II 

109TH CONGRESS 

2D SESSION S. 3783 

To amend the Internal Revenue Code of 1986 and the Foreign Trade Zones 

Act to simplify the tax and eliminate the drawback fee on certain distilled 

spirits used in nonbeverage products manufactured in a United States 

foreign trade zone for domestic use and export. 

IN THE SENATE OF THE UNITED STATES 

AUGUST 3, 2006 

Mr. LAUTENBERG 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 and the Foreign Trade Zones Act to simplify the tax and eliminate 

the drawback fee on certain distilled spirits used in nonbeverage products manufactured in a United States foreign trade zone for domestic use and export. 

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

3 SECTION 1. SPECIAL RULES FOR NONBEVERAGE PROD4 UCTS MANUFACTURED IN A UNITED STATES 

5 FOREIGN TRADE ZONE. 

6 (a) IN GENERAL.—Subpart E of part I of subchapter 

7 A of chapter 51 of the Internal Revenue Code of 1986 


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1 is amended by inserting after section 5062 the following 

2 new section: 

3 ‘‘SEC. 5063. EXCEPTION FOR NONBEVERAGE PRODUCTS 

4 MANUFACTURED IN A UNITED STATES FOR5 EIGN TRADE ZONE. 

6 ‘‘(a) GENERAL RULE.—In the case of domestic dis7 tilled spirits on which a tax would be determined under 

8 this subchapter, when used in a foreign trade zone for the 

9 manufacture or production of nonbeverage products, in 

10 lieu of payment of the tax under this subchapter by the 

11 distilled spirits plant proprietor, distilled spirits may be 

12 transferred without payment of tax to an activated foreign 

13 trade zone. Upon demonstration to the Secretary of the 

14 manufacture or production of nonbeverage products in a 

15 foreign trade zone using the distilled spirits withdrawn 

16 from bond without payment of tax, authorized manufac17 turers and producers of nonbeverage products, are not 

18 subject to the tax under section 5001. In case of any re19 moval, sale, transport, or use of distilled spirits not au20 thorized under section 5061 for which taxes have not been 

21 paid, the full rate of tax under section 5001 shall be paid 

22 by any person responsible. 

23 ‘‘(b) APPLICATION.—The Secretary may require per24 sons eligible for the application of this section to file an 

25 adequate bond and permit as reasonably determined by 


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1 the Secretary. Every person subject to the application of 

2 this section shall register annually with the Secretary, 

3 keep such books and records as may be necessary to estab4 lish the fact that distilled spirits received on which no tax 

5 has been determined were used in the manufacture or pro6 duction of nonbeverage products, and be subject to month7 ly reporting and such rules and regulations in relation 

8 thereto as the Secretary may prescribe to secure the 

9 Treasury against fraud. 

10 ‘‘(c) POWERS OF THE SECRETARY.—For purposes of 

11 ascertaining the correctness of the application of this sec12 tion, the Secretary is authorized to examine any books, 

13 papers, records, or memoranda as may be necessary to es14 tablish the fact that the distilled spirits received were used 

15 in the manufacture or production of nonbeverage prod16 ucts, to require the attendance of the person or of any 

17 officer or employee of such person or the attendance of 

18 any other person having knowledge of the premises, to 

19 take testimony with reference to any matter covered, and 

20 to administer oaths to any person giving such testimony. 

21 ‘‘(d) DEMONSTRATION OF USE IN THE MANUFAC22 TURING OR PRODUCTION OF NONBEVERAGE PROD23 UCTS.—Except in the case of knowing and willful non24 compliance, application of this section shall not be denied 

25 in the case of failure to comply with any requirement imVerDate Aug 31 2005 05:09 Aug 05, 2006 Jkt 049200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S3783.IS S3783

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1 posed under this section, or any rule or regulation issued 

2 pursuant to this section, upon the person manufacturing 

3 or producing the nonbeverage product demonstrating that 

4 distilled spirits for which taxes have not been paid trans5 ferred to an activated foreign trade zone were in fact used 

6 in the manufacture or production of nonbeverage prod7 ucts. 

