II

106TH CONGRESS

1ST SESSION S. 434

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

payment of taxes on distilled spirits.

IN THE SENATE OF THE UNITED STATES

FEBRUARY 22, 1999

Mr. BREAUX (for himself, Mr. BRYAN, Mr. DORGAN, and Mr. FRIST) introduced the following bill; which was read twice and referred to the Committee on Finance

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

9 is expressed in terms of an amendment to, or repeal of,

10 a section or other provision, the reference shall be consid-
2

•S 434 IS

1 ered to be made to a section or other provision of the In2 ternal Revenue Code of 1986.

3 SEC. 2. TRANSFER OF DISTILLED SPIRITS BETWEEN BOND4 ED PREMISES.

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

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

7 BONDED PREMISES.

8 ‘‘Distilled spirits on which the internal revenue tax

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

10 regulations as the Secretary shall prescribe, be transferred

11 in bond between bonded premises in any approved con12 tainer. For the purposes of this chapter, except in the case

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

14 removal of distilled spirits for transfer in bond between

15 bonded premises shall not be construed to be a withdrawal

16 from bonded premises.’’

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

18 read as follows:

19 ‘‘Distilled spirits imported or brought into the United

20 States, under such regulations as the Secretary shall pre21 scribe, may be withdrawn from customs custody and

22 transferred to the bonded premises of a distilled spirits

23 plant without payment of the internal revenue tax imposed

24 on such distilled spirits.’’
3

•S 434 IS

1 SEC. 3. ESTABLISHMENT OF DISTILLED SPIRITS PLANT.

2 Section 5171 is amended by—

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

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

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

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

7 thereof.’’

8 SEC. 4. DISTILLED SPIRITS PLANTS.

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

10 new paragraph after paragraph (4):

11 ‘‘(5) BONDED DEALER OPERATIONS.—Any per12 son establishing a distilled spirits plant to conduct

13 operations as a bonded dealer may, as described in

14 the application for registration—

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

16 container on the bonded premises of such plant,

17 and

18 ‘‘(B) under such regulations as the Sec19 retary shall prescribe, store taxpaid distilled

20 spirits, beer and wine and such other beverages

21 and items (products) not subject to tax or regu22 lation under this title on such bonded prem23 ises.’’

24 SEC. 5. BONDED DEALERS.

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

26 subsection (a)(15) the following new paragraphs:
4

•S 434 IS

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

2 dealer’ means any person who has elected under sec3 tion 5011 to be treated as a bonded dealer.

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

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

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

7 political subdivision thereof is allowed under applica8 ble law to perform distilled spirit operations, or any

9 instrumentality of such a State or political subdivi10 sion.’’

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

12 51 (relating to distilled spirits) is amended by adding at

13 the end thereof the following new section:

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

15 DEALER.

16 ‘‘(a) ELECTION.—Any wholesale dealer, or any con17 trol State entity, may elect, at such time and in such man18 ner as the Secretary shall prescribe, to be treated as a

19 bonded dealer if such wholesale dealer or entity sells bot20 tled distilled spirits exclusively to a wholesale dealer in liq21 uor, to an independent retail dealer subject to the limita22 tion set forth in subsection (b), or to another bonded deal23 er. Except in the case of a control State entity, this elec24 tion is not available to a retail dealer in liquor. This elec25 tion is not available to any person with gross receipts from
5

•S 434 IS

1 the sale of distilled spirits, in the 12-month period prior

2 to making such election, of less than $5,000,000 (applying

3 the rules of section 5061(e)(3)).

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

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

6 be considered as selling to an independent retail dealer

7 if the bonded dealer has a greater than 10 percent owner8 ship interest in, or control of the retail dealer; the retail

9 dealer has a greater than 10 percent ownership interest

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

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

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

13 of this subparagraph, ownership interest, not limited to

14 stock ownership, shall be attributed to other persons in

15 the manner prescribed by section 318.

16 ‘‘(2) In the case of any control State entity, sub17 section (a) shall be applied without regard to the word

18 ‘independent’.

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

20 Any bottled distilled spirits in the inventory of any person

21 electing under section 5011 to be treated as a bonded deal22 er shall, to the extent that the Federal excise tax pre23 viously has been determined and paid at the time the elec24 tion becomes effective, not be subject to additional Federal
6

•S 434 IS

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

2 in effect.

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

4 under this section may be revoked by the bonded dealer

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

6 without the consent of the Secretary. When the election

7 is revoked, the bonded dealer shall immediately withdraw

8 the distilled spirits on determination of tax in accordance

9 with a tax payment procedure established by the Sec10 retary.

11 ‘‘(e) EQUITABLE TREATMENT OF BONDED DEALERS

12 USING LIFO INVENTORY.—The Secretary shall provide

13 such rules as may be necessary to assure that taxpayers

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

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

16 of making the election under section 5011 or by reason

17 of operating a bonded wine cellar as permitted by section

18 5351.

19 ‘‘(f) APPROVAL OF APPLICATION.—Any person sub20 mitting an application under section 5171(c) and electing

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

22 be entitled to approval of such application to the same ex23 tent they would be entitled to approval of an application

24 for a basic permit under section 204(a)(2) of title 27 of

25 the United States Code (the Federal Alcohol Administra-
7

•S 434 IS

1 tion Act) and shall be accorded notice and hearing as de2 scribed in section 204(b) of such title 27.’’

3 (c) CONFORMING AMENDMENT.—The table of sec4 tions of subpart A of part I of subchapter A of chapter

5 51 and the table of contents of subtitle E are amended

6 by adding at the appropriate places:

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

7 SEC. 6. DETERMINATION OF TAX.

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

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

10 section, the tax on distilled spirits shall be determined

11 when the spirits are transferred from a distilled spirits

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

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

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

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

16 spirits plant,’’.

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

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

19 and inserting ‘‘but only for destruction, denaturation, re20 distillation, reconditioning, or rebottling’’.

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

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

23 premises’’.
8

•S 434 IS

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
9

•S 434 IS

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.
10

•S 434 IS

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
11

•S 434 IS

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
12

•S 434 IS

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
13

•S 434 IS

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).

Æ