[Congressional Record (Bound Edition), Volume 147 (2001), Part 7]
[Extensions of Remarks]
[Page 9508]
[From the U.S. Government Publishing Office, www.gpo.gov]



                    DOMESTIC SPIRITS TAX EQUITY ACT

                                 ______
                                 

                            HON. MAC COLLINS

                               of georgia

                    in the house of representatives

                         Thursday, May 24, 2001

  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 is paid ``up front'' by the distiller, and 
passed along to the wholesaler when he purchases product. Custom bonded 
warehouses cannot be used for domestic product, only that imported from 
another country. This means that the FET on U.S. produced spirits must 
be carried by the wholesaler as part of his inventory 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, it takes an average of 60 days 
to sell this inventory 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 the licensed beverage 
industry has advocated a tax law policy change known as ``All-in-
Bond.'' Mr. Neal and I sponsored the Distilled Spirits Tax 
Simplification Act, or ``All-in-Bond bill'', at the beginning of the 
106th Congress. Simply put, it would have extended the custom bonded 
warehouse concept to all spirits, not just imported product. The result 
would have been to defer payment of the tax on domestic product--just 
as we do for imported spirits--until it is removed from the warehouse 
for sale to a retailer.
  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 
in 1999, which was subsequently approved by this body.
  Subsequently, Treasury/BATF raised unwarranted concerns about 
changing the point of collection. Additionally, distilled spirits 
suppliers objected because of concerns about a revenue offset provision 
which was added to the ``All-in-Bond'' proposal during committee 
consideration.
  In an effort to build a greater consensus, 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, 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. I look forward to the passage of this important legislation so 
that we can ensure our domestic suppliers are not penalized by the tax 
code.

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