On August 23rd the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”) struck down federal regulations restricting refunds on export taxes and restricting beer and wine manufacturers greater tax refunds for duties paid on imports. In National Association of Manufacturers v. Department of the Treasury (see ruling here), the Federal Circuit upheld the lower court, the Court of International Trade (“CIT”), and ruled against the U.S. Treasury Department’s revised definition of duty drawback for wine. Under U.S. tax law, the duty drawback program allows companies to apply for and receive certain tax refunds of excise taxes paid on imported goods. For example, a wine importer and manufacturer could recoup duties paid on 100 bottles of imported wine by exporting 100 bottles of similarly priced wine of the same class/type.
Under a revised 2018 rule, the Treasury Department changed the interpretation of the statutory definition of drawback (19 U.S.C. § 1313(v)) to exclude goods imported and then exported duty-free. The Treasury Department argued that the current scheme allows wine companies to receive a near total refund of the excise taxes paid on imports. The Treasury Department also argued that other industries could benefit from the same scheme following the liberalization of substitution drawback requirements. The National Association of Manufacturers (“NAM”) and the Beer Institute brought a lawsuit claiming that the interpretation was contrary to law, arbitrary and capricious, and impermissibly retroactive. In January 2020, the CIT ruled that federal regulations could not limit when American companies were eligible for a refund of excise taxes on imports after those companies export similar products. The CIT determined that the intent of Congress was to expand exports at the expense of lost excise tax revenue.
The Federal Circuit affirmed the CIT’s finding that the statutory definition of drawback was unambiguous and thus, inappropriate for administrative interpretation and Chevron deference. The Court noted that drawback is “designed to incentivize exports from the United States and allow U.S. exporters to compete more fairly with overseas competitors.” NAM’s Senior Vice President and General Counsel, Linda Kelly, stated in response to the Federal Court decision, “this program helps manufacturers in America level the playing field when they sell to overseas markets.” Given the above, this court decision will preserve important tax incentives for beer and wine manufacturers and suppliers that export product from the United States.