I

106TH CONGRESS

1ST SESSION H. R. 716

To amend the Internal Revenue Code of 1986 to simplify the method of

payment of taxes on distilled spirits.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 11, 1999

Mr. COLLINS (for himself, Mr. NEAL of Massachusetts, Mr. CHAMBLISS, Mr.

LEWIS of Georgia, Mr. LEWIS of Kentucky, Mr. HILLEARY, Mr.

MCCRERY, Mrs. THURMAN, Mr. KENNEDY of Rhode Island, Ms. DUNN,

Mrs. JOHNSON of Connecticut, Mr. BOEHNER, Mr. KLECZKA, and Mr.

DEAL of Georgia) introduced the following bill; which was referred to the

Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to simplify

the method of payment of taxes on distilled spirits.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Distilled Spirits Tax Payment Simplification Act of

6 1999’’.

7 (b) AMENDMENT OF 1986 CODE.—Except as other8 wise expressly provided, whenever an amendment or repeal
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1 is expressed in terms of an amendment to, or repeal of,

2 a section or other provision, the reference shall be consid3 ered to be made to a section or other provision of the In4 ternal Revenue Code of 1986.

5 SEC. 2. TRANSFER OF DISTILLED SPIRITS BETWEEN BOND6 ED PREMISES.

7 (a) Section 5212 is amended to read as follows:

8 ‘‘SEC. 5212. TRANSFER OF DISTILLED SPIRITS BETWEEN

9 BONDED PREMISES.

10 ‘‘Distilled spirits on which the internal revenue tax

11 has not been paid as authorized by law may, under such

12 regulations as the Secretary shall prescribe, be transferred

13 in bond between bonded premises in any approved con14 tainer. For the purposes of this chapter, except in the case

15 of any transfer from a premise of a bonded dealer, the

16 removal of distilled spirits for transfer in bond between

17 bonded premises shall not be construed to be a withdrawal

18 from bonded premises.’’

19 (b) The first sentence of section 5232 is amended to

20 read as follows:

21 ‘‘Distilled spirits imported or brought into the United

22 States, under such regulations as the Secretary shall pre23 scribe, may be withdrawn from customs custody and

24 transferred to the bonded premises of a distilled spirits
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1 plant without payment of the internal revenue tax imposed

2 on such distilled spirits.’’

3 SEC. 3. ESTABLISHMENT OF DISTILLED SPIRITS PLANT.

4 Section 5171 is amended by—

5 (1) striking from subsection (a) ‘‘or processor’’

6 and inserting ‘‘processor, or bonded dealer’’; and

7 (2) striking from subsection (b) ‘‘or both.’’ and

8 inserting ‘‘as a bonded dealer, or as any combination

9 thereof.’’

10 SEC. 4. DISTILLED SPIRITS PLANTS.

11 Section 5178(a) is amended by adding the following

12 new paragraph after paragraph (4):

13 ‘‘(5) BONDED DEALER OPERATIONS.—Any per14 son establishing a distilled spirits plant to conduct

15 operations as a bonded dealer may, as described in

16 the application for registration—

17 ‘‘(A) store distilled spirits in any approved

18 container on the bonded premises of such plant,

19 and

20 ‘‘(B) under such regulations as the Sec21 retary shall prescribe, store taxpaid distilled

22 spirits, beer and wine and such other beverages

23 and items (products) not subject to tax or regu24 lation under this title on such bonded prem25 ises.’’
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1 SEC. 5. BONDED DEALERS.

2 (a) Section 5002(a) is amended by inserting after

3 subsection (a)(15) the following new paragraphs:

4 ‘‘(16) BONDED DEALER.—The term ‘bonded

5 dealer’ means any person who has elected under sec6 tion 5011 to be treated as a bonded dealer.

7 ‘‘(17) CONTROL STATE ENTITY.—The term

8 ‘control State entity’ means a State or a political

9 subdivision of a State in which only the State or a

10 political subdivision thereof is allowed under applica11 ble law to perform distilled spirit operations, or any

12 instrumentality of such a State or political subdivi13 sion.’’

