Introductory Statement on S. 646
Mr. President, I rise today to introduce legislation that will resolve a longstanding inequity in the tax treatment of U.S. distilled spirits that penalizes the wholesalers, and some suppliers, of these products. Under current law,…
Mr. President, I rise today to introduce legislation that will resolve a longstanding inequity in the tax treatment of U.S. distilled spirits that penalizes the wholesalers, and some suppliers, of these products.
Under current law, wholesalers of distilled spirits are not required to pay the Federal excise tax on imported spirits until after the product is removed from a bonded warehouse for sale to a retailer.
In contrast, the tax on domestically produced spirits is included as part of the purchase price and passed on from the supplier to wholesaler. After factoring in the Federal excise tax (FET)--which is $13.50 per proof gallon--domestically produced spirits can cost wholesalers 40 percent more to purchase than comparable imported spirits.
In some instances, wholesalers and even suppliers can carry this tax- paid inventory for an average of 60 days before selling it to a retailer. Interest charges--more commonly referred to as float-- resulting from financing the Federal excise tax can be quite considerable.
For example, at a 5 percent interest rate on the sale of 100,000 cases of domestic spirits, a wholesaler will incur finance charges of $21,106.85 for loans related to underwriting the cost of paying the Federal excise tax. It is important to note that it is not uncommon for wholesalers to sell a million or more cases per year of domestic spirits.
The costs associated with financing Federal excise taxes amount to a tax on a tax, making the effective rate of the Federal excise tax for domestic spirits much higher than $13.50 per proof gallon.
The Domestic Spirits Tax Equity Act would give wholesalers and suppliers in bailment States a tax credit toward the cost of financing the FET for domestically produced products.
I believe this legislation is fundamentally fair and will help protect and create jobs for the wholesale tier in Kentucky and many other States. This legislation, which has broad support in both chambers and on both sides or the aisle, has passed the Senate Finance Committee and the House Ways and Means Committee several times, and has reached the President's desk under a previous Administration. It's time to finally get this legislation over the goal line.
I wish to emphasize, however, that I will reject any connection between a repeal of Section 5010 of the Internal Revenue Code or an increase in Federal taxes for distilled spirits. Tax equity for one tier should not be achieved by placing additional burden on other tiers within the same industry.
My colleagues, Senators Lincoln, Lott and Bond join me in introducing this legislation, I which the Joint Tax Committee estimates would reduce Federal revenues by approximately $249 million over ten years. I understand that similar legislation will be introduced in the House of Representatives. I urge my colleagues to support this legislation when it comes before the Senate.