Trade group files challenge to rule that would effectively end tax substitution drawback benefit for wineries/wine importers. Bonus: We’ve got the complaint for you.

Richard Rubin reported on a new wine tax case in The Wall Street Journal yesterday. The National Association of Manufacturers filed the lawsuit (link here, and embedded below) over substitution drawbacks

Briefly, substitution drawbacks (19 U.S.C. 1313(j)) allow companies that import wine to obtain a tax refund for the taxes paid on the imported wine when similar merchandise is exported or destroyed. Bring in a case of wine that you pay taxes on – get those taxes back if you export a case of similar wine. (What’s similar? – wine “of the same color” and within 50 percent of the same price.) Those in favor of the substitution argue that it benefits U.S. manufacturers and boosts employment because in order to get the substitution, you need to make domestic products which requires hiring workers to create items you export.

But a problem arose when Customs and Border Protection and the Treasury Dept. promulgated rules that would impose a new limit on the amount of the refund of your imported items’ taxes to what you paid in tax on the substituted merchandise. Since exported domestic wine, spirits and beer are exempt from excise, taxes, the new rule would effectively halt the substitution drawback.

The lawsuit notes that the defendants tried to implement this same rule in 2009 and met with substantial opposition and notes that there are several problems with it this time around as well:

  • For starters, they argue it isn’t in line with the intent and purpose of the Trade Enforcement Act of 2015;
  • Second they claim its arbitrary in its exercise of administrative rulemaking authority in that there’s an insufficient record for the implementation of this rule;
  • Third, the manufacturers argue Congress intended for the drawback to apply an not be limited by the taxes paid on exported merchandise;
  • Fourth, they argue that the rule looks for a retroactive/pre-implementation application, which is improper.

In the lawsuit, the plaintiffs request that the rule be vacated and that the defendants be enjoined from enforcing it.


Ashley Brandt

Hi there! I’m happy you’re here. My name is Ashley Brandt and I’m an attorney in Chicago representing clients in the Food and Beverage, Advertising, Media, and Real Estate industries. A while back I kept getting calls and questions from industry professionals and attorneys looking for advice and information on a fun and unique area of law that I’m lucky enough to practice in. These calls represented a serious lack of, and need for, some answers, news, and information on the legal aspects of marketing and media. I've got this deep seeded belief that information should be readily available and that the greatest benefit from the information age is open access to knowledge... so ... this blog seemed like the best way to accomplish that. I enjoy being an attorney and it’s given me some amazing opportunities, wonderful experiences, and an appreciation and love for this work. I live in Chicago and work at an exceptional law firm, Goldstein & McClintock, with some truly brilliant people. Feel free to contact me at any time with any issues, comments, concerns… frankly, after reading this far, I hope you take the time to at least let me know what you think about the blog and how I can make it a better resource.

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