IMPORTED PERFUMES TAX INCREASE AND
RESULTING FLOOR STOCKS TAX
Importers and Wholesalers of Imported Perfumes; and Others
Concerned:
Purpose. This Industry Circular is issued to advise
importers and wholesalers of imported perfumes of an increase
in the imported perfumes tax rate, effective October 1, 1985,
and of a resulting one-time floor stocks tax. In addition,
this circular will describe the procedure for establishing the
inventory of imported perfume that will be used to determine
the floor stocks tax liability.
Background. The Deficit Reduction Act of 1984 (Public Law
98-369), enacted on July 18, 1984, increased the rate of tax on
imported perfumes containing distilled spirits (ethyl alcohol)
from $10.50 to $12.50 per wine gallon, effective October 1,
1985. All imported perfumes containing distilled spirits
removed from bonded premises on or after the effective date
will be subject to the increased tax rate. As a transition to
the new tax rate, this Act imposes a one-time floor stocks tax
equal to the difference between the old and new tax rates
($2.00 per wine gallon) on all taxpaid imported perfumes
containing distilled spirits held for sale on October 1, 1985,
except for imported perfumes held at retail establishments.
Terms Defined. Certain terms used in this circular may
need defining to alleviate any confusion. The following
definitions should assist concerned proprietors:
Wine gallon. A standard U.S. volumetric gallon.
Small or medium-sized dealer. Any dealer whose aggregate
gross sales receipts for all products (not just imported
perfumes) for the most recent taxable year ending before
October 1, 1985, do not exceed $500,000.
Controlled group. Any group of incorporated or
nonincorporated importers or other dealers that have common
ownership interests. Generally, a proprietor is considered to
be part of a controlled group if more than 50 percent of the
company is either owned by, or in common with, another company
(or companies).
Floor Stocks Tax Liability. The imported perfumes floor
stocks tax is imposed on all federally taxpaid or tax-
determined imported perfumes that contain distilled spirits and
that are held for sale on the first moment of October 1, 1985,
except that: (1) this liability is not imposed on imported
perfumes held at retail establishments, and (2) imported
perfumes held by proprietors who have 500 wine gallons or less
on hand at places other than retail establishments on
October 1, 1985 are exempt from the tax.
The exemption for retail establishments applies only to
imported perfumes held at the place where they are intended to
be sold at retail. The exemption includes imported perfumes
held in storage facilities that are within or form an integral
part of the retail premises at the same physical location. It
does not apply to imported perfumes held in warehouses or other
similar storage facilities located away from the retail
premises where retail customers do not have regular access to
them. Imported perfumes held in these separate storage
facilities are subject to the floor stocks tax.
All proprietors who have more than 500 wine gallons on hand
at places other than at retail establishments are allowed as a
credit against the floor stocks tax an amount equal to $800 or
the amount of tax liability, whichever is smaller. For
purposes of determining the 500 wine gallon exemption and the
$800 credit, the individual members of a controlled group are
considered together as a single entity. Taxpaid imported
perfumes held for sale on Federal property (military
installations, Indian reservations, etc.) are not excluded from
the tax for that reason.
General Inventory Provisions. Liability for the floor
stocks tax must be established by a physical inventory of
imported perfumes containing distilled spirits on hand as of
the first moment of October 1, 1985.
Proprietors who prefer not to take a physical inventory on
October 1, may take it anytime between September 23, and
October 6, 1985. (Or, if the business is closed before
September 23, and will remain closed through October 1, the
inventory may be taken on the last business day before
closing.) If the physical inventory is not taken between the
end of the last business day of September, and the beginning of
the first business day of October, it must be reconciled
(adjusted) to October 1, 1985. This reconciliation must be
supported by records of all receipts and dispositions between
October 1, and the date of the inventory, and reflect the
actual inventory as if such inventory had actually been taken
on October 1.
The physical inventory will be recorded in writing as it is
being taken, and retained at the place of business to which the
inventory pertains for a period of at least 3 years after the
filing date of the floor stocks tax return. The record of
inventory must identify all products by brand name and size of
container, and must be made available at each proprietor's
place of business for inspection by ATF officers. Taxpaid
imported perfumes in transit as of October 1, 1985, will be
included in the inventory of the person who owns the perfumes
as of that date.
Except for proprietors whose entire stock of imported
perfumes is held on the premises of a retail establishment, all
proprietors holding taxpaid imported perfumes for sale,
including those persons holding 500 wine gallons on hand or
less, must take a complete inventory in wine gallons.
Therefore, proprietors must convert imported perfumes held in
metric sizes to their wine gallon equivalents.
To convert the inventory to wine gallons, the quantity of
imported perfumes of each brand and size in liters should be
multiplied by the standard conversion factor of 0.264172. For
each such conversion by brand and size, the total wine gallons
should be rounded to the nearest hundredth (for example,
75.369712 wine gallons would be rounded to 75.37). There are
two basic methods that can be used to convert liters to wine
gallons; both will yield the same result.
