Page images
PDF
EPUB

SEC. 3. (a) Section 5232 of the Internal Revenue Code of 1954 (relating to imported distilled spirits) is amended to read as follows:

"SEC. 5232. IMPORTED DISTILLED SPIRITS

"(a) TRANSFER TO DISTILLED SPIRITS PLANT WITHOUT PAYMENT OF TAX.Imported distilled spirits in bulk containers may, under such regulations as the Secretary or his delegate shall prescribe, be withdrawn from customs custody and transferred in such bulk containers or by pipeline to the bonded premises of a distilled spirits plant without payment of the internal revenue tax imposed on imported distilled spirits by section 5001. The person operating the bonded premises of the distilled spirits plant to which such spirits are transferred shall become liable for the tax on distilled spirits withdrawn from customs custody under this section upon release of the spirits from customs custody, and the importer shall thereupon be relieved of his liability for such tax.

"(b) WITHDRAWALS, ETC.-Imported distilled spirits transferred pursuant to subsection (a)·

"(1) may not be bottled in bond under section 5233,

"(2) may be redistilled or denatured only if of 185 degrees or more of proof, and

"(3) may be withdrawn for any purpose authorized by this chapter, in the same manner as domestic distilled spirits.'

[ocr errors]

(b) Headnote 3 for part 12 of schedule 1 of the Tariff Schedules of the United States (19 U.S.C., sec. 1202) is amended to read as follows:

"3. The duties prescribed on products covered by this part are in addition to the Internal-revenue taxes imposed under existing law or any subsequent Act. The duties imposed on products covered by this part which are subject also to internal-revenue taxes are imposed only on the quantities subject to such taxes; except that, in the case of distilled spirits transferred to the bonded premises of a distilled spirits plant under the provisions of section 5232 of the Internal Revenue Code of 1954, the duties are imposed on the quantity withdrawn from customs custody."

SEC. 4. (a) The effective date of this Act is the first day of the first calendar month which begins more than 90 days after the date of the enactment of this Act. (b) The amendments made by the first section of this Act shall apply only to losses sustained on or after such effective date. The amendments made by section 2 shall apply only to articles exported on or after such effective date. The amendments made by section 3 shall apply only to withdrawals from customs custody on or after such effective date.

I. SUMMARY

H.R. 11394, as reported, makes three amendments to the distilled spirits excise tax provisions of the Internal Revenue Code of 1954 and makes corresponding amendments to two provisions in title 19 of the United States Code.

First, the bill deals with abatements, etc., of tax in the case of the loss of distilled spirits withdrawn from bond for rectification or bottling. Existing law provides relief where there is a loss of the withdrawn distilled spirits before completion of the packaging of the spirits. The bill extends this by allowing abatement, etc., of tax after completion of the packaging but before removal from the distilled spirits plant premises, in the event of casualty loss.

Second, the bill simplifies distilled spirits exportation procedures by permitting the stamping and marking of such spirits for export after they have left the premises of the plant where they were originally bottled. Drawback in the case of export is presently available only if the spirits were so stamped and marked on the premises of the plant where they were bottled and only before being withdrawn. Under the bill, only the bottler or packager of the spirits can apply for the drawback. A corresponding amendment is made to title 19 to assure that this more flexible treatment is available for ships' supplies.

Third, the bill makes available to all imported distilled spirits in bulk containers the privilege presently available to imported distilled spirits of at least 185 proof, to be transferred from customs custody to internal revenue bond without payment of the internal revenue tax. The bill relieves the importer of liability for such taxes when the transferee of the spirits becomes liable. It also makes clear that these imported spirits are not entitled to be "bottled in bond," a privilege reserved for domestic distilled spirits. A related amendment is made to the tariff schedules, which presently tie customs duties to internal revenue tax liabilities.

This bill has been ordered reported unanimously by your committee and the Treasury Department has informed your committee that, in the form in which the bill is amended, it has no objections to its enactment.

