USP Alcohol › Tax & Compliance
TTB permits, drawback and which route applies to you
Undenatured, specially denatured, completely denatured or tax-free — four regimes, and only some of them are lawful for what you are making.
Start here: does your product get sold?
27 CFR § 22.102(b) prohibits use of tax-free alcohol in the manufacture of any product for sale, and prohibits the sale of any product resulting from its use. Part 22 exists for states and municipalities, tax-exempt educational and scientific institutions, hospitals, blood banks, sanitariums, non-profit clinics, and pathological or scientific research laboratories — and 27 CFR § 22.11 defines it as spirits of 190° proof or more withdrawn from bond.
Commercial manufacturers have two lawful routes: taxpaid undenatured alcohol with nonbeverage drawback under Part 17, or specially denatured alcohol under Parts 20 and 21.
The four regimes side by side
| Regime | Permit required | Net federal excise | Who it is for |
|---|---|---|---|
| Undenatured, taxpaid 27 CFR Part 17 | No user permit to purchase. Part 17 registration and formula approval to claim drawback. | ~$1.00 / PG after drawback | Medicines, medicinal preparations, food products, flavors, flavoring extracts and perfume |
| Specially denatured (SDA) 27 CFR Parts 20 & 21 | TTB F 5150.9 Industrial Alcohol User Permit | $0.00 | Cosmetics, toiletries, cleaning and industrial applications where a denaturant is acceptable |
| Completely denatured (CDA) 27 CFR Part 21 | None to purchase | $0.00 | Industrial solvent and process applications |
| Tax-free 27 CFR Part 22 | Apply on F 5150.22; permit issued is F 5150.9 | $0.00 | Eligible institutions only — never for a product that is sold |
Nonbeverage drawback, in practice
This is the mechanism that makes undenatured alcohol economically sane for a commercial manufacturer, and it is consistently misdescribed.
Under 27 CFR § 17.141, drawback is paid at $1.00 less than the effective tax rate on each proof gallon of distilled spirits used. At the standard $13.50 per proof gallon rate, you recover $12.50 and retain a net cost of about $1.00 per proof gallon. TTB describes it plainly: manufacturers may claim all but $1 per proof gallon of the excise taxes paid on spirits used in the manufacturing process.
What you have to do
- Get your product approved by TTB’s Nonbeverage Products Laboratory as unfit for beverage purposes — formula and process submitted on TTB F 5154.1 or through Formulas Online.
- Register as a Manufacturer of Nonbeverage Products and post the drawback bond on TTB F 5154.3.
- File claims on TTB F 5620.8 with supporting data on TTB F 5154.2, quarterly or monthly. Monthly claimants must take a physical inventory once per quarter.
- Establish the actual quantity of taxpaid spirits used and the effective tax rate applied to them — which is why your receiving paperwork must state proof and proof gallons.
They are working capital and administration. You float roughly the full excise on every gallon until the claim is paid, and you carry the overhead of formula approval and periodic claims. If your product does not require denaturant-free alcohol, SDA avoids all of that — and we will say so rather than sell you the harder route.
Choosing a denatured formula
Two formulas dominate personal care. SDA 39-C (27 CFR § 21.72) is denatured with one gallon of diethyl phthalate per 100 gallons of alcohol. SDA 40-B (§ 21.76) uses one-sixteenth avoirdupois ounce of denatonium benzoate NF and one-eighth gallon of tert-butyl alcohol per 100 gallons. Brands avoiding phthalates therefore specify 40-B. Formulas 38-B, 39-B, 39-D, 40 and 40-A are also authorised for cosmetics and toiletries.
One forward-looking note worth watching: tert-butyl alcohol — the SDA 40-B denaturant — has been proposed for addition to the USP ⟨467⟩ residual solvent lists as a Class 2 solvent. If that is finalised it strengthens the case for undenatured material wherever residual denaturant could carry into a drug product. We will update this page when the classification is settled.
Labelling consequences
On an INCI list, “Alcohol” means undenatured ethanol and “Alcohol Denat.” means denatured — a formulator may alternatively declare the specific formula, such as SD Alcohol 40-B. A brand whose positioning depends on the plain “Alcohol” declaration has no option but undenatured material.
For transatlantic manufacturers there is a further trap: US SDA formulas are not recognised in the EU, which operates its own mutual-recognition regime for completely denatured alcohol. Undenatured USP and Ph. Eur. compliant alcohol travels; a US denatured grade does not.