U.S. Customs and Border Protection has yet to implement alcohol excise tax cuts mandated through recently enacted national tax reform legislation, leaving the trade community wanting more clarity on when and how the cuts will be executed.
U.S. Customs and Border Protection (CBP) has yet to implement alcohol excise tax cuts mandated through recently enacted national tax reform legislation, and the trade community is asking the agency for more clarity on when and how the cuts will be executed, sources said in recent interviews.
The lead federal agency implementing the cuts, the Department of the Treasury’s Alcohol and Tobacco Tax and Trade Bureau (TTB), is posting FAQs on a rolling basis to guide domestic producers in claiming credits, but importers, who must file through CBP, haven’t yet received the new tax credits, as CBP awaits import implementation guidance from TTB, sources said.
Currently, domestic alcohol producers are generally able to use the new, reduced rates, which the legislation stipulates must be active throughout 2018 and 2019, a TTB spokesperson confirmed.
In a Jan. 31 Cargo Systems Messaging Service (CSMS) message, CBP stated that “appropriate procedures must be established” for importers to receive lower excise tax rates on “qualifying imports” of beer, wine and distilled spirits.
Until TTB and CBP import guidance procedures are set forth, importers should continue to pay “the full excise tax rates,” the CSMS message says (i.e., the 2017 active rates).
“Importers will be provided with the opportunity to seek the applicable excise tax relief, on entries made after the law went into effect, once forthcoming procedures and guidance have been issued,” the message says.
As of Feb. 23, CBP was, by all indications, still awaiting TTB guidance for how to implement the cuts, according to a source familiar with CBP decision-making.
Among other alcohol-related tax cuts, the Craft Beverage Modernization and Tax Reform Act (CBMTRA) provisions of broad tax legislation signed into law in December orders a cut of excise taxes on beer from $18 to $16 per barrel on the first 6 million barrels imported by a company/connected international entities, general cuts on wine for the first 750,000 gallons imported by a company group in a given year progressing up to approximately $2.43 per gallon, and a tax cut of $10.80 on the first 100,000 proof gallons of distilled spirits imported by a company group.
Industry members have been working to convey to CBP their desire for the agency to be proactive as it awaits TTB guidance, as complexities could beset the programming of the Automated Commercial Environment (ACE), according to the source.
CBP will have to work out the algorithms for ACE acceptance of CBMTRA claims and processing of the cuts, as there are three general rate tiers that wine importers are subject to, depending on the quantity that they import during a given year within the annual 750,000-gallon limit, the source said.
The cuts are $1 per gallon for the first 30,000 gallons imported, rising another 90 cents per gallon for the next 100,000 gallons, and yet another 53.5 cents per gallon for the next 620,000 gallons imported.
“I see it as a difficult list for CBP, because they would have to put a new algorithm in their automated system to basically say, ‘OK, this wine coming in is at this [particular] tax rate,’ but a similar container of wine from a different producer would not be eligible for that tax rate, because of the production level of that foreign producer has already exceeded the level at which you enjoy the lowest rate,” the source said.
Beer and distilled spirit imports are also subject to new rate tiers.
A customs broker working on the issue said the ACE programming to change tax rates should be “somewhat simple,” but noted that programming for the quantitative restrictions associated with the new rates could be challenging.
CBP has been “responsive” to brokers’ outreach on the issue, the broker said, yet there are concerns that importers might be currently disadvantaged as domestic producers receive CBMTRA credits.
“There’s one class of businesses that’s having the opportunity to pay the lower rate and another class of businesses, i.e., the importers, that don’t have the ability,” the broker said.
Brokers are also asking CBP how to file for refunds, including whether they should request suspension of liquidation, as importers are initially paying higher rates as directed by CBP’s CSMS message, according to the broker.
“Should we be requesting suspension of liquidation of these entries to kind of keep them open, if you will, to facilitate the refund?” the broker said. “I don’t have that answer back from CBP, I’d [assume], because they need…TTB to talk to them about it.”
As the trade community waits for CBP to provide a definitive implementation timeline, brokers are also raising the issue to the CBP-led Border Interagency Executive Council, the broker said.
That outreach is designed “not only to get CBP and TTB to talk to each other, but to make sure all the other agencies kind of see this example, and perhaps get ahead of the next change that comes along, so we’re not playing catchup next time,” the broker said.
CBP and TTB didn’t comment on whether TTB had given the agency any guidance to implement the cuts.
The real prospect of the current claims backlog continuing to mount is slightly vexing for the importing community, as current statute directs the tax cuts to expire after another 22 months, approximately, the initial source said.
“The longer you go on, the longer you build up the inventory of potential claims that TTB would have to process,” the source said.
Payments at the legacy tax rates “will require reconciliation at some point down the road,” the source said. “Then, it continues to mean that the importer has overpaid….In some ways, it’s a loan to the federal government by the industry for as long as it takes to resolve that internal entry algorithm situation with ACE.”
Trade community wants answers on overdue alcohol excise tax cuts
