INCREASE IN FEDERAL EXCISE TAX ON ALCOHOLIC BEVERAGES,
TOBACCO PRODUCTS, AND IMPORTED PERFUMES
Proprietors of Distilled Spirits Plants, Bonded Wine
Premises, Taxpaid Wine Bottling Houses, Breweries, Tobacco
Products Manufacturers, Manufacturers Of Cigarette Papers
And Tubes, Imported Perfume Wholesalers, Dealers Of
Alcoholic Beverages and Others Concerned:
Purpose. This Industry Circular is to inform you of a
Treasury decision, soon to be published in the FEDERAL
REGISTER, which will amend 27 CFR Parts 19, 24, 25, 170,
250, 251, 270, 275, 285, 290, 295, and 296 to comply with
the provisions of the Omnibus Budget Reconciliation Act of
1990 (Public Law 101-508, 104 Stat., 1388).
Increase in Federal excise tax rates. Public Law
101-508, 104 Stat., 1388, enacted on November 5, 1990,
increased the rate of Federal excise tax on certain
alcoholic beverages, tobacco products, cigarette papers and
tubes, and imported perfumes containing ethyl alcohol
effective January 1, 1991. All such products removed from
bonded premises on or after the effective date will be
subject to an increased tax rate. The old and new tax
rates are set forth in Exhibit 1. There are several
provisions of the new law which will directly affect
businesses which manufacture, import, and distribute these
articles. Outlined below are some of the main provisions
of the bill.
Meaning of terms. In the following discussion, the
terms "proof gallon," "wine gallon," "gallon," and
"barrels" are used. A proof gallon (p.g.) is a gallon of
liquid at 60 degrees Fahrenheit which contains 50 percent
by volume ethyl alcohol having a specific gravity of .7939
(referred to water at 60 degrees Fahrenheit as unity), or
the alcoholic equivalent thereof. For example, 1 gallon of
200 proof spirits would equal 2 proof gallons; 10 gallons
of 80 proof spirits would equal 8 proof gallons. Both a
wine gallon (w.g.) and gallon are defined as a standard
U.S. volumetric gallon (231 cubic inches). For beer, a
barrel (bbl) is equivalent to 31 U.S. volumetric gallons.
Reduced tax rate for small domestic wine producers. A
proprietor who produces not more than 250,000 gallons of
wine during the calendar year is allowed a credit of up to
90 cents per wine gallon on the first 100,000 gallons
(other than champagne and other sparkling wine) tax
determined during the calendar year. The wine must have
been produced at qualified facilities in the United States.
Control groups or proprietors who operate more than one
bonded premises must include the combined production of
wine at all their bonded wine premises in determining
eligibility for credit on taxable removals of wine from
these premises. For the purpose of determining if a
proprietor's production is within the 250,000 gallon
limitation, in addition to wine produced by fermentation,
production includes any increase in the volume of such wine
due to the winery operations of amelioration, wine spirits
addition, sweetening, the production of formula wine
(including wine coolers), and wine produced outside the
United States by the same proprietor or control group.
Production of champagne and other sparkling wines is
included for purposes of determining whether total
production of a winery exceeds 250,000 gallons. A
proprietor who produces the wine used for champagne or
other sparkling wine production does not count such wine as
produced twice.
The 90 cent per gallon tax credit is reduced by 1 percent
for every 1,000 gallons of wine produced over and above the
150,000 gallon level during a given calendar year. When
production reaches 250,000 wine gallons, the small producer
tax credit has decreased to zero. Examples for computing
this credit are found in Exhibit 2.
Wine tax credit limitation. In order to limit the
wine tax credit's application and ensure that the credit is
not utilized by ineligible proprietors, section 11201 of
Public Law 101-508, 104 Stat., 1388, vests authority in the
Secretary of the Treasury to prevent a small winery credit
from benefiting any proprietor who produces more than
250,000 gallons of wine during a calendar year. For
example, if wine is transferred in bond from a winery which
produces more than 250,000 gallons, Winery A, a subsequent
removal from bond of such wine (as a product of Winery A)
by an otherwise eligible receiving winery would not be
allowed to reflect the reduced rate of tax. In such a
case, the increased rate of tax would apply to such a
product at the time of its removal, since otherwise the
credit would benefit an ineligible winery. That is,
without the denial of the use of the credit an ineligible
winery would be allowed to market its products at the
reduced rate of tax. The regulations provide that each
regional director (compliance) will deny use of the credit
where an ineligible proprietor would benefit.
