Federal Government Seeks to End Tax Break for Wine Importers

By:
Ruth Singleton
Published Date:
Aug 3, 2018

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The Trump administration is challenging a tax benefit available to companies that import and export wine, but not those dealing in beer and hard liquor, according to the Wall Street Journal.  The benefit, amounting to $50 million a year, arose from a 2004 decision by a Customs and Boarder Patrol office in San Francisco.

When a company imports wine, it must pay an excise tax. Similarly, when it produces wine domestically, it is supposed to pay an excise tax. Then, when it exports the domestic wine, it can claim a refund of the taxes paid on its imports, called a drawback.

But there’s a twist. If the company stores the wine in a specified warehouse, it doesn’t have to pay the excise tax on the domestic wine. And in its 2004 decision, Customs ruled that wine companies that don’t pay the excise tax may still make a claim, upon exporting the wine, for the refund offsetting its taxes on imports. The government now says the 2004 Customs decision was erroneous.

In a proposed rule published in the Federal Register yesterday, the government seeks to eliminate this tax break, which it calls 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.” Those comments are due Sept. 17.

“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,” said Tony Sayegh, a Treasury spokesman. “The proposed rule would end a transfer of U.S. taxpayer dollars to foreign producers.”

If all products that owe excise taxes got the same tax break, the United States could lose $674 million to $3.3 billion in revenue annually, according to Treasury. Those include beer, spirits, tobacco and certain fuels.

According to the Journal, wine industry representatives plan to oppose the rule change. They argue that the government’s argument is flawed and that the tax benefit helps U.S. wine producers compete in foreign markets by encouraging exports. They note that companies can reduce taxes on imports only if they have exports to pair them with. Since 2004, U.S. wine exports have nearly doubled to $1.53 billion in 2017, according to the Wine Institute, an industry trade group.

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