Excising Effervescence: Who Sets Federal Tax Rates?

Excise taxes on wine can vary substantially depending on whether or not the wine is sparkling or still wine. For example, wine containing 14% alcohol or less is taxed at a rate of $1.07 per gallon, while naturally sparkling or artificially carbonated wine is taxed at the much higher rate of $3.40 per gallon. See 26 U.S.C. § 5041. For domestic wine, the tax rate is established when TTB classifies a product during the certificate of label approval (COLA) process. If there is uncertainty over how wine should be classified, a producer may submit the product to the TTB laboratory for analysis and a determination of the proper classification. 26 U.S.C. § 5041 defines still wines as “those wines containing not more than 0.392 gram of carbon dioxide per hundred milliliters of wine.” Accordingly, if a product with carbonation below that level is classified as a sparkling wine, and therefore subject to a higher tax rate, a producer may submit the product to TTB to seek to have the product reclassified.

Ensuring the proper tax classification for imported wine can be more difficult because of the role of U.S. Customs and Border Patrol (“CBP”) in the determination and collection of excise taxes. Imported wine is subject to the same excise tax rates as domestic wine, but taxes on imported wine are collected by CBP at the U.S. port of entry. The CBP does not necessarily rely on TTB’s classification of an imported wine for tax purposes, and instead has the discretion to make its own determination on the tax classification of the imported product. For example, TTB may classify a product as “still wine,” but CBP may still tax the wine at the higher sparkling wine rate if it appears to CBP to be a sparkling wine product.

To challenge the tax rate imposed by the CBP, an importer may seek an Official Ruling Request, and rulings are typically issued within 30 days of the request. Information on how to file an Official Ruling Request can be found here. Importers or their brokers may also seek to correct past overpayments of excise taxes by filing a Post-Entry Amendment if the taxes were recently paid, or a Protest if the taxes for a particular shipment have been “liquidated,” which typically occurs approximately 10 months after the taxes are paid to the CBP.

Contact the attorneys at Strike Kerr & Johns if you have any questions about federal excise tax collection.

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COLA excise taxes US Customs and Border Patrol

This entry was posted on July 30, 2012.