[Congressional Record Volume 149, Number 26 (Wednesday, February 12, 2003)]
[Senate]
[Pages S2356-S2360]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BAUCUS (for himself, Mr. Bunning, Mr. Enzi, Mr. Crapo, Mr. 
        Burns, Mr. Johnson, Mr. Bayh, Mr. Cochran, Mr. Inofe, Mr. 
        Allen, Mr. Nickles, Mr. Warner, and Mr. Miller):
  S. 374. A bill to amend the Internal Revenue Code of 1986 to repeal 
the occupational taxes relating to distilled spirits, wine, and beer; 
to the Committee on Finance.
  Mr. BAUCUS. Mr. President, it is with great pleasure that I join my 
good friend and colleague, Senator Bunning today in introducing 
legislation that will repeal the Special Occupational Tax, (SOT), on 
taxpayers who manufacture, distribute, and sell alcoholic beverages. 
The special occupational tax is

[[Page S2359]]

not a tax on alcoholic products, but rather operates as a license fee 
on businesses. The tax is imposed on those engaged in the business of 
selling alcohol beverages. Believe it or not, this tax was originally 
established to help finance the Civil War. That war is over, and this 
inequitable tax has outlived its original purpose. Clearly an example 
of an anticipated approach to Federal taxation, repealing the SOT has 
an element of simplification in it.
  The SOT on alcohol dramatically increased during the budget process 
in 1988 and has unfairly burdened business owners across the country 
since. From Thompson Falls to Sidney, from Chinook to Billings, small 
businesses are burdened with yet another tax in the form of the SOT. 
According to the ATF, there are 480,427 locations nationwide that pay 
SOT's every year, including 485,603 retailers. These retail 
establishments account for $114 million out of $126 million in SOT 
revenues.
  In Montana, there are 3,378 locations, including 3,254 restaurants 
and 494 convenience stores, which pay nearly $2 million dollars in the 
SOT every year. Seasonal resorts in Whitefish and Yellowstone, ``mom 
and pop'' convenience stores in Butte, and allowing alleys, flower 
shops, and restaurants across Montana, and the United States, pay the 
Federal Government almost $100 million per year for the privilege of 
running businesses that sell beer, wine, or alcoholic beverages.
  The SOT is extremely regressive. Retailers must annually pay $250 per 
location; wholesalers pay $500; vintners and distillers pay $1000. 
Because the SOT is levied on a per location basis, a sole 
proprietorship must pay the same amount as one of the Nation's largest 
retailers, and locally-owned chains having to pay per location, would 
have to pay as much as, if not more than, the Nation's largest single 
site brewery. In testimony before the Finance Committee last spring, a 
small business owner from Helena, MT who runs four convenience stores 
and three restaurants said it best. ``Whether it's a seasonal 
restaurant, an Elks Lodge or American Legion, a bowling center, 
campground, a florist who delivers gift baskets containing wine, or a 
convenience store operator, no one is spared from the tax.'' This is 
not what Congress had in mind 150 years ago, and I don't believe it's a 
situation we want today.
  Repealing the SOT on alcohol is supported by a broad-based group of 
business organizations and enjoys wide-spread bipartisan support on 
Capital Hill. Similar legislation is being introduced in the House 
today, and a bill, identical to this one, was introduced in the 
previous Congress, but for one reason or another, the law was not 
enacted.
  The legislation preserves ATF's record-keeping requirements, while 
removing the agency's enforcement burden, and will save up to $2 
million per year. The GAO examined SOT efficacy several times, and 
found it fundamentally flawed. The Joint Committee on Taxation called 
for the elimination of SOT in its June 2001 simplification study.
  More than 90 percent of all SOT revenue comes from retailers--a great 
majority of that number are small businesses. Recently, President Bush 
met with a group of small business owners and employees in St. Louis. 
He said, ``The best way to encourage job growth is to let [small 
businesses] keep more of their own money, so they can invest in their 
business and make it easier for somebody to find work.'' Repealing the 
SOT would provide an immediate and visible tax cut to small business 
owners.
  Now, as the Federal Government considers ways to provide additional 
economic stimulus to the people who need it most, the time is right for 
us to move forward and enact this legislation to repeal the SOT an 
alcohol. We urge our colleagues to join us in this endeavor.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 374

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

     SECTION 1. REPEAL OF OCCUPATIONAL TAXES RELATING TO DISTILLED 
                   SPIRITS, WINE, AND BEER.

