TESTIMONY OF DOUGLAS W. METZ WINE AND SPIRITS WHOLESALERS OF AMERICA, INC. Thank you, Mr. Chairman, for the opportunity to testify in support of a simple, revenue neutral change in the method of paying the federal excise tax on distilled spirits. This proposal would (1) consolidate responsibility for collection of this tax in one federal agency; (2) reduce a major regulatory burden by eliminating dual agency supervision of distilled spirits warehouses; (3) simplify collection and compliance by combining the wholesale point of payment of federal and state excise taxes on distilled spirits; and (4) end the favored treatment of imported bottled products which makes wholesaler costs for competing domestic products some 40 percent greater. My name is Doug Metz, Managing Director of the Wine and Spirits Wholesalers of America (WSWA). WSWA members, under license, purchase for resale over 90 percent of the distilled spirits distributed in the 32 license states, the District of Columbia and Puerto Rico. The problem that I am addressing today is of great importance to hundreds of small American businesses. Currently, wholesalers can purchase foreign bottled distilled spirits "in-bond" (tax-free), paying the federal excise tax (FET) to the federal government directly after sale to a retailer. In contrast, when a wholesaler buys domestically bottled spirits (nearly 86 percent of his total spirits inventory) the price includes the FET, pre-paid by the distiller. The inequity caused by this discrimination (favoring foreign over domestic products) means that hundreds of U.S. family-owned wholesale businesses increase their inventory financing costs by 40 percent when buying U.S. products. Under the proposal, wholesalers would be able to purchase domestically produced or bottled spirits "in-bond" as now permitted for competing foreign products. It would allow suppliers to save FET carrying costs borne pending payment by wholesalers and the eighteen control states which operate their own liquor systems. Movement of the FET payment point on domestic spirits from the supplier to the wholesaler will create a one-time, 60-day lag in tax receipts by the Treasury. This revenue lag would be neutralized by requiring All-In-Bond electing companies annually, on September 20, to make an estimated payment of excise taxes due in October and November based on tax payments for the same months of the previous year. In addition to the described benefits to hundreds of American wholesalers as well as suppliers of bottled distilled spirits and the eighteen control states, the proposal offers significant advantages for the federal government. It: Places responsibility for assuring tax collection and compliance with the single agency of jurisdiction over matters related to the sale of alcohol beverages, namely the Bureau of Alcohol, Tobacco and Firearms (BATF). Offers BATF an opportunity to streamline excise tax collections and minimize auditing practices by utilizing procedures already used by states. Every wholesale purchaser of domestically bottled spirits currently pays state excise taxes. Reduces regulatory compliance burden by eliminating requirement for segregated warehouse supervision of spirits by two federal agencies, BATF and Customs. Offers significant overall savings to Treasury. The states already perform an excise tax collection function nearly as significant in dollar terms as the federal government's, and conduct audits at least once a year. The Treasury could piggy-back on state procedures with a high degree of confidence that all excise taxes are being collected. The use of joint excise tax reporting forms, with identical copies going to state agencies and the Treasury, offers cost saving opportunities. Restrains increases in tax collection points through minimum gallonage requirement and by operation of brand franchising contracts and state laws which qualify purchasers of distilled spirits at wholesale. In conclusion, Mr. Chairman, I believe that this "All-In-Bond" proposal promotes sound tax policy by ending discrimination against domestic products while freeing up substantial working capital for U.S. family-owned businesses. In addition, it unifies the point of payment of both federal and state excise taxes, thus strengthening tax administration and compliance by providing parallel tax audit trails. "All-In-Bond" provides additional revenue protection in the form of annual estimated tax payments. It is revenue neutral. Attached to my written testimony are photographs depicting the regulatory burden resulting from the requirement to regulate warehouse facilities under dual agency supervision. Mr. Chairman, I appreciate the Committee's time and trust that the Committee will include this proposal in the package under consideration. Attachments |