8 ‘‘(e) FORMULA AND MANUFACTURING INFRACTIONS

9 FOR MANUFACTURERS AND PRODUCERS OF NONBEV10 ERAGE PRODUCTS IN FOREIGN TRADE ZONES.—In the 

11 case of failure to comply with any formula or manufac12 turing requirement imposed under this section or any rule 

13 or regulations issued pursuant to this section, the manu14 facturer or producer of nonbeverage products shall be lia15 ble for a penalty up to $1,000 for each failure to comply 

16 unless it is shown that the failure to comply was due to 

17 reasonable cause. No penalty imposed under this sub18 section shall exceed the amount of tax which would have 

19 been determined under this subchapter without regard to 

20 this section. The penalty imposed by this subsection shall 

21 be assessed, collected, and paid in the same manner as 

22 taxes under this subchapter, within 30 days of notification 

23 by the Secretary. Any excise tax determined to be owed 

24 through monthly reporting processes and procedures for 

25 submission and approval of formulas, on-site inspection, 


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1 or audit shall be paid by the manufacturer or producer 

2 of nonbeverage products within 30 days of notification by 

3 the Secretary. 

4 ‘‘(f) DEFINITIONS.—For purposes of this section— 

5 ‘‘(1) AUTHORIZED MANUFACTURERS AND PRO6 DUCERS.—The term ‘authorized manufacturers and 

7 producers’ means those manufacturers and pro8 ducers of nonbeverage products that are registered 

9 with the Secretary, agree to monthly reporting and 

10 have received manufacturing or processing authority 

11 from the United States Foreign Trade Zones Board. 

12 ‘‘(2) NONBEVERAGE PRODUCT.—The term 

13 ‘nonbeverage product’ means medicines, medicinal 

14 preparations, food products, flavors, flavoring ex15 tracts, or perfume, which are unfit for beverage pur16 poses.’’. 

17 (b) CONFORMING AMENDMENTS.— 

18 (1) The table of sections for subpart E of part 

19 I of subchapter A of chapter 51 of the Internal Rev20 enue Code of 1986 is amended by inserting after the 

21 item relating to section 5062 the following new item: 

‘‘Sec. 5063. Exception for nonbeverage products manufactured in a United 

States foreign trade zone.’’. 

22 (2) Section 5005(e)(2) of such Code is amended 

23 by inserting ‘‘used as described in section 5063,’’ 

24 after ‘‘deposited in a foreign-trade zone,’’. 


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1 (3) Section 5214(a) of such Code is amended 

2 by striking the period at the end of paragraph (13) 

3 and inserting ‘‘; or’’, and by adding at the end the 

4 following new paragraph: 

5 ‘‘(14) without payment of tax as authorized by 

6 section 5063.’’. 

7 (4) Section 5003 of such Code is amended by 

8 adding at the end the following new paragraph: 

9 ‘‘(18) For provisions relating to an exception 

10 for nonbeverage products manufactured in a United 

11 States foreign trade zone.’’. 

12 (c) FOREIGN TRADE ZONES.—Section 3 of the Act 

13 of June 18, 1934 (commonly known as the Foreign Trade 

14 Zones Act; 19 U.S.C. 81c) is amended— 

15 (1) in subsection (a), in the second proviso, by 

16 inserting ‘‘or determined’’ after ‘‘paid’’; and 

17 (2) in subsection (c)(2)— 

18 (A) by inserting in the second sentence be19 fore the end period the following: ‘‘and such 

20 products, upon approval by the Secretary of the 

21 Treasury and the Foreign Trade Zones Board, 

22 shall be eligible for tax treatment pursuant to 

23 section 5063 of the Internal Revenue Code of 

24 1986.’’; 


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1 (B) by striking ‘‘or flavoring extract’’ and 

2 inserting ‘‘flavoring extract, or perfume’’; and 

3 (C) by adding at the end the following: 

4 ‘‘Distilled spirits for manufacturing or produc5 tion of nonbeverage products for which taxes 

6 have not been paid shall be admitted to the for7 eign trade zone in domestic status and reported 

8 to the Bureau of Customs and Border Protec9 tion in accordance with admission procedures, 

10 including direct delivery as applicable.’’. 

11 (d) EFFECTIVE DATE.—The amendments made by 

12 this section shall take effect on the date of the enactment 

13 of this Act. 

Æ 


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