FEMA is supporting a pair of proposed bills in the US Congress that would eliminate taxes on alcohol used as a flavor solvent (flavors being considered "non-beverage" products) in US foreign trade zones. Flavor manufacturers currently pre-pay $13.50 in tax for every gallon of distilled spirits, $12.50 of which they are refunded via "drawback" once they have filed proof that the alcohol was used in flavor manufacturing. FEMA contends that the process is cumbersome both in terms of time and money.
The organization's official announcement:
The Flavor and Extract Manufacturers Association of the U.S. supports legislation to simplify the tax and eliminate the drawback fee on certain distilled spirits used in non-beverage products manufactured in a United States foreign trade zone. Flavors are considered “non-beverage” products eligible for drawback of certain excise taxes. The term non-beverage is used to describe flavors because they are not fit to drink in concentrated form. Under legislation pending in the House and Senate, these taxes would be eliminated.
“It has been a longstanding FEMA goal to eliminate the drawback tax on flavors,” said Glenn Roberts, FEMA’s Executive Director. “Although we would like to see the tax eliminated regardless of where the manufacturing takes place, covering foreign trade zones is a good first step.”
The proposed bills, S. 1535 (Lautenberg) and H.R. 2571 (Pascrell), would allow for tax free use of distilled spirits utilized in the manufacture of flavors and other “non-beverage” products in foreign trade zones. Currently, flavor manufacturers must pre-pay $13.50 in tax per gallon of distilled spirits. After the manufacturer files proof that alcohol was used to manufacturer a flavor, they are entitled to “drawback” $12.50 of the $13.50, but this process frequently takes months, unnecessarily tying up funds. Alcohol is used because it is an ideal carrier solvent for flavors.
Foreign Trade Zones (FTZs) were created in the United States to provide special customs procedures to U.S. plants engaged in international trade-related activities. Duty-free treatment is accorded items that are processed in FTZs and then re-exported, and duty payment is deferred on items until they are brought out of the FTZ for sale in the U.S. market. This helps to offset customs advantages available to overseas producers who compete with domestic industry.