[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 3783 Introduced in Senate (IS)]








109th CONGRESS
  2d Session
                                S. 3783

To amend the Internal Revenue Code of 1986 and the Foreign Trade Zones 
   Act to simplify the tax and eliminate the drawback fee on certain 
distilled spirits used in nonbeverage products manufactured in a United 
         States foreign trade zone for domestic use and export.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             August 3, 2006

Mr. Lautenberg introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 and the Foreign Trade Zones 
   Act to simplify the tax and eliminate the drawback fee on certain 
distilled spirits used in nonbeverage products manufactured in a United 
         States foreign trade zone for domestic use and export.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SPECIAL RULES FOR NONBEVERAGE PRODUCTS MANUFACTURED IN A 
              UNITED STATES FOREIGN TRADE ZONE.

    (a) In General.--Subpart E of part I of subchapter A of chapter 51 
of the Internal Revenue Code of 1986 is amended by inserting after 
section 5062 the following new section:

``SEC. 5063. EXCEPTION FOR NONBEVERAGE PRODUCTS MANUFACTURED IN A 
              UNITED STATES FOREIGN TRADE ZONE.

    ``(a) General Rule.--In the case of domestic distilled spirits on 
which a tax would be determined under this subchapter, when used in a 
foreign trade zone for the manufacture or production of nonbeverage 
products, in lieu of payment of the tax under this subchapter by the 
distilled spirits plant proprietor, distilled spirits may be 
transferred without payment of tax to an activated foreign trade zone. 
Upon demonstration to the Secretary of the manufacture or production of 
nonbeverage products in a foreign trade zone using the distilled 
spirits withdrawn from bond without payment of tax, authorized 
manufacturers and producers of nonbeverage products, are not subject to 
the tax under section 5001. In case of any removal, sale, transport, or 
use of distilled spirits not authorized under section 5061 for which 
taxes have not been paid, the full rate of tax under section 5001 shall 
be paid by any person responsible.
    ``(b) Application.--The Secretary may require persons eligible for 
the application of this section to file an adequate bond and permit as 
reasonably determined by the Secretary. Every person subject to the 
application of this section shall register annually with the Secretary, 
keep such books and records as may be necessary to establish the fact 
that distilled spirits received on which no tax has been determined 
were used in the manufacture or production of nonbeverage products, and 
be subject to monthly reporting and such rules and regulations in 
relation thereto as the Secretary may prescribe to secure the Treasury 
against fraud.
    ``(c) Powers of the Secretary.--For purposes of ascertaining the 
correctness of the application of this section, the Secretary is 
authorized to examine any books, papers, records, or memoranda as may 
be necessary to establish the fact that the distilled spirits received 
were used in the manufacture or production of nonbeverage products, to 
require the attendance of the person or of any officer or employee of 
such person or the attendance of any other person having knowledge of 
the premises, to take testimony with reference to any matter covered, 
and to administer oaths to any person giving such testimony.
    ``(d) Demonstration of Use in the Manufacturing or Production of 
Nonbeverage Products.--Except in the case of knowing and willful 
noncompliance, application of this section shall not be denied in the 
case of failure to comply with any requirement imposed under this 
section, or any rule or regulation issued pursuant to this section, 
upon the person manufacturing or producing the nonbeverage product 
demonstrating that distilled spirits for which taxes have not been paid 
transferred to an activated foreign trade zone were in fact used in the 
manufacture or production of nonbeverage products.
    ``(e) Formula and Manufacturing Infractions for Manufacturers and 
Producers of Nonbeverage Products in Foreign Trade Zones.--In the case 
of failure to comply with any formula or manufacturing requirement 
imposed under this section or any rule or regulations issued pursuant 
to this section, the manufacturer or producer of nonbeverage products 
shall be liable for a penalty up to $1,000 for each failure to comply 
unless it is shown that the failure to comply was due to reasonable 
cause. No penalty imposed under this subsection shall exceed the amount 
of tax which would have been determined under this subchapter without 
regard to this section. The penalty imposed by this subsection shall be 
assessed, collected, and paid in the same manner as taxes under this 
subchapter, within 30 days of notification by the Secretary. Any excise 
tax determined to be owed through monthly reporting processes and 
procedures for submission and approval of formulas, on-site inspection, 
or audit shall be paid by the manufacturer or producer of nonbeverage 
products within 30 days of notification by the Secretary.
    ``(f) Definitions.--For purposes of this section--
            ``(1) Authorized manufacturers and producers.--The term 
        `authorized manufacturers and producers' means those 
        manufacturers and producers of nonbeverage products that are 
        registered with the Secretary, agree to monthly reporting and 
        have received manufacturing or processing authority from the 
        United States Foreign Trade Zones Board.
            ``(2) Nonbeverage product.--The term `nonbeverage product' 
        means medicines, medicinal preparations, food products, 
        flavors, flavoring extracts, or perfume, which are unfit for 
        beverage purposes.''.
    (b) Conforming Amendments.--
            (1) The table of sections for subpart E of part I of 
        subchapter A of chapter 51 of the Internal Revenue Code of 1986 
        is amended by inserting after the item relating to section 5062 
        the following new item:

``Sec. 5063. Exception for nonbeverage products manufactured in a 
                            United States foreign trade zone.''.
            (2) Section 5005(e)(2) of such Code is amended by inserting 
        ``used as described in section 5063,'' after ``deposited in a 
        foreign-trade zone,''.
            (3) Section 5214(a) of such Code is amended by striking the 
        period at the end of paragraph (13) and inserting ``; or'', and 
        by adding at the end the following new paragraph:
            ``(14) without payment of tax as authorized by section 
        5063.''.
            (4) Section 5003 of such Code is amended by adding at the 
        end the following new paragraph:
            ``(18) For provisions relating to an exception for 
        nonbeverage products manufactured in a United States foreign 
        trade zone.''.
    (c) Foreign Trade Zones.--Section 3 of the Act of June 18, 1934 
(commonly known as the Foreign Trade Zones Act; 19 U.S.C. 81c) is 
amended--
            (1) in subsection (a), in the second proviso, by inserting 
        ``or determined'' after ``paid''; and
            (2) in subsection (c)(2)--
                    (A) by inserting in the second sentence before the 
                end period the following: ``and such products, upon 
                approval by the Secretary of the Treasury and the 
                Foreign Trade Zones Board, shall be eligible for tax 
                treatment pursuant to section 5063 of the Internal 
                Revenue Code of 1986.'';
                    (B) by striking ``or flavoring extract'' and 
                inserting ``flavoring extract, or perfume''; and
                    (C) by adding at the end the following: ``Distilled 
                spirits for manufacturing or production of nonbeverage 
                products for which taxes have not been paid shall be 
                admitted to the foreign trade zone in domestic status 
                and reported to the Bureau of Customs and Border 
                Protection in accordance with admission procedures, 
                including direct delivery as applicable.''.
    (d) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.
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