Department of Revenue is announcing that licensed Montana distillers may now manufacture sanitizer for use by the public. There will be no federal or state taxes on the production of sanitizer made with denatured alcohol. Please see guidance below from the U.S. Alcohol and Tobacco Trade and Tax Bureau (TTB).

For more information, contact the Alcoholic Beverage Control Division at (406) 444-0728.

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TTB Public Guidance

Production of Hand Sanitizer to Address the COVID-19 Pandemic

March 26, 2020
TTB G 2020-1A

Summary

Tax-free ethanol may be used to produce hand sanitizer if it is denatured according to TTB regulations and Food and Drug Administration (FDA) guidance.

Alcohol, whether or not denatured, may be delivered tax-free to state and local governments for non-beverage purposes. The same is true for hospitals, blood banks, sanitariums, certain pathological laboratories, non-profit clinics, and qualifying educational institutions, if not for resale or use in the manufacture of any product for sale.

TTB is temporarily waiving certain formula approvals for the manufacture of hand sanitizer using and expediting certain permit requirements.

Purpose

On March 18, 2020, to facilitate the production of hand sanitizer, TTB temporarily relieved distilled spirits permittees of certain requirements related to the use of alcohol for this nonbeverage purpose (see TTB G 2020-1 “Production of Hand Sanitizer to Address the COVID-19 Pandemic”). TTB exempted permittees from obtaining formula approval from TTB before producing hand sanitizer if using a formula consistent with World Health Organization (WHO) guidance. Ethanol is one of the approved reagents in the WHO guidance. TTB’s March 18 authorization referred to both denatured and undenatured ethanol. However, on March 23, 2020, the FDA issued guidance which specifies the use of denaturants when compounding ethanol-based hand sanitizers. See Temporary Policy for Preparation of Certain Alcohol-Based Hand Sanitizer Products During the Public Health Emergency (COVID-19) [lnks.gd]. TTB is therefore providing this guidance to (1) supersede its prior guidance with regard to the authorized formula to be consistent with FDA guidance; (2) exempt distilled spirits plants (DSPs) from the requirements to request approval from TTB to receive denatured or undenatured distilled spirits in bond from another DSP and to obtain additional bond coverage, through June 30, 2020; (3) provide guidance and certain exemptions from requirements for state and local governments wishing to obtain tax-free alcohol, and (4) offer hospitals, blood banks, sanitariums, certain pathological laboratories, non-profit clinics, and qualifying educational institutions the same streamlined application process.

This guidance also restates the provisions of TTB G 2020-1 that remain unchanged.

Guidance

Due to the Coronavirus 2019 (COVID-19) pandemic, the Acting Administrator of the Alcohol and Tobacco Tax and Trade Bureau (TTB) has found it desirable to waive provisions of internal revenue law with regard to distilled spirits, and therefore is providing certain exemptions and authorizations to distilled spirits permittees who wish to produce ethanol-based hand sanitizers to address the demand for such products during this emergency.  Any existing DSP therefore can immediately commence production of hand sanitizer or distilled spirits (ethanol) for use in hand sanitizer, as described below, without having to first obtain authorization.  Any existing DSP also may remove undenatured or denatured ethanol from bonded premises free of tax for use by any state or local government to produce hand sanitizer. In addition, any existing DSP may remove undenatured or denatured ethanol from bonded premises free of tax for use by hospitals, blood banks, sanitariums, certain pathological laboratories, non-profit clinics, and qualifying educational institutions seeking to use it to manufacture hand sanitizer, and not for resale or use in the manufacture of any product for sale.  See 26 U.S.C. 5214(a)(3). These measures are generally authorized under authorities that apply in disaster situations, and as a result, are initially approved through June 30, 2020, with the possibility for extension as necessary.

Although TTB is exempting industry members from certain tax requirements through this guidance, industry members must continue to comply with other federal and state law, and industry members should contact relevant federal or state agencies with questions about guidance issued by those agencies.

Permit guidance for alcohol fuel plants (AFPs) and beverage DSPs: TTB is exempting AFPs and beverage DSPs from the requirement to obtain additional permits or bonds to manufacture hand sanitizer or to supply ethanol for use in the manufacture of hand sanitizer to other TTB permittees who are authorized to receive such distilled spirits. TTB is authorizing this exemption under 26 U.S.C. 5562. AFPs and beverage DSPs must continue to keep records of their operations, including any undertaken as authorized under this exemption.

