Address by Director Alcohol and Tobacco Tax
Division Reviewing the Program to Simplify
and Modernize the Liquor Tax Laws.
Proprietors of registered and fruit distilleries,
internal revenue bonded warehouses, rectifying
plants, taxpaid bottling houses, industrial
alcohol plants, bonded warehouses and denaturing
plants, bonded wineries and wine storerooms,
1. On September 13, 1954, in an address delivered at the annual meeting of the National Alcoholic Beverage Control Association, Chicago,
Illinois, Dwight E. Avis, Director, Alcohol and Tobacco Tax Division, Internal Revenue Service, reviewed the program to simplify and modernize
the liquor tax laws
2. In view of the general industry interest in this subject, the address is enclosed herewith for the information of all concerned.
Harold A. Serr,
Acting Director, Alcohol and Tobacco Tax Division.
Dwight E. Avis
Director, Alcohol and Tobacco Tax Division
Internal Revenue Service
At the Annual Meeting of the
National Alcoholic Beverage Control Association
September 13, 1954
Mr. Chairman and members of the National Alcoholic Beverage Control
Association: I am very appreciative of the invitation extended by
Bob Smith, your president, and Walter Mitchell, your secretary, to be
with you again on the occasion of the 17th Annual Meeting of the
National Alcoholic Beverage Control Association. This is the third
such meeting I have attended and I am beginning to feel very much at
home. You could not have selected at this time of the season a more
appropriate setting for your meeting than here on the shores of Lake
Michigan. This convention is unsurpassed as a forum for an exchange of
views with you liquor administrators, with whom I have so much in
common, and it also enables me to renew acquaintances in the industry.
The freedom which I am allowed in attending executive sessions and
participating in your discussions is greatly appreciated.
Last September at your annual meeting in New York, I presented to
you and to the industry our program to simplify and modernize the liquor
tax laws. I pointed out that the internal revenue liquor laws were
enacted in the horse and buggy days and in many of their aspects were
archaic and outmoded and no longer adaptable to modern business
operations or to realistic regulatory control. I told you that we
were going to do something about this situation, and announced the
appointment of an Alcohol Tax Survey Committee composed of internal
revenue personnel to conduct an extensive study of the entire field
of Federal liquor regulation with a view to making recommendations for
a revision of the Federal liquor laws. I solicited and urged your
participation and cooperation and that of the industry through its
trade associations in this project.
With your permission today I would like to outline what we have
already accomplished and what is in contemplation.
At the time I addressed you last September I did not conceive
that any phase of this program could possibly be enacted into law
this year. A combination of circumstances along with the disposition
of the Congress to revise the Internal Revenue Code brought industry
and Government together with the result that differences were
reconciled and we were able to submit to the Ways and Means Committee
a complete revision and rewrite of the wine, malt liquor and tobacco
tax laws. Substantial amendments were also made as to distilled
spirits, but time did not permit of a complete revision. This work
has been accomplished by industry and Government sitting down together
and working out their legislative problems. H.R. 8300 embodying the
revision of the Internal Revenue Code was signed by President Eisenhower
on August 16, 1954, and the liquor and tobacco provisions will be
effective January 1, 1955.
Many of the provisions of the new Code relating to liquor and
tobacco are far-reaching and even revolutionary. The 1954 Code
authorizes the Secretary of the Treasury by regulations to substitute
a return system for collecting liquor and tobacco excise taxes for
the present stamp system. It changes existing law and enables
distillers, brewers and winemakers to conduct other businesses in
their plants which will not jeopardize the revenue. As an example,
in the case of brewers soft drinks and similar products may be
manufactured and bottled in the brewery premises. The new Code
authorizes the destruction of distilled spirits in bond thus
protecting distillers and warehousemen from severe financial loss
and even bankruptcy where forceouts of distilled spirits occur
under existing law for which there is no market. Winemakers may
destroy wine before taxpayment where surpluses exist or wine is of
a poor quality.
