RI Pernod Ricard

By Richard Rubin 

WASHINGTON -- Makers of wines and spirits are celebrating a federal-court decision that could save them billions of dollars in excise taxes each year.

The ruling struck down Treasury Department regulations from 2018 that attempted to end what government officials saw as an unfair benefit for imported products.

Judge Jane Restani of the Court of International Trade wrote that the Treasury Department offered seemingly valid policy arguments for its position, but she determined that the regulations contradicted laws passed by Congress.

"The Final Rule is contrary to the clear intent of Congress as expressed in the language and structure of the statute," Judge Restani wrote last week in ruling for the National Association of Manufacturers, which challenged the rules. "If the public fisc does suffer ultimately from uncollected excise tax, then it is up to Congress to decide whether to remedy the situation."

The dispute stemmed from a provision known as a drawback of taxes. Under longstanding U.S. law, companies can get import taxes refunded if they have a matching or similar export. That system effectively lets them pay taxes only on their net imports for each product category.

Since 2004, due to what Treasury officials say was an error, wine companies have been able to engage in what the government sees as tax avoidance. The companies produce bottles for export, never paying excise taxes because the bottles weren't meant for domestic consumption. Then, as the companies export those bottles and import others, they seek and get refunds of the import taxes.

That benefit was set to expand to spirits makers and others before Treasury issued its regulations. According to the Treasury Department, that is a "double drawback" that puts domestic products subject to excise taxes at a disadvantage and could cost the government up to $3.3 billion a year in revenue.

"Excise taxes are intended to be paid on alcohol, tobacco, and other goods that are sold and consumed in the U.S., whether produced here or imported," said Adam Looney, a former Treasury official who now teaches at the University of Utah. "The ruling now means that those firms that both import and export alcohol no longer will pay excise taxes on the alcohol they import and sell."

The ruling is a victory for companies such as Diageo PLC, Pernod Ricard SA and Altria Group Inc. that filed comments criticizing the regulations.

"We were pleased with the ruling as we did not agree with Treasury's decision on the regulations and it reversed a longstanding policy that was widely accepted," Michael Kaiser, vice president of WineAmerica, an industry trade group, said in an email.

Industry officials say drawback encourages U.S. exports and praised the judge's decision.

"We are pleased that the U.S. Court of International Trade recognized that federal law clearly provides for the refund of certain taxes when manufacturers export similar products," said Peter Tolsdorf, deputy general counsel for the manufacturers group.

The Treasury Department declined to comment.

(END) Dow Jones Newswires

January 29, 2020 17:29 ET (22:29 GMT)

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