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:

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Secretary of the manufacture or production of nonbeverage products in a foreign trade zone using the distilled spirits withdrawn from bond without payment of tax, authorized manufacturers and producers of nonbeverage products are not subject to the tax under section 5001.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, not later than 30 days after 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 not later than 30 days after 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 in subsection (c)(2)— (1)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; (2)by striking or flavoring extracts and inserting flavoring extracts, or perfumes; and (3)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.