The conversion from liters to wine gallons may be made by
first converting single units of the product to their wine
gallon equivalent by multiplying each unit by the standard
conversion factor and rounding this amount to the nearest sixth
decimal place. Multiply this figure by the total number of
units in order to determine the total amount in wine gallons.
This final answer should be rounded off to the nearest second
decimal place (that is, to the nearest hundredth of a wine
gallon). For example, if you had seven .055 Liter bottles on
hand of a certain product, you could convert each bottle to its
wine gallon equivalent using the standard conversion factor,
carry out the answer to the sixth decimal place, multiply by
seven, the number of bottles, and round this figure off to the
nearest second decimal place to get the final amount in wine
gallons.
Alternatively, the conversion from liters to wine gallons
may be made by first determining for each product, by brand and
size, the quantity of the entire stock of the product in
liters, multiplying by the standard conversion factor, and
rounding to the nearest second decimal place. Using the
figures from the example above, 7 bottles, each containing .055
liters, of a certain product would equal .385 liters. This
amount can be multiplied by the standard conversion factor and
the answer rounded to two decimal places. Both methods result
in the same answer, 0.11 wine gallons.
Unmerchantable imported perfumes are not subject to the
floor stocks tax. In this context, unmerchantable refers to
perfumes which are being returned back up the merchandising
chain because of some defect, and which will eventually be
destroyed or returned to Customs bond. Imported perfumes which
are being returned because of poor market demand or to reduce
inventory are not considered unmerchantable. Although the
floor stocks tax is not imposed on unmerchantable imported
perfumes, all persons holding for sale imported perfumes that
are subject to the floor stocks tax for sale must physically
segregate any unmerchantable products and include them in a
separate section of their inventory record. The unmerchantable
merchandise should not be included when determining whether the
dealer holds over 500 wine gallons, and should not be shown on
the floor stocks tax return. If for any reason such perfumes
are not subsequently returned or destroyed, floor stocks tax
must be paid on them and the taxpayer must file an amended
floor stocks return. Failure to comply with these provisions
can result in the assessment of interest and penalties.
Computing Tax Liability. The total tax liability, before
taking any credit, is determined by multiplying the total wine
gallons in inventory times $2.00. For example, 870.25 wine
gallons X $2.00 = $1740.50. The $800 credit is then subtracted
from the computed tax to determine the total tax due. Also,
members of controlled groups are reminded that the controlled
group is entitled to a single credit, which may be apportioned
among the members in any manner satisfactory to them.
Paying Floor Stocks Tax. All proprietors holding imported
perfumes for sale on the premises of retail establishments
only, or having 500 wine gallons or less in inventory at places
other than retail establishments (except for members of a
controlled group who, together, have a total inventory of more
than 500 wine gallons), owe no tax and are not required to file
a tax return. All other persons holding for sale imported
perfumes containing distilled spirits for sale on October 1,
1985, must file a tax return.
The floor stocks tax return (IRS Form 11) will be
distributed to proprietors by September 15, 1985. Additional
forms may be obtained from IRS and ATF offices.
The floor stocks tax return must be filed with the
appropriate Internal Revenue Service Center, with full payment,
on or before April 1, 1986. Small and medium-sized dealers may
elect to pay the tax in three equal installments due on or
before April 1, July 1, and October 1, 1986. These dealers
will be responsible for filing the tax return with the first
payment on or before April 1, 1986, and will be billed for the
installment payments due on or before July 1, and October 1,
1986 by the Internal Revenue Service. For purposes of
determining whether a controlled group qualifies to pay the tax
in installments, the members of a controlled group are
considered together as a single entity.
Inquiries. Please direct any inquiries concerning the
floor stocks tax to the appropriate floor stocks tax
coordinator in the nearest ATF regional office, listed below:
Midwest Region
Bureau of Alcohol, Tobacco Bureau of Alcohol, Tobacco
and Firearms and Firearms
230 S. Dearborn St. 500 Main Street, Rm. 6510A
15th Floor Federal Office Bldg.
Chicago, IL 60604 Cincinnati, OH 45202
(312) 886-5149 (513) 684-3334
North Atlantic Region
Bureau of Alcohol, Tobacco Bureau of Alcohol, Tobacco
and Firearms and Firearms
6th Floor Fed. Bldg./U.S. P.O.
6 World Trade Center Sixth Floor
New York, NY 10048 Ninth & Market Streets
(212) 264-3994 Philadelphia, PA 19107
(215) 597-3984
Southwest Region Southeast Region
Bureau of Alcohol, Tobacco Bureau of Alcohol, Tobacco
and Firearms and Firearms
1114 Commerce Street 3835 Northeast Exwy.
Room 701 Room 200
Dallas, TX 75242 Atlanta, GA 30340
(214) 767-2257 (404) 455-2645
Western Region
Bureau of Alcohol, Tobacco and Firearms
525 Market Street
34th Floor
San Francisco, CA 94105
(415) 974-9620
Director |