Obsolete sections of the old Code were deleted. Excessive
statutory details were eliminated and standards established to
facilitate the more efficient administration of the liquor laws and
to permit adaptation to changing conditions and commercial practices.
Unnecessary records have been eliminated and provision made for a wider
utilization of commercial records for Government purposes. The
Secretary of the Treasury has been given more latitude in the supervision
of distilleries for the purpose of more efficiently utilizing Government
personnel. Pilot plant operations are authorized to develop new and
more efficient regulatory procedures for registered distilleries and
industrial alcohol plants. These are some of the more important of
the many changes in existing law.
I have brought you up to date on the progress which has been
made in the past year in modernizing the liquor tax laws. Let us
look now to what we may expect in the coming year as this program
In Commissioner T. Coleman Andrews the Internal Revenue Service
has an experienced tax practitioner, an able Government administrator,
and a business-management expert. It is hardly necessary for me to
tell you that he will be satisfied with nothing less than a modern
system of Internal Revenue liquor control at minimum cost to Government
and industry. With a view to accomplishing the Commissioner's objectives
the Alcohol Tax Survey Committee on July 14 issued a general statement
which was made available to the industry defining the area wherein
further legislative changes could be anticipated and which set forth
many of the related problems which had to be resolved. My remarks today
will be primarily directed to the further steps which the Committee has
taken to implement these objectives.
The major area of liquor laws which the Alcohol Tax Survey
Committee is studying relates to the establishment and operation of
the various types of plants engaged in the production, packaging,
warehousing, denaturing, rectifying and bottling of distilled spirits
(including alcohol and fruit spirits). Therefore, any modern structure
of liquor tax laws must be primarily concerned with the establishment
and operation of these distilled spirits plants.
There is being released today a proposed plan, prepared by the
Alcohol Tax Survey Committee, for the revision of the internal revenue
laws relating to the establishment and operation of such plants, copies
of which are available at the press room of this meeting.
These tentative recommendations present a suggested framework
for the modern structure of distilled spirits statutes to which I have
The purpose in preparing the plan was to facilitate the drafting
of the proposed revision of these statutes by giving us an integrated
program to sit down and talk over with the various industry interests
so that we can move forward without delay in reaching agreement on
the type of house we hope to build.
I feel that this is an important step and that it must be taken
immediately if we are to have a further legislative program to present
to the Congress on January lst.
I am inviting the industry to send their representatives to
Washington on September 30th to go over the Committee's plan and
give us the benefit of their views and suggestions.
In arriving at this proposed plans, the Committee has had the
benefit of many valuable recommendations received from the industry.
I wish to emphasize particularly the splendid work which the six
major trade associations have done in clarifying and presenting the
In working out the plan the Committee was governed by certain
guiding principles which it has listed and discussed as a preface to
the plan so that all persons interested in the revision of these laws
could clearly see the basis for the Committee's proposed recommendations
This statement of guiding principles also helps to show why some
of the suggestions for revision were not adopted, among which were
proposals requiring more supervisory control by the Government and
suggestions which were not reasonably capable of adoption.
I might add in this regard that past history has shown that a
bill to amend the liquor tax laws which is controversial within
the industry has little chance of favorable action by the Congress.
It is no secret that the principal controversial area around
which all of the major competitive skirmishes revolve is the issue
as to whether all beverage distilled spirits should be bottled in
bond (prior to determination of tax) and the tax paid on a proof
gallon basis on the quantity of the cased product removed for
Although all suggestions received were fully considered by the
Committee, it found no compelling reason to include these industry
controversies as cornerstones upon which to build a general modernized
revision of the distilled spirits laws and accordingly no major change
has been proposed in these areas. However, the plan recognizes and
corrects, in large part, the inequities which many of the proposals
in these controversial areas have sought to eliminate, without
disturbing existing trade relationships to the degree which would
result in seriously impeding, or possibly preventing, adoption of
a program for modernization of the distilled spirits laws.