Reduced tax rate for small domestic brewers. Small
brewers who produce no more than 2,000,000 barrels of beer
are allowed to pay a reduced tax rate of $7 a barrel for
the first 60,000 barrels taxably removed. This provision
of Public Law 101-508, 104 Stat., 1388, retains the small
brewer reduced tax rate as it existed previously without
change. Removals of over 60,000 barrels must be taxpaid at
the $18 per barrel rate.
Beer tax credit limitation. A regulatory provision
similar to that discussed above under "Wine tax credit
limitation," prevents the reduced rate of tax for small
brewers from benefiting ineligible proprietors.
Effect on bond coverage. Producers who do not already
have a maximum bond, should re-evaluate bond coverage. The
increased tax rate may increase the liability which must be
covered by the operations or withdrawal bonds. Proprietors
should recompute the coverage needed, using the method
described in regulations covering the operations and the
new tax rates, and file, if necessary, a strengthening or
superseding bond to bring the coverage into compliance.
FLOOR STOCKS TAX
As a transition to the new tax rates, the law imposes a
floor stocks tax on alcoholic beverages, cigarettes and,
imported perfumes held for sale on January 1, 1991, (except
cigarettes held in vending machines, champagne and other
sparkling wine, and imported perfumes held at retail
establishments). In addition, a second floor stocks tax
will be due in 1993 for cigarettes held for sale on
January 1, 1993.
A floor stocks tax is a one-time excise tax placed on a
commodity undergoing a tax increase. The amount of the tax
is equal to the difference between the old and new tax
rates. In this case the rates are, $1.00 per proof gallon
for distilled spirits, up to $0.90 per gallon for wine,
$9.00 per barrel for beer, $2.00 per 1,000 for small
cigarettes, $4.20 per 1,000 for large cigarettes, and $1.00 per gallon on imported perfume. These rates do not apply
to champagne and other sparkling wine or to non-alcoholic
or alcohol-free beer or wine. Also, cigarettes more than
6.5 inches long will be taxed at the small cigarette rate
counting each 2.75 inches, or fraction thereof, as one
cigarette.
The floor stocks tax imposed by Public Law 101-508,
104 Stat., 1388, applies to alcoholic beverages and
cigarettes held for sale by wholesale and retail dealers as
well as to taxpaid or tax determined products held at the
producing/warehouse facilities. Tobacco products other
than cigarettes are exempt from the floor stocks tax.
Floor stocks tax inventory. Liability for the floor
stocks tax must be established either by a physical
inventory or a record (book) inventory supported by the
appropriate source records. Only persons with adequate
records of receipt and disposition may take a book
inventory. These records (such as invoices) must include
(1) the name and address of the consignor and consignee,
(2) date of receipt or disposition, (3) brand name, (4)
kind of spirits, wine, beer, cigarettes (large or small),
perfume, etc., (5) quantity and, (6) alcohol content of
spirits. All articles held for sale, subject to floor
stocks tax, should be inventoried between the end of the
last business day of December, 1990, and the beginning of
the first business day in January, 1991. The inventory may
be taken anytime between December 26, 1990, and
January 10, 1991. However, the inventory must be
reconciled (adjusted) to the beginning of business,
January 1, 1991. This reconciliation must reflect the
inventory as if it had actually been taken at the beginning
of business on January 1.
In-transit shipments. All merchandise subject to
floor stocks tax which is in-transit must be inventoried
and the tax paid by the person who owns the merchandise on
January 1, 1991. Also, a second floor stocks tax inventory
must be taken and tax paid in 1993 for cigarette dealers
who own cigarettes in-transit on January 1, 1993.
Generally, with FOB shipments the shipper retains title
until delivery. All levels (producers, wholesalers and
retailers) of the floor stocks tax affected industries
should be aware that ATF will be checking in-transit shipments, as well as on hand inventories, for payment of
floor stocks tax.
Unmerchantable products are not taxable. In this
context, unmerchantable means any product which is being
returned through the merchandising chain because of some
defect. (Products which are being returned because of poor
market demand or to reduce inventory are not considered
unmerchantable.) All persons holding products for sale on
January 1, 1991, (also January 1, 1993, for cigarettes)
must physically segregate any unmerchantable products and
include them in a separate section of their inventory
record. Unmerchantable products should not be included
when determining exemption or credit limits. If for any
reason the products are not subsequently returned or
destroyed, floor stocks tax must be paid on them and the
taxpayer must file an amended floor stocks tax return.
