[Congressional Record (Bound Edition), Volume 146 (2000), Part 12]
[Extensions of Remarks]
[Page 17439]
[From the U.S. Government Publishing Office, www.gpo.gov]



                    DOMESTIC SPIRITS TAX EQUITY ACT

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                            HON. MAC COLLINS

                               of georgia

                    in the house of representatives

                      Thursday, September 7, 2000

  Mr. COLLINS. Mr. Speaker, today I am introducing a bill, along with 
my colleague, Representative Richard Neal, to end the unequal tax 
treatment imposed on U.S. produced distilled spirits. At a time when 
other countries adopt tax laws to favor their own domestic industries, 
it is ironic that current U.S. tax law favors foreign products at the 
expense of U.S.-made products. Regrettably, that is the case with 
respect to distilled spirits. As members of the Committee on Ways & 
Means, both Mr. Neal and I have worked for sometime to correct this 
inequitable situation.
  Current law allows wholesalers of imported spirits to defer the 
federal excise tax (``FET'') on such products until they are removed 
from a custom bonded warehouse for sale to a retailer. In contrast, the 
FET on U.S. produced spirits must be paid ``up front'' when the 
wholesaler purchases the product from a distiller; custom bonded 
warehouses cannot be used for domestic distilled products. This means 
that the FET on U.S. produced spirits must be prepaid by the 
wholesaler, and carried as a part of his inventory cost for as long as 
it takes to sell that product out of his warehouse.
  Couple this disparity in time of payment with the fact that distilled 
spirits are the most highly taxed of all products, and you begin to 
understand the seriousness of the problem. At $13.50 per proof gallon, 
the FET represents virtually 40 percent of the average wholesaler's 
inventory cost. To make matters worse, that wholesaler will generally 
carry that inventory for an average of 60 days before it is sold to a 
retailer. The bottom line is that U.S. tax policy favors the sale of 
imported spirits and creates a significant financial burden for 
wholesalers of domestic spirits--most of which are small, family-owned 
businesses operating within a single state.
  For the past ten years, the wholesale tier of this industry has 
advocated a tax law policy change referred to as ``All-in-Bond.'' Mr. 
Neal and I sponsored the ``Distilled Spirits Tax Simplification Act'' 
at the beginning of the 106th Congress to effectuate this policy 
change. Simply put, it would have permitted wholesalers of domestic 
spirits to become bonded dealers, effectively deferring payment of the 
tax until sale to a retailer--as is already the case with imported 
spirits.
  Given the obvious inequity of current law, the bill attracted the co-
sponsorship of 75 of our colleagues from both sides of the aisle. As a 
consequence, Mr. Neal and I were successful in attaching the bill to a 
major tax reduction measure coming out of the Committee on Ways & Means 
last summer, which was subsequently approved by this body.
  However, Treasury/BATF had unwarranted concerns about noncompliance 
and suppliers objected to a proposed fee that was required to offset 
any revenue costs to the federal coffers. As a result of these 
objections, we agreed to drop the provision in conference and go back 
to the drawing board to develop a better solution to the problem.
  The ``Domestic Spirits Tax Equity Act'' is that better solution.
  The purpose of this legislation is to compensate wholesalers for the 
unequal burden imposed on U.S. produced distilled spirits under current 
law. We do so by allowing qualified wholesalers of domestic spirits a 
prepaid tax adjustment tax, or PTA, which is a credit against their 
annual federal income tax.
  The PTA is determined through a simple formula. It is equal to 40 
percent of the amount paid for domestically produced spirits, times the 
IRS' applicable federal rate over a 60-day period. The PTA was crafted 
with simplicity in mind. The elements of the formula are easily 
verifiable and understandable by the wholesaler and the IRS, and the 
formula results in an accurate overall measure of the unequal float 
costs. In addition, unlike the All-in-Bond proposal, this bill does not 
change the current FET collection system.
  Mr. Speaker, I urge my colleagues to join me in this effort to 
eliminate the unequal tax treatment imposed on U.S. produced distilled 
spirits. The PTA is a simple and targeted solution, which addresses the 
problem, and I look forward to passing this measure into law.

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