       (a) Repeal of Occupational Taxes.--
       (1) In general.--The following provisions of part II of 
     subchapter A of chapter 51 of the Internal Revenue Code of 
     1986 (relating to occupational taxes) are hereby repealed:
       (A) Subpart A (relating to proprietors of distilled spirits 
     plants, bonded wine cellars, etc.).
       (B) Subpart B (relating to brewer).
       (C) Subpart D (relating to wholesale dealers) (other than 
     sections 5114 and 5116).
       (D) Subpart E (relating to retail dealers) (other than 
     section 5124).
       (E) Subpart G (relating to general provisions) (other than 
     sections 5142, 5143, 5145, and 5146).
       (2) Nonbeverage domestic drawback.--Section 5131 of such 
     Code is amended by striking ``, on payment of a special tax 
     per annum,''.
       (3) Industrial use of distilled spirits.--Section 5276 of 
     such Code is hereby repealed.
       (b) Conforming Amendments.--
       (1)(A) The heading for part II of subchapter A of chapter 
     51 of such Code and the table of subparts for such part are 
     amended to read as follows:

                  ``PART II--MISCELLANEOUS PROVISIONS

``Subpart A. Manufacturers of stills.
``Subpart B. Nonbeverage domestic drawback claimants.
``Subpart C. Recordkeeping by dealers.
``Subpart D. Other provisions.''

       (B) The table of parts for such subchapter A is amended by 
     striking the item relating to part II and inserting the 
     following new item:

``Part II. Miscellaneous provisions.''

       (2) Subpart C of part II of such subchapter (relating to 
     manufacturers of stills) is redesignated as subpart A.
       (3)(A) Subpart F of such part II (relating to nonbeverage 
     domestic drawback claimants) is redesignated as subpart B and 
     sections 5131 through 5134 are redesignated as sections 5111 
     through 5114, respectively.
       (B) The table of sections for such subpart B, as so 
     redesignated, is amended--
       (i) by redesignating the items relating to sections 5131 
     through 5134 as relating to sections 5111 through 5114, 
     respectively, and
       (ii) by striking ``and rate of tax'' in the item relating 
     to section 5111, as so redesignated.
       (C) Section 5111 of such Code, as redesignated by 
     subparagraph (A), is amended--
       (i) by striking ``and rate of tax'' in the section heading,
       (ii) by striking the subsection heading for subsection (a), 
     and
       (iii) by striking subsection (b).
       (4) Part II of subchapter A of chapter 51 of such Code is 
     amended by adding after subpart B, as redesignated by 
     paragraph (3), the following new subpart:

                 ``Subpart C--Recordkeeping by Dealers

``Sec. 5121. Recordkeeping by wholesale dealers.
``Sec. 5122. Recordkeeping by retail dealers.
``Sec. 5123. Preservation and inspection of records, and entry of 
              premises for inspection.''

       (5)(A) Section 5114 of such Code (relating to records) is 
     moved to subpart C of such part II and inserted after the 
     table of sections for such subpart.
       (B) Section 5114 of such Code is amended--
       (i) by striking the section heading and inserting the 
     following new heading:

     ``SEC. 5121. RECORDKEEPING BY WHOLESALE DEALERS.'',

     and
       (ii) by redesignating subsection (c) as subsection (d) and 
     by inserting after subsection (b) the following new 
     subsection:
       ``(c) Wholesale Dealers.--For purposes of this part--
       ``(1) Wholesale dealer in liquors.--The term `wholesale 
     dealer in liquors' means any dealer (other than a wholesale 
     dealer in beer) who sells, or offers for sale, distilled 
     spirits, wines, or beer, to another dealer.
       ``(2) Wholesale dealer in beer.--The term `wholesale dealer 
     in beer' means any dealer who sells, or offers for sale, 
     beer, but not distilled spirits or wines, to another dealer.
       ``(3) Dealer.--The term `dealer' means any person who 
     sells, or offers for sale, any distilled spirits, wines, or 
     beer.
       ``(4) Presumption in case of sale of 20 wine gallons or 
     more.--The sale, or offer for sale, of distilled spirits, 
     wines, or beer, in quantities of 20 wine gallons or more to 
     the same person at the same time, shall be presumptive 
     evidence that the person making such sale, or offer for sale, 
     is engaged in or carrying on the business of a wholesale 
     dealer in liquors or a wholesale dealer in beer, as the case 
     may be. Such presumption may be overcome by evidence 
     satisfactorily showing that such sale, or offer for sale, was 
     made to a person other than a dealer.''
       (C) Paragraph (3) of section 5121(d) of such Code, as so 
     redesignated, is amended by striking ``section 5146'' and 
     inserting ``section 5123''.
       (6)(A) Section 5124 of such Code (relating to records) is 
     moved to subpart C of part II of subchapter A of chapter 51 
     of such Code and inserted after section 5121.
       (B) Section 5124 of such Code is amended--
       (i) by striking the section heading and inserting the 
     following new heading:

     ``SEC. 5122. RECORDKEEPING BY RETAIL DEALERS.'',

       (ii) by striking ``section 5146'' in subsection (c) and 
     inserting ``section 5123'', and

[[Page S2360]]

       (iii) by redesignating subsection (c) as subsection (d) and 
     inserting after subsection (b) the following new subsection:
       ``(c) Retail Dealers.--For purposes of this section--
       ``(1) Retail dealer in liquors.--The term `retail dealer in 
     liquors' means any dealer (other than a retail dealer in 
     beer) who sells, or offers for sale, distilled spirits, 
     wines, or beer, to any person other than a dealer.
       ``(2) Retail dealer in beer.--The term `retail dealer in 
     beer' means any dealer who sells, or offers for sale, beer, 
     but not distilled spirits or wines, to any person other than 
     a dealer.
       ``(3) Dealer.--The term `dealer' has the meaning given such 
     term by section 5121(c)(3).''
       (7) Section 5146 of such Code is moved to subpart C of part 
     II of subchapter A of chapter 51 of such Code, inserted after 
     section 5122, and redesignated as section 5123.
       (8) Part II of subchapter A of chapter 51 of such Code is 
     amended by inserting after subpart C the following new 
     subpart:

                     ``Subpart D--Other Provisions

``Sec. 5131. Packaging distilled spirits for industrial uses.
``Sec. 5132. Prohibited purchases by dealers.''

       (9) Section 5116 of such Code is moved to subpart D of part 
     II of subchapter A of chapter 51 of such Code, inserted after 
     the table of sections, redesignated as section 5131, and 
     amended by inserting ``(as defined in section 5121(c))'' 
     after ``dealer'' in subsection (a).
       (10) Subpart D of part II of subchapter A of chapter 51 of 
     such Code is amended by adding at the end thereof the 
     following new section:

     ``SEC. 5132. PROHIBITED PURCHASES BY DEALERS.

       ``(a) In General.--Except as provided in regulations 
     prescribed by the Secretary, it shall be unlawful for a 
     dealer to purchase distilled spirits from any person other 
     than a wholesale dealer in liquors who is required to keep 
     the records prescribed by section 5121.
       ``(b) Penalty and Forfeiture.--

  ``For penalty and forfeiture provisions applicable to violations of 
subsection (a), see sections 5687 and 7302.''