14 (b) Subpart A of part I of subchapter A of chapter

15 51 (relating to distilled spirits) is amended by adding at

16 the end thereof the following new section:

17 ‘‘SEC. 5011. ELECTION TO BE TREATED AS BONDED

18 DEALER.

19 ‘‘(a) ELECTION.—Any wholesale dealer, or any con20 trol State entity, may elect, at such time and in such man21 ner as the Secretary shall prescribe, to be treated as a

22 bonded dealer if such wholesale dealer or entity sells bot23 tled distilled spirits exclusively to a wholesale dealer in liq24 uor, to an independent retail dealer subject to the limita25 tion set forth in subsection (b), or to another bonded

26 dealer. Except in the case of a control State entity, this
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1 election is not available to a retail dealer in liquor. This

2 election is not available to any person with gross receipts

3 from the sale of distilled spirits, in the 12-month period

4 prior to making such election, of less than $5,000,000 (ap5 plying the rules of section 5061(e)(3)).

6 ‘‘(b) SPECIAL RULES.—(1) Any person, other than

7 a control State entity, who is a bonded dealer shall not

8 be considered as selling to an independent retail dealer

9 if the bonded dealer has a greater than 10 percent owner10 ship interest in, or control of the retail dealer; the retail

11 dealer has a greater than 10 percent ownership interest

12 in, or control of the bonded dealer; or where any person

13 has a greater than 10 percent ownership interest in, or

14 control of both the bonded and retail dealer. For purposes

15 of this subparagraph, ownership interest, not limited to

16 stock ownership, shall be attributed to other persons in

17 the manner prescribed by section 318.

18 ‘‘(2) In the case of any control State entity, sub19 section (a) shall be applied without regard to the word

20 ‘independent’.

21 ‘‘(c) INVENTORY OWNED AT TIME OF ELECTION.—

22 Any bottled distilled spirits in the inventory of any person

23 electing under section 5011 to be treated as a bonded deal24 er shall, to the extent that the Federal excise tax pre25 viously has been determined and paid at the time the elec-
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1 tion becomes effective, not be subject to additional Federal

2 excise tax on such spirits as a result of the election being

3 in effect.

4 ‘‘(d) REVOCATION OF ELECTION.—The election made

5 under this section may be revoked by the bonded dealer

6 at any time, but once revoked shall not be made again

7 without the consent of the Secretary. When the election

8 is revoked, the bonded dealer shall immediately withdraw

9 the distilled spirits on determination of tax in accordance

10 with a tax payment procedure established by the Sec11 retary.

12 ‘‘(e) EQUITABLE TREATMENT OF BONDED DEALERS

13 USING LIFO INVENTORY.—The Secretary shall provide

14 such rules as may be necessary to assure that taxpayers

15 using the last-in first-out method of inventory valuation

16 do not suffer a recapture of their LIFO reserve by reason

17 of making the election under section 5011 or by reason

18 of operating a bonded wine cellar as permitted by section

19 5351.

20 ‘‘(f) APPROVAL OF APPLICATION.—Any person sub21 mitting an application under section 5171(c) and electing

22 under this section to be treated as a bonded dealer shall

23 be entitled to approval of such application to the same ex24 tent they would be entitled to approval of an application

25 for a basic permit under section 204(a)(2) of title 27 of
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1 the United States Code (the Federal Alcohol Administra2 tion Act) and shall be accorded notice and hearing as de3 scribed in section 204(b) of such title 27.’’

4 (c) CONFORMING AMENDMENT.—The table of sec5 tions of subpart A of part I of subchapter A of chapter

6 51 and the table of contents of subtitle E are amended

7 by adding at the appropriate places:

‘‘Sec. 5011. Election to be treated as bonded dealer.’’