II. GENERAL EXPLANATION

A. Casualty losses of distilled spirits (sec. 1 of the bill and sec. 5008 (c) of the code)

Reasons for change. The internal revenue tax on distilled spirits is generally determined when the spirits are withdrawn from bond. Abatement, remission, credit, or refund of this tax may be made when distilled spirits, which are withdrawn for rectification or bottling, are lost either by accident during removal to the bottling premises or by flood, fire, or other disaster, before completion of the bottling and casing or other packaging of the spirits for removal from the bottling premises of the distilled spirits plant to which the spirits were removed from bond. This provision was added to the code by the Excise Tax Technical Changes Act of 1958.

Your committee has been informed that losses of taxpaid distilled spirits during the period after packaging but before removal from the bottler's premises occur infrequently and irregularly. However, insurance coverage for this period is relatively costly since it must cover the amount of the presently nonreimbursable distilled spirits tax.

For these reasons your committee in effect extended the 1958 relief provision to the point where the spirits leave the plant premises. Since abatement, etc., will be allowed under this provision only as to losses occurring before removal from the distilled spirits plant premises to which the spirits had been removed from bond, no administrative difficulties are foreseen in policing this provision.

Changes made by provision.-The bill allows abatement, etc., if the casualty loss occurs after completion of the packaging but before the spirits have been removed from the premises of the distilled spirits plant to which removed from bond, as well as the allowance of abatements etc. under present law if the loss occurs before completion of the packaging process.

B. Drawback in the case of exportation of distilled spirits (sec. 2 of the bill and sec. 5062(b) of the code and sec. 313(d) of the Tariff Act of 1930)

Reasons for change.-A drawback is presently authorized for internal revenue taxes paid or determined on distilled spirits or wines which are exported. However, the export drawback for distilled spirits is available only if the packages or bottles have been stamped or marked

specially for export or, if originally bottled for domestic use, they have been restamped and marked for export at the distilled spirits plant where they were originally bottled and before they were removed from the plant. Before 1958, the drawback was available only if the distilled spirits were bottled or packaged for export.

Present law appears to unduly restrict the flexibility of the distilled spirits industry with regard to exportation. The requirement that the bottles or packages must be marked for export before removal from the original bottling plant creates difficulties when export orders are canceled or reduced and also makes it difficult to fill export orders as expeditiously as might otherwise be the case. The 1958 legislation recognized this need by no longer requiring repackaging of the spirits. However, the statutory requirement that relabeling and marking be done on the original distilled spirits plant premises, is no longer needed to insure proper control by the Internal Revenue Service.

Changes made by provision. The bill permits, under Treasury regulations, drawback of the tax where the stamping, restamping, or marking is done after the spirits have been removed from the original bottling plant. (A conforming amendment to sec. 313 of the Tariff Act of 1930, as amended (19 U.S.C. sec. 1313(d)), provides the same procedure with regard to distilled spirits exported as ships' stores.) Such claims may be filed only by the bottler or packager of the spirits. This bill provides flexibility while giving the Internal Revenue Service sufficient regulatory authority, in conjunction with existing law that is continued, to insure that stamping, restamping, or marking, will be done only under appropriate supervision and that the drawback will be allowed only where appropriate evidence is presented as to actual exportation of the distilled spirits. In order to insure proper controls and to avoid a substantial increase in the number of people who may file claims for drawback under this provision, such claims may be filed only by bottlers or packagers.

C. Withdrawal of imported distilled spirits from customs custody (sec. 3 of the bill and sec. 5232 of the code and sec. 1202 of title 19 of the United States Code)

Reasons for changes.-In general, both customs duty and internal revenue taxes on imported distilled spirits are paid when those spirits are withdrawn from customs custody. An exemption is provided in present law for distilled spirits of at least 185 proof, which may be transferred to internal revenue bond for nonbeverage use without payment of internal revenue taxes. Provision is made for later redistillation and denaturation or withdrawal for any purpose, of these high-proof spirits with payment of internal revenue taxes at the time that payment would have been made if those spirits had been domestic. The bill permits deferral of the time for payment of the distilled spirits tax until removal from internal revenue bond rather than from customs custody. This would be similar to the procedures now applicable to domestic distilled spirits removed from bond. Operators of distilled spirits plants will be able to use just the internal revenue bonded storage facility for the warehousing of bulk containers for imported distilled spirits, and will not have to continue the present practice of maintaining a separate warehousing and gaging facility under customs custody. This procedure is similar to tobacco tax

provisions applicable to imported tobacco products and cigarette papers and tubes.

