The rules and regulations that govern duty drawback under TFTEA are continuing to evolve years after its passage. Just a few days ago, a pivotal lawsuit about specific provisions in TFTEA’s drawback rule, National Association of Manufacturers (NAM) vs. The United States resulted in a decision that enshrined the practice of “double drawback,” a specific kind of refund that could be pursued for wine imports and exports, against the proposed regulations Customs had offered.
“Double drawback” is the name given to a specific kind of drawback on excise taxes that could be refunded through substitution of certain kinds of alcohol. To use an example, an importer could import wine, pay an excise tax, and then substitute it for domestically produced wine which was not taxed, but then they would still be allowed to claim a refund of the import tax.
This particular kind of drawback arose from a 2004 decision in the San Francisco drawback office that some claim misinterpreted a statute to allow refunds through this method. The practice was upheld and widely used by related industries for many years, with double drawback refunds becoming a key part of pricing goods for alcohol importers and exporters.
But in 2018, CBP issues the final regulations of TFTEA which sought to close this loophole. It specifically disallowed this kind of substitution from happening, saying that the domestically produced wine marked for export was already excepted from taxes was, in essence, double-dipping by both avoiding and getting a refund of taxes.
Soon after, the NAM lawsuit was filed to challenge this rule. They argued that despite Treasury’s attempt to close this loophole via regulations, TFTEA’s laws should allow them to continue the practice. Late last week on January 24th, a judge agreed with NAM saying that TFTEA’s wording is clear and that if Treasury wants to close this loophole they will have to do it with Congressional mandate instead of regulations.
This is good news for both the trade and wine industry. Wine merchants can continue to take advantage of the reason duty drawback exists- to help them increase exports and benefit US companies. JM Rodgers will continue to pursue these refunds for all current and future clients, and with potential 301 tariffs being threatened by the Trump Administration on wine imported from Europe, this could soon be an area of increased interest.
If you’d like to discuss how these decisions could affect or benefit your company in the future, please reach out to www.jmrodgers.com
Sincerely, James Rodgers