8 SEC. 6. DETERMINATION OF TAX.

9 The first sentence of section 5006(a)(1) is amended

10 to read as follows: ‘‘Except as otherwise provided in this

11 section, the tax on distilled spirits shall be determined

12 when the spirits are transferred from a distilled spirits

13 plant to a bonded dealer or are withdrawn from bond.’’

14 SEC. 7. LOSS OR DESTRUCTION OF DISTILLED SPIRITS.

15 (a) Subsections (a)(1)(A) and (a)(2) of section 5008

16 are amended by inserting ‘‘bonded dealer,’’ after ‘‘distilled

17 spirits plant,’’.

18 (b) Subsection (c)(1) of section 5008 is amended by

19 striking ‘‘of a distilled spirits plant under section 5215(a)’’

20 and inserting ‘‘but only for destruction, denaturation, re21 distillation, reconditioning, or rebottling’’.

22 (c) Subsection (c)(2) of section 5008 is amended by

23 striking ‘‘distilled spirits plant’’ and inserting ‘‘bonded

24 premises’’.
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1 SEC. 8. TIME FOR COLLECTING TAX ON DISTILLED SPIRITS.

2 (a) Section 5061(d) is amended by redesignating

3 paragraph (5) as paragraph (6) and by inserting after

4 paragraph (4) the following new paragraph:

5 ‘‘(5) ADVANCED PAYMENT OF DISTILLED SPIR6 ITS TAX.—Notwithstanding the preceding provisions

7 of this subsection, in the case of any tax imposed by

8 section 5001 with respect to a bonded dealer who

9 has an election in effect on September 20 of any

10 year, any payment of which would, but for this para11 graph, be due in October or November of that year,

12 shall be made on such September 20. No penalty or

13 interest shall be imposed for the period from such

14 September 20 until the due date determined without

15 regard to this paragraph to the extent that tax due

16 exceeds the tax which would have been due with re17 spect to distilled spirits in the preceding October and

18 November had the election under section 5011 been

19 in effect.’’

20 (b) Section 5061(e)(1) is amended by inserting ‘‘or

21 any bonded dealer,’’ after ‘‘respectively,’’.

22 SEC. 9. EXEMPTION FROM OCCUPATIONAL TAX NOT APPLI23 CABLE.

24 Section 5113(a) is amended by adding after the last

25 sentence the following new sentence: ‘‘This exemption

26 shall not apply to a proprietor of a distilled spirits plant
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1 whose premises are used for operations of a bonded deal2 er.’’

3 SEC. 10. TECHNICAL, CONFORMING, AND CLERICAL

4 AMENDMENTS.

5 (a) TECHNICAL AND CONFORMING AMENDMENTS.—

6 (1) Section 5003(3) is amended by striking

7 ‘‘certain’’.

8 (2) Section 5214 is amended by redesignating

9 subsection (b) as subsection (c) and inserting after

10 subsection (a) the following new subsection:

11 ‘‘(b) EXCEPTION.—Subsections (a) (1), (2), (3), (5),

12 (10), (11), and (12) of this section shall not apply to dis13 tilled spirits withdrawn from premises used for operations

14 as a bonded dealer.’’

15 (3) Section 5215(a) is amended by striking all

16 that follows ‘‘bonded premises’’ and inserting a pe17 riod.

18 (4) Section 5362(b)(5) is amended by adding at

19 the end the following new sentence: ‘‘This term will

20 not apply to premises used for operations as a bond21 ed dealer.’’.

22 (5) Section 5551(a) is amended by inserting

23 ‘‘bonded dealer,’’ after ‘‘processor,’’ each place it ap24 pears.
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1 (6) Section 5601(a) (2), (3), (4), (5), and (b)

2 are amended by inserting ‘‘, bonded dealer’’ before

3 ‘‘or processor’’ each place it appears.

4 (7) Section 5602 is amended by inserting

5 ‘‘, warehouseman, processor, or bonded dealer’’ after

6 ‘‘distiller’’.