In brief, the Committee feels that its tentative recommendations are consistent with the Government's interest, afford overall equitable treatment to the industry, and constitute a sound
basis for beginning discussions to develop the widest areas of
general industry-government agreement.
I am not going into detail about the plan because copies of it
are available. However, I will point out a few of the highlights.
The plan eliminates the present legal concept under which nine
completely separate establishments are necessary to perform the
activities relating to production, storage, denaturation, processing
and bottling of distilled spirits, including alcohol, and proposes a
single distilled spirits plant with three functional departments,
which would be the Distilling Department, the Warehousing Department,
and the Bottling Department.
Operations within the Distilling Department and the Bonded
Warehousing Department would be conducted in bond. The Bottling
Department would be authorized to receive only spirits which have
been removed from bond after determination of the tax.
The three departments would permit the continuation of all
existing operations within present facilities. However, elimination of separate establishments would permit simplification of
qualification and construction requirements and the additional
functions recommended to be authorized in the Distilling Department
and the Bonded Warehousing Department would make possible a more
efficient use of space and equipment and permit much greater freedom
The plan provides that a proprietor who has any facility or
combination of facilities in one general location would file a
single simplified application for approval to operate. In other
words, the plant could consist of only one department or it could
be any combination of departments.
The present hodge-podge of laws created by superimposing
Title III of the National Prohibition Act on the revenue laws
would be eliminated and replaced by a revised body of revenue laws
of uniform application drawn to meet modern conditions.
This uniform body of laws would further the Government's
interest by permanently providing for full utilization of all
plant facilities for national emergency purposes.
A major innovation of the plan permits the bottler, when
properly qualified as to security, to withdraw spirits from bond
upon determination of the basic tax and file tax returns covering
The bottler would be fully accountable for the total quantity
of spirits so withdrawn, and would file returns and pay the tax on
such spirits within a specified period following receipt of the
spirits in the Bottling Department.
The bottler could take credit on his returns for reported normal
transportation, processing and bottling losses within a statutory
maximum based upon statistical evaluation of historical losses in
Established major casualty losses, occurring after determination
of tax withdrawal from bond and prior to the completion of the
bottling of the spirits, would also be taken as a credit on the
bottler's tax return. Such losses would include those arising from
Acts of God, fire, flood, and transportation accidents.
The Committee recognizes the necessity of providing the Government
with adequate security for its revenue on a basis equitable to
industry. Study is continuing on the problems involved in revenue
security, including an evaluation of present lien and bond requirements.
the Committee is confident that reasonable solutions to the revenue
security problems can be achieved within the framework of the
projected plan and further information in this regard will be available
for discussion at an early date.
In conclusion I want to point out that the whole modernization
program represents to a substantial degree a liberalization of
existing regulatory restrictions and supervisory controls.
The Federal Government is primarily concerned with the collection
of taxes and the protection of the revenue. It is our purpose to see
that Government supervision of distilleries, alcohol plants and other
establishments is directed to these objectives, and that freedom of
operations and the accompanying duty of safeguarding spirits prior to
taxpayment, including adequate policing, be the responsibility insofar
as practicable of the proprietors. With this in mind the Alcohol Tax
Survey Committee has proposed under authority contained in the 1954
Code, and independent of the plan I have discussed here today, that
night-time supervision by storekeeper-gaugers be discontinued at
beverage distilleries and that the entry gauging of spirits in packages
be made by the distiller under Government supervision. Night-time and
Sunday supervision of industrial alcohol plants was discontinued and
supervision over bottling plants reduced as of the first day of this month.
The manner in which proprietors discharge their new responsibilities
will determine the extent to which the liquor industry may expect a
further relaxation of governmental restrictions in the future.
I am proud of what me have been able to accomplish. I voice
the hope that with the continued cooperation and assistance of you
liquor administrators, trade associations and industry members that
I may be able to report to you at your next annual meeting that we have
achieved our objective.