CBP's Proposed Elimination of Excise Duty Drawback Faces Wide Range of Industry Blowback

Multiple conservative-aligned groups called for CBP to change course on the agency's proposed plans to eliminate duty drawback for excise taxes. Those groups, including Grover Norquist's Americans for Tax Reform and the Taxpayers Protection Alliance, filed comments on the proposed changes for drawback under the Trade Facilitation and Trade Enforcement Act (see 1808020049). The question of ending drawback for excise taxes on domestically produced goods that are exported free of excise taxes, a practice used by the wine industry for years to the envy of other industries paying excise taxes (see 1708090043), was the biggest area of contention among comments filed in the docket.

The conservative groups said "lawmakers actively chose to retain drawback for excise taxes" within TFTEA, a recurring argument among supporters of the practice (see 1808210006). "We urge you to reverse the proposed rule limiting excise tax duty drawback," the groups said. "This limitation harms American competitiveness and restricts exports, stymies the creation of jobs and economic growth, ignores Congressional intent, and sets a precedent of government agencies using tax and trade programs to discriminate against industries."

The National Association of Beverage Importers voiced support for the proposed change in its comments. "We see the goal of the Modernized Drawback rulemaking as the correct action to remedy a claim processing oversight that has been perpetuated for almost 15 years," said the NABI, which also supported the 2009 effort by CBP to make similar changes. "This imbalance has resulted in a significant disruption of the US import wine market. Those benefiting from a substitution drawback credit earned from non-tax paid exports enjoy a significant cost of goods advantage," it said.

The National Customs Brokers & Forwarders Association of America is opposed to ending drawback on federal excises taxes, the NCBFAA said in comments. Such a reversal is "beyond CBP and Treasury’s authority," the NCBFAA said. The CBP framing of tax-exempt exports as taking advantage of a "double drawback" is also problematic, the group said. "Exports of tax exempt merchandise are not a drawback, remission, or even a determination that tax is owed. Redefining the term drawback to include exports of tax exempt merchandise is not supported by the law," it said.

Charter Brokerage CEO Bobby Waid also took aim at the "newly created buzzword 'Double Drawback'" in his comments. "A substitution drawback claimant is merely seeking a return of the excise taxes already paid on the import, just as it would for the other duties or fees paid upon importation," Waid said. "That claimant is no more obtaining 'double drawback' than one that used substituted exported goods that were regularly imported duty-free under a trade preference program to obtain the drawback of duties, taxes and fees paid on an imported, duty-paid good."

Wine trade groups Wine Institute and WineAmerica also don't like the proposed changes, their joint comments said. "Seeking to eliminate this right in light of the clear statutory language and obvious legislative and administrative history interpreting that language, improperly legislates a restriction on an exporter’s ability to claim drawback," the groups said. "Such a restriction does not exist under the law and, as such, proposing such a restriction is outside of CBP’s or Treasury’s administering authority and simply invites litigation, costing both our industry and the Federal Government billions of dollars in legal expenses and lost opportunities to expand wine exports and U.S. jobs. Consequently, we believe that CBP and Treasury should withdraw those parts of the NPRM which seek to adopt this rule."

Distilled spirits conglomerate Diageo also objected to the proposed change and noted that "in real-world terms," the availability of drawback is a key factor in production decisions. "The availability of substitution drawback is the driving factor for moving more manufacturing to the U.S. and increasing U.S. exports," it said of its own decisions. Specifically, "for Diageo and many other companies, substitution drawback will result in U.S. manufacturing and export growth," it said. The American Petroleum Institute is also concerned, it said. Under the proposal, "the export of the fuel free of fuels tax would prevent drawback of Oil Spill tax, which is clearly intended by Congress and has been confirmed by the Courts," it said.

Sazerac, the largest U.S. spirits company, also disagrees with CBP's plans, it said. While previously associated mostly with wine, the company said it "recently applied for and received the ability to file for substitution drawback from CBP’s regional offices in San Francisco for its brand of Fireball Cinnamon Whiskey." That ability will end if the TFTEA drawback regulation takes effect as is and "Sazerac’s increase in U.S. jobs, payroll, production and exports will cease by" February next year, it said. "Due solely to the ability to claim drawback for Fireball through February 24, 2019, Sazerac is moving a portion of its Canadian production of Fireball to Lewiston, Maine."

Many other companies and groups submitted comments in opposition to the changes to excise tax drawback. Among those were the National Association of Manufacturers, the Distilled Spirits Council and the Wind River Tobacco Company. A group of major wine and alcohol companies, including E. & J. Gallo Winery and Constellation Brands, filed two sets of comments. One set of comments was submitted jointly by the companies, while another set of comments was submitted on their behalf by John Buckley, a litigator with Williams & Connolly, a prominent Washington law firm. "A regulation prohibiting substitution drawback for imported goods based on tax-exempt exports would not be 'in accordance with law,'" Buckley said.