For those who desire to enter the export market
By Brad Berkman & Louis J. Terminello of Greenspoon Marder LLP
Given the rates of consumption of alcoholic beverages in the U.S., specifically, the volume declines across all commodities, it may be wise for suppliers to consider markets abroad to sell their wares. Wine exports from the U.S. make up only a small percentage of wine sales, but markets such as Canada, Europe, Japan and the UK are active importers of U.S. produced wine. As a note, the U.S. Department of Agriculture reports that there was $1.27 billion in export value shipped from the U.S., with the top three markets being Canada with $459 million in exports, followed by the European Union with $167 million and the UK with $165 million in export value.
For those in the wine business who desire to enter the export market, this article examines some key topics regarding the export of alcoholic beverages, and in particular, wine, and essential elements required to remain in compliance with federal and state regulations.
The reader should bear in mind that the general concern of both the federal and state governments is the protection of excise tax revenue generated from the production and domestic sale of alcohol. When beverage alcohol is exported outside the U.S. or outside the borders of any state, no excise tax is imposed by either level of government. Simply stated, no excise tax liability exists for the export of beverage alcohol. However, strict rules apply and sufficient documentary evidence is required to support exportation; the absence of which will require the exporter to pay the tax that lawfully is not due. The examining auditor needs to be satisfied that a sufficient showing of export has been substantiated; a demand for payment of tax will be imposed.
Export from the Bonded Premises
For wine producers, federal regulations allow for the exportation of wine from a bonded wine premises for exportation under a variety of circumstances, including to a foreign country, for use as supplies on vessels (such as cruise ships) and aircrafts, and transfer and deposit into foreign trade zones and customs bonded warehouses for storage pending exportation. Wine may also be removed from the bonded premises for export to U.S. armed forces for use overseas.
Proof of Exportation
As noted above, sufficient and acceptable documentation as proof of export is mandated. The Alcohol Tax and Trade Bureau (TTB), in an industry circular, indicates that acceptable proof of exportation includes all documents that substantiate the transaction as a removal for export. Generally speaking, acceptable proof includes:
• Purchase orders
• Inland bills of lading
• Ocean bills of lading
• Letters of Credit and proof of payment
The reader should keep in mind that in almost every instance, wine exported beyond state(s) borders is not subject to state excise tax either. The above documentation will likely be sufficient proof of export for state auditors; however, regulations and requirements should be researched by each state.
Staying with state issues, there may be additional permitting or registration requirements imposed on the party desiring to export wine. In Florida, where this writer resides, a mere export registration is required prior to engaging in export activities. As an additional note, Florida applies Tied-House principles to exporters in that exporters are precluded from holding a vendor’s license (see Florida Statute §561.22(1)). Again, thorough research is required at the state(s) level to ensure compliance prior to commencing export operations.
Bonded wineries are not the only types of federally licensed manufacturers permitted to export. The same rights are granted to breweries and distilleries. In fact, U.S. importers and wholesalers/distributors are permitted to export as well.
Wholesaler Export Withdrawal without Payment of Tax
Wholesalers are permitted to export wine to foreign countries, for use on vessels, such as cruise ships, free trade zones and customs bonded warehouses, transfer to a manufacturing bonded warehouse and to U.S. armed forces overseas.
Federal law requires that any party purchasing alcoholic beverages for resale domestically or in foreign commerce must hold a Wholesaler’s Basic Permit before beginning operations. Untax paid wine may be removed from the wholesalers’ licensed premises for the purposes stated above; however, an application must be made to TTB on a proscribed form entitled “Withdrawal of Spirits Specially Denatured Spirits or Wines for Exportation”. A TTB officer will review the form and circumstances surrounding the shipment for export and will issue an approval (or denial) prior to the untax paid wine being removed for export. TTB requires that every shipment prepared for export must complete the above process. Additionally, each container or case of wine must be marked with the word “Export,” though certain exceptions exist.
In addition to the above, a bond must be secured before untax-paid wine may be removed for exportation. The export bond can either be a one-time or continuous bond in an amount sufficient to cover the excise tax which would normally be due.
Wholesalers Removing Tax-Paid Wine
Tax-paid wines can be exported to all destinations stated above, but a Wholesaler’s Basic Permit issued by TTB is required (and as a reminder-check your states requirements). With tax paid wine, the exporter is permitted to obtain a refund on the tax paid product through a process called drawback. The wholesaler must file the appropriate forms with TTB, including one entitled “Drawback on Wines Exported” to be eligible for the refund. It should be noted that exports to foreign trade zones and vessels or aircraft require that different forms be submitted to TTB to be eligible for a refund. Also, drawback is permitted on exports of beer and distilled spirits.
Other Considerations
Finally, exporters must consider the requirements of the country to which wines (or other alcoholic beverages) are being shipped to. A certificate of origin certifying the country of origin of the wine will likely be required, as well as other documents. The exporter should be aware of the duties and taxing structure of the receiving country, as well as becoming familiar with the general industry practices of the receiving county to ensure proper product pricing, sufficient exporter margins and general terms of payment. Finally, legal issues should be considered, including the issue of contracts and dispute resolution with the exporters in the country partner. If a long-term business relationship is considered, a sufficient contract memorializing key terms should be put in place between the parties.
Export markets are a unique and promising opportunity for U.S. wine producers (and beer and spirits producers as well) and wholesalers. Understanding the rules of the road and ensuring both U.S. and foreign compliance issues and business practices are essential to creating a profitable and trouble-free trade environment.
