Duty Drawback of Federal Excise Taxes - John Duarte
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John Duarte discusses the low winegrape prices in California's San Joaquin Valley and examines whether duty drawback of federal excise taxes contributes to the problem. Duty drawback allows wine companies to recover excise taxes paid on imported wine when they export wine. While duty drawback was historically beneficial for winegrowers, the policy has led to excess bulk wine imports and buyer consolidation in recent years, exacerbating price cycles for grape growers. To address low prices, grape growers may need to plant alternative crops or negotiate longer-term contracts with buyers that provide inflation adjustments.
Duty Drawback of Federal Excise Taxes - John Duarte
- 1. Duty Drawback of Federal Excise Taxes and its Effect on SSJV Winegrape Growers Why are SSJV Winegrape prices so low and what can we do about it? John Duarte Winegrower President, Duarte Nursery, Inc. CAWG Board Member Past Federal Issues Chair. Friends Day, May 1st, 2015
- 2. Why are SSJV Winegrape prices so low and what can we do about it? Duty Drawback of Federal Excise Taxes and its Effect on SSJV Winegrape Growers John Duarte Winegrower President, Duarte Nursery, Inc. CAWG Board Member Past Federal Issues Chair. Friends Day, May 1st, 2015
- 3. Spot prices on SSJV grapes: Low. Not sustainable. Motivating removals. Not connected to winery trends. Few vineyards planted w/o contracts. Is it because of DDB of Excise Taxes? Friends Day, May 1st, 2015
- 4. What is Duty Drawback? Duty Drawback n. def. Tax paid on imported goods or products that is paid back when goods or products made with those products or highly similar products are exported again. Example: An auto manufacturer imports wheels from a country that actually still pays tariffs when exporting into the U.S. The imported wheels are assembled onto a vehicle that is exported. The Auto manufacturer can drawback 99% of the tariffs or duty that it paid. Friends Day, May 1st, 2015
- 5. What is Excise tax? Excise taxes n. def. An excise or excise tax (sometimes called a duty of excise special tax) is an inland tax on the sale, or production for sale, of specific goods or a tax on a good produced for sale, or sold, within a country or licenses for specific activities. Excises are distinguished from customs duties, which are taxes on importation. Excises are inland taxes, whereas customs duties are border taxes. Example: In the U.S. we pay excise taxes on alcohol, tobacco, firearms, archery and fishing products, gasoline, tanning booths and wagering. Friends Day, May 1st, 2015
- 6. DDB and Excise taxes should be separate issues. DDB is about imports and trade border taxes. Excise taxes are about specific goods inland taxes. Friends Day, May 1st, 2015
- 7. The Issue: DDB with Excise Tax Tariffs are very low. Excise taxes are high. When a company's exports are greater than its imports (2000-2006) DDB of tariffs and excise taxes can motivate wineries to import wine into the U.S. The incentive to buy abroad amounted to over $1 per gallon or $175 per ton of winegrapes. Excise taxes make up at least 6/7 of the incentives. Friends Day, May 1st, 2015
- 8. Impact of DDB of Excise taxes: $.28 per liter $1.06 per gallon $2.54 per case $185 per ton (?????) Has always been a benefit on packaged wine. Was bad for growers 2003-2009. Should be good for growers since 2010 and until exports exceed imports. Friends Day, May 1st, 2015
- 9. Why are we here? There is a 2003 IRS letter ruling that allows wine excise taxes that are paid upon import to be treated as a common duty. This was clarified in a subsequent Farm Bill. TTB questioned the policy by opening a public review process in 2009. Ten U.S. Senators including Feinstein and Boxer and eighteen US Congressmen have backed the IRS position in stern letters to the TTB. TTB withdrew the review. A CAWG delegation first learned of the issue from TTB in 2010. Friends Day, May 1st, 2015
- 10. Economic IImmpplliiccaattiioonnss ooff DDrraawwbbaacckk ooff WWiinnee IImmppoorrtt DDuuttiieess aanndd EExxcciissee TTaaxxeess CCaalliiffoorrnniiaa AAssssoocciiaattiioonn ooff WWiinneeggrraappee GGrroowweerrss NNoovveemmbbeerr 1122,, 22001144 Daniel A. Sumner and Georgi T. Gabrielyan University of California Agricultural Issues Center and Agricultural and Resource Economics, UC, Davis
- 11. Traded Bottled Table Wine Quantity and Prices
- 12. Traded Bulk Table Wine Quantity and Prices
- 13. Accumulation of Potential Excess Bulk Table Wine Imports Eligible for Drawback
- 14. Traded Bulk Table Wine Quantity and Prices Sumner slide edited by John Duarte
- 15. Is it DDB in 2014? Imports are greater than Exports. DDB subsidizes exports In the most basic analysis DDB should be good for growers. Friends Day, May 1st, 2015
- 16. 2nd Order concerns of DDB of ET Can cause further buyer consolidation. Has probably exacerbated cyclicality. May create winners and losers among growers. Bulk wine imports are a significant supply source and may be opaque as to varietal. Friends Day, May 1st, 2015
- 17. Why the low winegrape prices? Foreign competition: Global Production Global Recession US market size & strength Market Changes Trading up Varietal JIT supply chain Industry Structure: Few buyers. More Public Companies Retailer pressures Winery Capacity Crush Storage Friends Day, May 1st, 2015
- 18. What can growers do? Plant other crops. Almonds Walnuts Pistachios Raisin Citrus Sell high. Demand longer term contracts 20-25 years to match life of vyd. Allows longer term financing. Need a partial inflation adjustment. Capital investment remains constant Operating costs increase. Friends Day, May 1st, 2015
- 19. Thank you. Thank you. Friends Day, May 1st, 2015