Changes made by provision.-The bill permits withdrawal in bulk containers or by pipeline from customs custody to internal revenue bond without payment of internal revenue taxes of all imported distilled spirits in bulk containers, regardless of proof. It similarly extends to all such imported distilled spirits the withdrawal privileges presently available to imported distilled spirits of at least 185 proof, whether or not they have been redistilled or denatured.

Although present law appears to make the transferee of the distilled spirits liable for the internal revenue tax when the spirits are transferred under this section, the transferor also continues to be liable. Your committee has been assured by the Treasury Department that this double liability is not needed for proper administration of the alcohol tax laws, especially in view of the broad regulatory powers granted to the Internal Revenue Service. Accordingly, the bill makes clear that, where physical transfer of spirits involves a transfer to another person, the transferee becomes liable for the internal revenue taxes. Under this bill, the transferor's liability ceases when the transferee's liability attaches. The bill also makes it clear that imported bulk spirits are not eligible for the "bottled in bond" privileges available to domestic spirits.

Finally, this bill makes a related amendment to impose customs duties upon imported distilled spirits when removed from customs custody under section 5232, even though no internal revenue taxes are determined at that time.

D. Effective date

The effective date of the bill is the first day of the first calendar month which begins more than 90 days after the date of enactment of the bill.

III. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3 of rule XIII of the Rules of the House of Representatives, changes in existing law made by the bill, as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, existing law in which no change is proposed is shown in roman):

*

INTERNAL REVENUE CODE OF 1954

*

*

*

SEC. 5008. ABATEMENT, REMISSION, REFUND, AND ALLOWANCE FOR LOSS OR DESTRUCTION OF DISTILLED SPIRITS.

[blocks in formation]

(c) Loss oF DISTILLED SPIRITS WITHDRAWN FROM BOND FOR RECTIFICATION OR BOTTLING.

(1) GENERAL.-Whenever any distilled spirits withdrawn from bond on payment or determination of tax for rectification or

bottling are lost [before the completion of the bottling and casing or other packaging of such spirits for removal from the bottling premises] before removal from the premises of the distilled spirits plant to which removed from bond, the Secretary or his delegate shall, under such regulations as he may prescribe, abate, remit, or, without interest, credit or refund the tax imposed on such spirits under section 5001(a)(1) to the proprietor of the distilled spirits plant who withdrew the distilled spirits on payment or determination of tax for removal to his bottling premises, if it is established to the satisfaction of the Secretary or his delegate that

(A) such loss occurred (i) by reason of accident while being removed from bond to bottling premises, or (ii) by reason of flood, fire, or other disaster; or

(B) such loss occurred (i) before the completion of the bottling and casing or other packaging of such spirits for removal from the bottling premises and (ii) by reason of, and was incident to, authorized rectifying, packaging, bottling, or casing operations (including losses by leakage or evaporation occurring during removal from bond to the bottling premises and during storage on bottling premises pending rectification or bottling).

(2) LIMITATION.-No abatement, remission, credit, or refund of taxes shall be made under this subsection

(A) in any case where the claimant is indemnified or recompensed for the tax;

(B) in excess of the amount allowable under paragraph (3), in case of losses referred to in paragraph (1)(B); or

(C) unless a claim is filed, under such regulations as the Secretary or his delegate may prescribe, by the proprietor of the distilled spirits plant who withdrew the distilled spirits on payment or determination of tax, (i) within 6 months from the date of the loss in case of losses referred to in paragraph (1)(A), or (ii) within 6 months from the close of the fiscal year in which the loss occurred in case of losses referred to in paragraph (1)(B).

The quantity of distilled spirits lost within the meaning of subparagraph (B) of paragraph (1) shall be determined at such times and by such means or methods as the Secretary or his delegate shall by regulations prescribe.

(3) MAXIMUM LOSS ALLOWANCES.

(A) If all the alcoholic ingredients used in distilled spirits products during the fiscal year were distilled spirits withdrawn from bond by the proprietor of the bottling premises on payment or determination of tax, for removal to such premises, the loss allowable in such fiscal year under paragraph (1)(B) shall not be greater than the excess of losses over gains, and shall not exceed the maximum amount of loss allowable as shown in the following schedule:

« PreviousContinue »