Failure to comply with these provisions can result in the
assessment of interest and penalties.
Exemptions and credits. Public Law 101-508, 104
Stat., 1388, contains provisions designed to remedy some of
the adverse aspects of the tax as it affects wholesale and
retail liquor dealers. If the total amount of beverage
alcohol (distilled spirits, beer, and wine,) available for
sale on January 1, 1991, does not exceed 500 gallons, the
proprietor is exempt from floor stocks tax. The same 500
gallon exemption that applies to beverage alcohol also
applies to imported perfume wholesalers. Proprietors
holding for sale both alcoholic beverages and imported
perfume, subject to floor stocks tax, must combine the
gallonage of both products when determining qualification
for the 500 gallon exemption. All imported perfume at
retail establishments is exempt. Also, cigarettes held in
any vending machine are exempt from floor stocks tax as
well as the first 30,000 cigarettes held for sale by a
dealer.
Dealers with more than the above specified amounts on hand
are allowed dollar credits that may be taken on the tax
return. The credits are (1) $240 for distilled spirits
and perfume, (2) $270 for wine, (3) $87 for beer and, $60
for cigarettes.
Small domestic wine producer credit. Basically, the
new credit against wine tax for small domestic producers discussed earlier is applied to the floor stocks tax on
taxpaid or tax determined wine held on wine premises on
January 1, 1991. Wine producers must apply the new rules
to 1990 production for the purposes of computing floor
stocks tax credit. In other words, small wine producers
may take a tax credit on their 1991 floor stocks tax return
based on their 1990 production and taxable removals. If
production is less than 250,000 gallons in 1990, the first
100,000 gallons (other than champagne and other sparkling
wine) removed taxpaid or tax determined during 1990 would
have been eligible for the tax credit. The maximum 90 cent
tax credit is reduced by 1 percent for every 1,000 gallons
of wine produced in excess of 150,000 gallons during 1990.
To be eligible for this tax credit, taxpaid or tax
determined wine must be treated as having been removed on
December 31, 1990. For example, a winery proprietor
producing less than 150,000 gallons of wine during the
calendar year who has 30,000 gallons of taxpaid wine on
hand out of a total of 130,000 gallons removed in calendar
year 1990, cannot claim the credit. Such winery proprietor
must pay the full 90 cents per gallon for all wine held in
taxpaid status. A worksheet for determining the small
domestic wine producer credit is provided as a part of the
Floor Stocks Tax Return package.
Small domestic brewer credit. Any taxpaid or tax
determined beer held on brewery premises on
January 1, 1991, which would have been taxpaid at the small
brewery reduced rate of $7 a barrel if it had been removed
on December 31, 1990, is exempt from floor stocks tax.
This exemption is available only to brewers who produced no
more than 2,000,000 barrels of beer in 1990. A worksheet
for determining the small domestic beer producer exemption
is provided as a part of the Floor Stocks Tax Return
package.
Controlled groups. All members of a controlled group
are considered as a single taxpayer for purposes of the
exemption allowance and tax credits. Basically, a
"Controlled Group" means any group of incorporated or
non-incorporated businesses that have common ownership
interests (including individuals, partnerships,
corporations, and States or political subdivisions of
States). A business is considered to be part of a
controlled group if more than 50 percent of the business is owned either by, or in common with, another business (or
businesses).
Floor Stocks Tax Return, ATF F 5000.28. All
proprietors holding, for sale, articles subject to floor
stocks tax on January 1, 1991, must complete and file a
Floor Stocks Tax Return, ATF F 5000.28. In addition, any
cigarette dealer holding cigarettes for sale on
January 1, 1993, must complete and file a Floor Stocks Tax
Return based on an inventory taken on January 1, 1993.
Taxpayers qualifying for the 500 gallon exemption and the
30,000 cigarette exemption need only make a record of their
inventory and complete parts I, II, and V of ATF F 5000.28.
A detailed information and general instruction pamphlet
will be sent out with the Floor Stocks Tax Return form.
Proprietors will need to do some mathematical
conversions since commercial packages of taxable products
do not always use the same units of measure as used in the
computation of the tax. A chart of the basic conversion
factors is being provided to proprietors as part of the tax
return package. To impose a minimal burden on proprietors,
the conversion factors have been shortened for converting
from liters to gallons. Proprietors who normally file
monthly reports with ATF may continue to use the customary
conversion factors used for their regular reports. There
is no need to do conversions twice.
