Treasury Sued Over ‘Double Drawback’ on Spirits Taxes

Beverage suppliers – including Diageo, Pernod Ricard and Sazerac Co. – don’t pay federal excise taxes on product produced for export.  They do, of course, pay excise taxes on product produced for domestic consumption.

U.S. tax law provides that companies can seek refunds of import taxes.  Getting to avoid excise taxes on exports while getting refunds for taxes attributable to those same exports is a “double drawback,” Treasury argues.

But in the lawsuit filed yesterday by the National Association of Manufacturers, the companies say the regulation adopted last year violates clear congressional intent.

The U.S. Constitution forbids taxes on exports, they say.  So, having their exports free of excise taxes isn’t really a drawback or refund of any taxes, because those taxes could never be imposed anyway, the companies say. Therefore, a refund of their import taxes isn’t a second drawback and encourages exports because the companies can only get the taxes back if they export.

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