7 (8) Sections 5115, 5180, and 5681 are re8 pealed.

9 (b) CLERICAL AMENDMENTS.—

10 (1) The table of sections for part II of sub11 chapter A of chapter 51 is amended by striking the

12 item relating to section 5115.

13 (2) The table of sections for subchapter B of

14 chapter 51 is amended by striking the item relating

15 to section 5180.

16 (3) The table of sections for part IV of sub17 chapter J of chapter 51 is amended by striking the

18 item relating to section 5681.

19 SEC. 11. REGISTRATION FEES.

20 (a) GENERAL RULE.—The Director of the Bureau of

21 Alcohol, Tobacco, and Firearms shall, in accordance with

22 this section, assess and collect registration fees from the

23 bonded dealers. Except as provided in subsection (c), the

24 amount of the fees for any year shall be established by

25 the Director so that the aggregate amount estimate to be
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1 collected for the year equals the Director’s estimate of the

2 increased costs of compliance activities of the Bureau re3 sulting from enactment of this Act.

4 (b) PERSONS SUBJECT TO FEE.—Fees shall be paid

5 in a manner prescribed by the Director by the bonded

6 dealer.

7 (c) AMOUNT AND TIMING OF FEES.—Fees shall be

8 paid annually and shall not exceed $5,000 per bonded

9 premise, except that in the first year that an election

10 under section 5011(a) takes effect, an additional amount,

11 not to exceed $3,000, shall be paid by each bonded dealer.

12 (d) DEPOSIT AND CREDIT.—The moneys received

13 during any fiscal year from fees described in subsection

14 (a) shall be deposited as an offsetting collection in, and

15 credited to, the account providing appropriations to con16 duct the regulatory activities of the Government resulting

17 from enactment of this Act.

18 (e) LIMITATION.—The aggregate amount of fees as19 sessed and collected under this section may not exceed in

20 any fiscal year the aggregate amount of any net increased

21 costs of regulatory activity referred to in subsection (a).

22 SEC. 12. COOPERATIVE AGREEMENTS.

23 (a) STUDY.—The Secretary of the Treasury shall

24 study and report to Congress concerning possible adminis25 trative efficiencies which could inure to the benefit of the
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1 Federal Government of cooperative agreements with

2 States regarding the collection of distilled spirits excise

3 taxes. Such study shall include, but not be limited to, pos4 sible benefits of the standardization of forms and collec5 tion procedures and shall be submitted 1 year after the

6 date of the enactment of this Act.

7 (b) COOPERATIVE AGREEMENT.—The Secretary of

8 the Treasury is authorized to enter into such cooperative

9 agreements with States which the Secretary deems will in10 crease the efficient collection of distilled spirits excise

11 taxes.

12 SEC. 13. EFFECTIVE DATE.

13 (a) Except as provided in subsection (b) the provi14 sions of this Act shall take effect at the beginning of the

15 first calendar quarter that begins after one hundred and

16 twenty days following enactment.

17 (b)(1) The amendments made by section 3 of this Act

18 shall take effect on the date of enactment of this Act, and

19 (2) Each wholesale dealer who is required to file an

20 application for registration under section 5171(c) whose

21 operations are required to be covered by a basic permit

22 under the Federal Alcohol Administration Act (27 U.S.C.

23 203 and 204) and who has received such basic permits

24 as an importer, wholesaler, or as both, and has obtained
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1 a bond required under this subchapter shall be qualified

2 beginning on the later of—

3 (A) the first day of the first calendar quarter

4 that begins at least 8 months after the date of en5 actment, or

6 (B) the first day of the first calendar quarter

7 that begins at least 9 months after the application

8 is filed,

9 to operate bonded premises until such time as the Sec10 retary takes final action on the application. Any control

11 State entity that has obtained a bond required under this

12 subchapter shall be qualified to operate bonded premises

13 until such time as the Secretary takes final action on the

14 application for registration under section 5171(c).

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