ATF Ruling 77-33
The Bureau of Alcohol, Tobacco and Firearms has been requested to reconsider the position stated in ATF Ruling 74-34, 1974 ATF C.B. 45, in view of its broad application to fortified imported wines.
ATF Ruling 74-34 specifically held that compounds and preparations fit for beverage use which are made by adding distilled spirits to wine (other than wine spirits that have become an integral part of the wine in the fortification process), whether or not such compounds and preparations are 48 degrees of proof or less, or whether or not they contain more then 50 percent wine on a proof gallon basis, are subject to the internal revenue tax on distilled spirits upon importation into the United States.
The holding was founded on the applicable provisions of law and regulations as found in (1) 26 U.S.C. 5001 (tax rate for distilled spirits), (2) 26 U.S.C. 5002(a)(6)(A) (definition of distilled spirits which includes all dilutions and mixtures containing ethyl alcohol), (3) 27 CFR 201.11 (which repeats the definition of distilled spirits in the law but which eliminates denatured spirits), (4) 26 U.S.C. 5041 (tax rates for wine) and (5) 27 CFR 251.11 (which defines wine for the purposes of importation and which includes "flavored or sweetened fortified or unfortified wines, by whatever name sold or offered for sale, containing not over 24 percent alcohol by volume").
Although the term "fortified or unfortified wine" is not defined in present law or regulations, 26 U.S.C. 5382(b)(2) provides for the addition of wine spirits to domestic wine if the spirits added are produced from the same kind of fruit that were used to produce the wine. Such "wine spirits additions" are regarded as authorized "fortification" and ATF Ruling 74-34 recognized that the same wine spirits addition or fortification privilege has traditionally been extended to foreign wine. The ruling thus held that such wine, when imported, would be taxed at the appropriate wine tax rate. That position is based on 27 CFR 251.43 and 251.44 which are viewed as having the intent to provide equity in the tax treatment of domestic and foreign wine when they have been produced by a similar process.
In ATF Ruling 74-34, ATF made a distinction between imported wines that had been produced by the addition of wine spirits or brandy made from the same kind of fruit that was used to produce the wine and imported wines that had been produced by the addition of alcohol from other sources. The ruling held that, if alcohol from a source that would not be eligible for domestic wine was used to increase the alcohol content in a wine, such wine would be regarded as a dilution or mixture of ethyl alcohol and would be taxed on importation at the distilled spirits tax rate. Such a distinction was derived from ATF's interpretation of the phrase "fortified or unfortified wines" as set forth in sections 251.43 and 251.44 of Title 27, Code of Federal Regulations.
Section 251.43 provides that fortified or unfortified wines, containing not over 24 percent alcohol by volume, to which sweetening or flavoring materials, but no distilled spirits have been added are not classified as liqueurs, cordials, or similar compounds, but are subject to the internal revenue tax rates applicable to wines. Section 251.44 provides that imported compounds and preparations other than those specified in section 251.43 containing distilled spirits, which are fit for beverage purposes are subject to the distilled spirits tax. However, compounds and preparations, containing fortified or unfortified wine, but no distilled spirits, which are fit for beverage purposes and which are sold as wine, are subject to the internal revenue tax at the rates applicable to wines.
The Bureau has become increasingly aware that a strict adherence to the position stated in the ruling to the position stated in the ruling has had an unintended application in regard to certain foreign wines. The unintended result was a change in the tax rate on several wines that had been produced in accordance with established custom, fortified in accordance with established standards of the country in which the wine was produced, and which, prior to the issuance of ATF Ruling 74-34, were taxed as wine when imported. Subsequent to the issuance of the ruling, such wines became subject to the distilled spirits tax rate.
Held, accordingly, the Bureau of ATF does recognize the use of alcohol as an acceptable method of increasing the alcohol content in wines (fortifying wine) provided the use of alcohol is regarded as an authorized fortification procedure and as a standard winemaking process in the country of origin and further provided that the alcohol content is not increased to more than 24 percent by volume. Such wine, when imported into the United States will be taxed at the applicable wine tax rate. Products containing distilled spirits which do not meet the above condition, however, will be taxed as distilled spirits.
ATF Ruling 74-34, 1974 ATF C.B. 45, is hereby superseded.
27 CFR 251.43 and 251.44.