Notice of proposed rulemaking regarding drawbacks.
On October 15, 2009, the Bureau of Customs and Border Protection issued a notice of a proposed rulemaking regarding drawbacks of Internal Revenue excise tax. The proposed rulemaking specifically targets the filing of a substitution drawback and would preclude drawback of excise taxes if no taxes were paid on the substituted exported merchandise. The proposed amendment would also add a condition whereby the principal agrees not to file or transfer the right to file a substitution claim that would be inconsistent with the new terms of the substitution regulation.
As an example of current practice Customs offers the scenario of a domestic winery that imports wine, pays Federal excise tax on it and sells the wine in the US. The winery then exports the same volume of its domestically produced wine and does not pay excise tax but then files a drawback claim under the premise that the exported domestically-produced wine is “commercially interchangeable” with the imported wine. The winery then receives a refund of 99% of the taxes paid on the imported goods and the US Treasury receives only 1%. In effect, the winery takes a refund for money it has not spent.
Customs argues that the change in the regulation is needed because the current substitution practice is contrary to Congressional intent to levy taxes and circumvents the administration of drawback. Further, Congress never intended to allow multiple drawbacks from one claim and precludes “piggybacking”. Customs contends that the proposed rule is not a significant regulatory action as it “will not have an annual effect on the economy of $100 million and does not raise a novel policy concern” and moreover it will not impact small businesses to an economically significant level. Although small businesses currently file for drawbacks on substituted goods which would be ineligible under the amended regulation, no business would be restricted in its import or export activities by the changes.
Customs welcomes comments on the proposed amendments to the substitution regulation and specifically on potential impacts on small businesses, which may be submitted via mail or online. Customs is evidently trying to move this along at a rapid pace as the comment period ends November 16, 2009, relatively short with only a month’s time.
The full notice of Custom’s proposed rulemaking is available at http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi.
TTB issued a notice of proposed rulemaking regarding drawbacks on October 15, 2009 as well. They are accepting comments up until December 14, 2009. To see the full TTB notice please go to http://edocket.access.gpo.gov/2009/pdf/E9-24791.pdf.