       (11) Subsection (b) of section 5002 of such Code is 
     amended--
       (A) by striking ``section 5112(a)'' and inserting ``section 
     5121(c)(3)'',
       (B) by striking ``section 5112'' and inserting ``section 
     5121(c)'',
       (C) by striking ``section 5122'' and inserting ``section 
     5122(c)''.
       (12) Subparagraph (A) of section 5010(c)(2) of such Code is 
     amended by striking ``section 5134'' and inserting ``section 
     5114''.
       (13) Subsection (d) of section 5052 of such Code is amended 
     to read as follows:
       ``(d) Brewer.--For purposes of this chapter, the term 
     `brewer' means any person who brews beer or produces beer for 
     sale. Such term shall not include any person who produces 
     only beer exempt from tax under section 5053(e).''
       (14) The text of section 5182 of such Code is amended to 
     read as follows:
       ``For provisions requiring recordkeeping by wholesale 
     liquor dealers, see section 5112, and by retail liquor 
     dealers, see section 5122.''
       (15) Subsection (b) of section 5402 of such Code is amended 
     by striking ``section 5092'' and inserting ``section 
     5052(d)''.
       (16) Section 5671 of such Code is amended by striking ``or 
     5091''.
       (17)(A) Part V of subchapter J of chapter 51 of such Code 
     is hereby repealed.
       (B) The table of parts for such subchapter J is amended by 
     striking the item relating to part V.
       (18)(A) Sections 5142, 5143, and 5145 of such Code are 
     moved to subchapter D of chapter 52 of such Code, inserted 
     after section 5731, redesignated as sections 5732, 5733, and 
     5734, respectively, and amended by striking ``this part'' 
     each place it appears and inserting ``this subchapter''.
       (B) Section 5732 of such Code, as redesignated by 
     subparagraph (A), is amended by striking ``(except the tax 
     imposed by section 5131)'' each place it appears.
       (C) Subsection (c) of section 5733 of such Code, as 
     redesignated by subparagraph (A), is amended by striking 
     paragraph (2) and by redesignating paragraph (3) as paragraph 
     (2).
       (D) The table of sections for subchapter D of chapter 52 of 
     such Code is amended by adding at the end thereof the 
     following:

``Sec. 5732. Payment of tax.
``Sec. 5733. Provisions relating to liability for occupational taxes.
``Sec. 5734. Application of State laws.''

       (E) Section 5731 of such Code is amended by striking 
     subsection (c) and by redesignating subsection (d) as 
     subsection (c).
       (19) Subsection (c) of section 6071 of such Code is amended 
     by striking ``section 5142'' and inserting ``section 5732''.
       (20) Paragraph (1) of section 7652(g) of such Code is 
     amended--
       (A) by striking ``subpart F'' and inserting ``subpart B'', 
     and
       (B) by striking ``section 5131(a)'' and inserting ``section 
     5111(a)''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act, 
     but shall not apply to taxes imposed for periods before such 
     date.

  Mr. BUNNING. Mr. President, I am happy to join my colleague, Senator 
Baucus, in the introduction of legislation to repeal the Special 
Occupational Tax on the sale of alcoholic beverages.
  This is an unfair tax imposed on all businesses that manufacture, 
distribute or sell alcohol products. It has a particularly egregious 
impact on the Nation's small businesses--the ``Mom and Pop'' 
convenience stores, the local bowling alleys, the small sandwich shop, 
the seasonal bait shop, and the community lodges. This regressive tax 
imposes the same tax on little businesses and large businesses. The tax 
is levied as a fixed amount per location--$250 for retailers, $500 for 
wholesalers, and $1,000 for vinters and distillers--with no adjustment 
for the size of a business. Thus, a family which owns two small 
convenience stores will pay twice as much as a large one-location 
``super'' party store. This tax results in small retail outlets paying 
a larger percentage of their revenue towards this tax. In addition, the 
tax is not prorated, meaning that seasonal businesses such as bait 
shops or marinas that are open for three months a year will pay the 
same rate as businesses that are open year-around.
  Largely due to the negative impact of this tax on small businesses, 
there has been strong bi-partisan support for its repeal in both the 
Senate and the House. The effectiveness of the tax--which is 
traditionally quite expensive to administer--has been found to be 
flawed by the General Accounting Office in several examinations. In a 
2001 study on the simplification of the Federal tax system, the Joint 
Committee on Taxation recommended the repeal of the Special Occupancy 
Tax on alcohol. The Joint Committee found that the tax is in the nature 
of a business license fee and serves no tax policy purpose.
  I hope my colleagues will join Senator Baucus and me in repealing 
this burdensome tax once and for all.
                                 ______