Proprietors should convert to taxable units at the
time the inventory is taken, rather than waiting until
making tax payments. Upon completion of the conversion of
the inventory to taxable units, the taxpayer must enter the
inventory for each product on the lines provided on the tax
return, ATF F 5000.28, and multiply by the applicable tax
rates. Tax credits are deducted. Controlled groups get
only one such credit for all the associated businesses.
The credit may be taken in full by one member of the
controlled group, or divided among the members. For
further information on controlled groups or tax returns
covering more than one location, and associated
recordkeeping requirements, see 27 CFR 170.114(b), (c), and
27 CFR 170.116.
Filing and payment dates. Although the inventory is
required on January 1, 1991, proprietors are not required
to file the floor stocks tax return and submit the remittance until June 30, 1991. Since that date falls on a
Sunday, the return and remittance are due on Friday,
June 28, 1991. For cigarette dealers holding cigarettes
for sale on January 1, 1993, a floor stocks tax return and
remittance are due on June 30, 1993.
Electronic Fund Transfer. Producers of alcoholic
beverages and tobacco products who presently pay their
Federal excise tax by Electronic Fund Transfer (EFT) will
be required to make their floor stocks tax payment by EFT.
To insure proper credit, a separate EFT transfer should be
made for the floor stocks tax. It should not be combined
with the regular excise tax remittance.
The increase in tax rates may place a taxpayer in the EFT
category for the first time. As a general rule, any
taxpayer who pays more than $5,000,000 in alcoholic
beverage or tobacco products excise taxes during a calendar
year is required to pay their taxes by EFT the following
year. It is the taxpayer's responsibility to determine if
EFT payment is necessary and, if it is, to begin paying
taxes by EFT. If you need additional information or
instructions for EFT payments, contact your local ATF
office.
Retention of records. 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 three years after the filing date of the
Floor Stocks Tax Return. Similarly, proprietors using a
record inventory must retain the summary and supporting
records for a period of three years after the filing date
of the Floor Stocks Tax Return. The record must be made
available at each proprietor's place of business for
inspection by ATF officers. Civil and criminal penalties
are imposed by law for failure to file, failure to pay,
failure to allow officers access to premises where taxable
articles are stored, failure to furnish officers access to
records pertinent to tax liabilities, filing a fraudulent
return, etc.
If an ATF officer discovers evidence of tax liability and
the taxpayer fails or refuses to make or amend a return, or
to voluntarily pay the tax due, the ATF officer has the
right to use the information available to prepare and sign
a return for the taxpayer. On the basis of that return, the tax, along with appropriate penalties and interest,
will be assessed. It will then be the taxpayer's
responsibility to prove that the amount is not due.
Inquiries. If you have any questions, please contact
the following ATF regional office in your area:
Taxpayers in Illinois, Indiana, Kentucky, Michigan,
Minnesota, North Dakota, Ohio, South Dakota, Wisconsin,
West Virginia:
Bureau of Alcohol, Tobacco and Firearms
550 Main Street, Room 6519
Federal Office Bldg.
Cincinnati, OH 45202
(513) 684-3335
FAX (513) 684-3168
Taxpayers in Connecticut, District of Columbia,
Delaware, Massachusetts, Maryland, Maine, New Hampshire,
New Jersey, New York, Pennsylvania, Rhode Island, Vermont:
Bureau of Alcohol, Tobacco and Firearms
841 Chestnut Street
Room 380
Philadelphia, PA 19107
(215) 597-2238
FAX (215) 597-7255
Taxpayers in Alabama, Florida, Georgia, Mississippi,
North Carolina, South Carolina, Tennessee and Virginia:
Bureau of Alcohol, Tobacco and Firearms
2600 Century Parkway NE, Suite 305
Atlanta, GA 30345
(404) 679-5080
FAX (404) 679-5099
Taxpayers in Arkansas, Colorado, Iowa, Kansas,
Louisiana, Missouri, Nebraska, New Mexico, Oklahoma, Texas,
Wyoming:
Bureau of Alcohol, Tobacco and Firearms
1114 Commerce Street
7th Floor
Dallas, TX 75242
(214) 767-2277
FAX (214) 767-2750
Taxpayers in Alaska, Arizona, California, Hawaii,
Idaho, Montana, Nevada, Oregon, Utah, Washington:
Bureau of Alcohol, Tobacco and Firearms
221 Main Street
11th Floor
San Francisco, CA 94105
(415) 744-7011
FAX (415) 744-9443
Director
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Exhibit 1 (225 KB)
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