[Congressional Record Volume 149, Number 116 (Thursday, July 31, 2003)]
[Senate]
[Page S10621]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BUNNING (for himself, Mr. Breaux, and Mr. Bond):
  S. 1506. A bill to amend the Internal Revenue Code of 1986 to allow 
distilled spirits wholesalers a credit against income tax for their 
cost of carrying Federal excise taxes prior to the sale of the product 
bearing the tax; to the Committee on Finance.
  Mr. BUNNING. Mr. President, I rise today to introduce legislation 
that will resolve a longstanding inequity in the tax treatment of U.S. 
distilled spirits that penalizes the wholesalers, and in some cases 
suppliers, of these products.
  Under current law, wholesalers of distilled spirits are not required 
to pay the Federal excise tax on imported spirits until after the 
product is removed from a bonded warehouse for sale to a retailer.
  In contrast, the tax on domestically produced spirits is included as 
part of the purchase price and passed on from the supplier to 
wholesaler. After factoring in the Federal excise tax (FET)--which is 
$13.50 per proof gallon--domestically produced spirits can cost 
wholesalers 40 percent more to purchase than comparable imported 
spirits.
  In some instances, wholesalers and even suppliers can carry this tax-
paid inventory for an average of 60 days before selling it to a 
retailer. Interest charges--more commonly referred to as float--
resulting from financing the Federal excise tax can be quite 
considerable.
  For example, at a 5 percent interest rate on the sale of 100,000 
cases of domestic spirits, a wholesaler will incur finance charges of 
$21,106.85 for loans related to underwriting the cost of paying the 
Federal excise tax. It is important to note that it is not uncommon for 
wholesalers to sell a million or more cases per year of domestic 
spirits.
  The costs associated with financing Federal excise taxes amount to a 
tax on a tax, making the effective rate of the Federal excise tax for 
domestic spirits much higher than $13.50 per proof gallon.
  The Distilled Spirits Tax Equity Act would give wholesalers and 
suppliers in bailment states a tax credit towards the cost of financing 
the FET for domestically produced products.
  I believe this legislation is fundamentally fair and will help 
protect and create jobs for the wholesale tier in Kentucky and other 
States. However, I wish to emphasize that I will reject any connection 
between a repeal of Section 5010 within the Internal Revenue Code or an 
increase in federal taxes for distilled spirits. Tax equity for one 
tier should not be achieved by placing additional burden on other tiers 
within the same industry.
  My colleagues, Senators Bond and Breaux join me in introducing this 
legislation, which the Joint Tax Committee estimates would reduce 
Federal revenues by approximately $249 million over ten years. 
Congressmen Collins and Neal have introduced similar legislation that 
has garnered significant support in the House of Representatives. I 
urge my colleagues to support this legislation when it comes before the 
Senate.
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