Tax guidance for the manufacture of hand sanitizer:  Nonbeverage products made with ethanol, including hand sanitizer, are not subject to federal excise tax.  Please note that the FDA guidance referenced above specifies the use of denaturants when compounding hand sanitizer. For information regarding denaturants, please contact FDA.

Formula guidance for the manufacture of hand sanitizer: TTB is authorizing the manufacture of hand sanitizer products by DSPs using a formulation in the FDA guidance cited above without first obtaining formula approval from TTB.

Guidance for industrial alcohol users: Industrial alcohol user permittees may also use denatured ethanol to manufacture hand sanitizer using a formulation in the FDA guidance cited above without first obtaining formula approval from TTB.  During the period covered by this guidance, TTB is also exempting industrial alcohol user permittees from the requirement to request approval from TTB to increase the quantities of denatured ethanol that they may procure. See 27 CFR 20.42(a)(3), 20.56. TTB is authorizing these exemptions under its authority in 27 CFR 20.22(b) to approve emergency variations from regulatory requirements.

Guidance regarding transfers in bond. Under current TTB regulations, when DSPs want to receive either denatured or undenatured ethanol from another domestic DSP, the receiving DSP must submit an application to TTB for authorization prior to the first transfer and ensure appropriate bond coverage. See 27 CFR 19.403, 404. During the period covered by this guidance, for transfers of either denatured or undenatured distilled spirits between domestic DSPs, TTB is exempting DSPs from the requirements to request approval from TTB to receive denatured or undenatured distilled spirits from another DSP and to obtain additional bond coverage. Rather than submit such requests to TTB for approval using TTB F 5100.16, DSPs must maintain records of such receipts, which would include records of the information currently required on TTB F 5100.16.  TTB is authorizing these exemptions under its authority in 27 CFR 19.28 to approve emergency variations from regulatory requirements.

Guidance for state and local governments. Both denatured and undenatured alcohol may be removed free of tax for the use of a state, any political subdivision of a state, or the District of Columbia, for nonbeverage purposes, including making hand sanitizer. See 26 U.S.C. 5214(a)(2). An alcohol user permit is required to obtain alcohol from a distilled spirts plant. See 26 U.S.C. 5271(a); 27 CFR part 22. TTB provides state and local governments with a streamlined application, as authorized under 27 CFR 22.42 and 22.43(a)(1). TTB has dedicated personnel to process such applications seven days a week given the COVID-19 emergency. Please note that the recent FDA guidance [lnks.gd] cited above specifies using denaturants when compounding hand sanitizer. During the period of this guidance, TTB is authorizing state and local government permittees to make hand sanitizer for use anywhere, as needed to address the COVID-19 national emergency. See 27 CFR 22.22(b).

Guidance for hospitals, blood banks, sanitariums, certain pathological laboratories, non-profit clinics, and qualifying educational institutions. Hospitals, blood banks, sanitariums, certain pathological laboratories, non-profit clinics, and qualifying educational institutions may obtain alcohol free of tax for their own nonbeverage purpose use and not for resale or use in the manufacture of any product for sale, as described in 26 U.S.C. 5214(a)(3). Manufacturing hand sanitizer is one such nonbeverage use. As with state and local governments, such alcohol must be obtained from a distilled spirits plant and may only be obtained by those holding an alcohol user permit from TTB. See 26 U.S.C. 5271(a); 27 CFR part 22. TTB will offer these organizations the same streamlined application, as authorized under 27 CFR 22.42 and 22.43(a)(2). Again, please note that recent FDA guidance [lnks.gd] specifies using denaturants when making hand sanitizer.

Further Information

If you have questions regarding obtaining a TTB permit, please contact the National Revenue Center at 877-882-3277 / 877-TTB-FAQS (toll free) or online [lnks.gd]. For all other inquiries, please contact the Regulations and Rulings Division at 202-453-2265 or online [lnks.gd]. Please visit the homepage of TTB.gov  [lnks.gd]for the most recent TTB news on COVID-19 issues.