Proprietors of Distilled Spirits Plants, Breweries, Bonded
Wineries, Importers, Wholesalers and others Concerned:
Purpose. The purpose of this industry circular is to
advise industry members of the forthcoming ATF Ruling
relating to depletion allowances. The ruling reads as
The Bureau of Alcohol, Tobacco and Firearms has been
asked whether a depletion allowance given to a retailer by
an industry member is considered a "thing of value" within
the meaning of section 5(b)(3) of the Federal Alcohol
Administration Act (the Act), 27 U.S.C. § 205(b)(3).
Depletion allowances are discounts given to retailers
based on the quantity of product sold by such retailers to
their customers. No discount is given at the time the
product is purchased by the retailer.
In general, section 5(b)(3) of the Act prohibits an
industry member from inducing any retailer to purchase
alcoholic beverages to the exclusion of products sold or
offered for sale by other persons in interstate commerce
by furnishing, giving, renting, lending or selling to the
retailer any fixtures, signs, supplies, money, services,
or other thing of value.
Revenue Ruling 54-161, C.B. 1954-1,338 (Internal
Revenue) held that price reductions, rebates, refunds, and
discounts given to retailers at the time of entering into
an agreement of sale are merely methods used to arrive at
an agreed sales price and as such do not fall within the
purview of the Act. However, if the price reduction,
rebate, refund, or discount is in fact merely a subterfuge
to otherwise violate the Act, then the transaction would
constitute a prohibited "gift" within the meaning of
The Bureau believes that an agreement to pay a
depletion allowance at some future date based on the
retailer's sales to consumers does not constitute a
pricing transaction since it does not reduce the price of
the goods at the time they are sold to the retailer.
Although the terms of the depletion allowance are agreed
to at the time of sale, the retailer is not
unconditionally entitled to any reduction in price as a
result of the sale. In a normal discount or price
reduction situation, the right to such discount accrues at
the time of the sale to such retailer.
The depletion allowance is merely a promise by the
industry member to pay the retailer if and when the
retailer resells the goods. Therefore, if the goods
remain unsold, the retailer receives no discount and must
pay the full cost of the goods.
Held: Depletion allowances given by industry members
to retailers, whether directly or indirectly, are not
considered legitimate pricing arrangements. Such payments
would amount to a means to induce purchases to the
exclusion of products sold by competitors, and if coupled
with the other elements of the statute, a violation of
section 5(b)(3) would result.
Revenue Ruling 54-161 is hereby amplified.