According to the Wall Street Journal, the Trump administration is challenging a tax benefit, amounting to $50 million a year, that has been available only to companies that import and export wine, but not to other beer and liquor companies.
The way that the benefit has worked is that wine companies have paid an excise tax when it either imports wine or produces wine domestically. However, when it exports domestic wine, it can then claim a “drawback,” a refund of the taxes it has paid on imports.
The 2004 Decision on Wine Excise Tax Exemptions
The issue in question stems with a 2004 decision in which Customs ruled that wine companies who store their wine in a specific location – exempting them from paying excise tax on domestic wine – could still apply for a refund offsetting import taxes, even if the company doesn’t pay excise taxes. According to the treasury, if all products that are responsible for an excise tax (e.g. beer, spirits, tobacco, specific fuels) took advantage of this exemption, the United States could stand to lose $674 million to $3.3 billion in annual revenue. Industry trade group, Wine Institute, claims that since the beginning of this ruling through 2017, wine exports have almost doubled to $1.53 billion. Understandably, now the government is claiming that the 2004 decision was in error.
According to a proposed rule that was published in the Federal Register, the government strives to eliminate what it refers to as a “double drawback:”
“This proposed rule would protect the integrity of excise tax revenue collections by ensuring that…substitution drawback is not employed to evade the statutory prohibition on using a single exportation as the basis for two drawback claims. It would preclude the filing of substitution drawback claims for excise tax paid on imported merchandise in situations where no excise tax was paid upon the substituted merchandise or limit the amount of drawback allowable to the amount of taxes paid (and not returned by refund, credit, or drawback) on the substituted merchandise, and thus eliminate double drawback. CBP invites comments from interested members of the public on this proposal.”
The comments to which the government is referring, are due Sept. 17.
Giving Our Money to Foreign Countries
According to Treasury spokesman, Tony Sayegh, “this proposal would correct an improper practice that has allowed firms to import foreign wine excise tax-free, even though all U.S.-made wine sold here is subject to excise tax. The proposed rule would end a transfer of U.S. taxpayer dollars to foreign producers.”
Unsurprisingly, the Journal has reported that wine industry representatives will fight to oppose the proposed changes. They believe that the tax benefit encourages exports, actually helping U.S. wine producers to compete in international markets. They are focusing on the fact that companies can only reduce taxes on imports if they also have exports to pair with them. If you are struggling to understand how the nex tax regulations will affect your business, contact a wine law attorney.
Posted in: Wine Law