On Tuesday, September 15, 2015, TTB published a rule in the Federal Register detailing the agency’s revision of wine regulations that govern the return of wine to bonded premises. See Return of Wine to Bonded Premises. The final rule was issued without prior notice and comment. The new rule is summarized below:
- TTB’s new rule removes a regulatory requirement that wine returned to bond must be unmerchantable.
- The new rule revises current regulations to clarify that the refund or credit of excise tax applies to any wine removed from a bonded wine cellar and subsequently returned to bond (current regulations only allow a refund or tax credit for wine produced in the U.S.).
The Internal Revenue Code outlines relevant excise tax collection for the production and importation of wine and, generally speaking, federal excise tax is imposed on wine in bond in, produced in, or imported into the U.S. (determined at the time the wine is removed for consumption or sale). Tax on domestic wine is generally determined when wine is removed from the bonded premises whereas the tax on imported wine is generally imposed when the wine is imported into the U.S. and determined and/or paid when the wine is removed from bonded premises or Customs custody.
TTB’s current regulations in regard to the return of taxpaid wine are found in 27 CFR Part 24. In summary, the regulations state that when wine produced in the U.S. is removed from bonded premises and later found to be unmerchantable, the wine can be returned to bonded premises for reconditioning, reformulation, or destruction (assuming tax was paid on the wine upon removal from bond). Such wine returned to bond may allow the proprietor to be subject to a tax credit or refund. If the wine is untaxpaid, the proprietor or the individual responsible for paying the tax may be relieved from liability upon return of the wine to bond.
Section 1416 of the Taxpayer Relief Act of 1997, Public Law 105-34, 11 Stat. 788, amended the relevant section of the Internal Revenue Code. In particular, the requirement that wine returned to bond must be unmerchantable was removed from the Code—which prompted TTB to amend its provisions (i.e., “unmerchantable” will now be removed from relevant portions of 27 CFR Part 24, including 24.66(a), as well as other sections of the CFR).
Section 6014(b)(2) of the Internal Revenue Service Restructuring and Reform Act of 1998, Public Law 105-206, 112 Stat. 685, amended the relevant section of the Internal Revenue Code in regard to the requirement that wine returned to bond (and subsequently eligible for a tax credit or refund) must be produced in the U.S. The amended section now requires that wine first be removed from a bonded wine cellar and, accordingly, the new rule issued by TTB removes references to “United States” or “produced in the United States” in connection to “wine” (i.e., in relevant portions of 27 CRR Part 24) and “domestic” in connection to “wine” (i.e., in relevant portions of 27 CFR Part 70). In practice, the eligibility for tax credit or refund should extend beyond domestic wine once the final rule becomes effective on October 15, 2015.
For more information on wine or wine law, licensing, or winery reporting and excise taxes, please contact Lindsey Zahn.
DISCLAIMER: This blog post is for general information purposes only, is not intended to constitute legal advice, and no attorney-client relationship results. Please consult your own attorney for legal advice.
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