TAF-07-09-00012-P Filing Requirements for Certain Wine Distributors Registered Under Article 18 of the Tax Law

2/18/09 N.Y. St. Reg. TAF-07-09-00012-P

NEW YORK STATE REGISTER

VOLUME XXXI, ISSUE 7

February 18, 2009

RULE MAKING ACTIVITIES

DEPARTMENT OF TAXATION AND FINANCE

PROPOSED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. TAF-07-09-00012-P

Filing Requirements for Certain Wine Distributors Registered Under Article 18 of the Tax Law

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:

Proposed Action:

Amendment of section 60.1 of Title 20 NYCRR. This rule was previously proposed as a consensus rule making under I.D. No. TAF-43-07-00002-P.

Statutory authority:

Tax Law, sections 171, subdivision First; 429(1); and 436 (not subdivided)

Subject:

Filing requirements for certain wine distributors registered under Article 18 of the Tax Law.

Purpose:

To allow certain wine distributors to file annual rather than monthly alcoholic beverage tax returns.

Text of proposed rule:

Section 1. Paragraph 1 of subdivision (a) of section 60.1 of such regulations is amended to read as follows:

(a)(1) Except as provided in paragraphs (2) [and], (3), and (4) of this subdivision, every distributor must, on or before the 20th day of each month, file with the Department of Taxation and Finance a monthly tax return, for the preceding month, on a form or forms prescribed by the department for such purpose, even though no tax may be payable. [In] Except for a distributor as defined in clause ("a") of subparagraph (i) of paragraph (4) of this subdivision, in addition to any other required information, such return must show, the number of gallons of beers or wines (or fractional part thereof) or liters of liquors (or fractional part thereof) that are:

(i) on hand at the beginning of the preceding month;

(ii) manufactured or purchased during the preceding month;

(iii) on hand at the end of the preceding month; and

(iv) sold or used in this State during the preceding month.

Such return must also include the number of gallons of beers or wines or liters of liquors in transit during the return period and the extent of the distributor's other receipts and distributions of alcoholic beverages in New York State during the return period. For a distributor as defined in clause ("a") of subparagraph (i) of paragraph (4) of this subdivision, in addition to any other required information, such return must show the total number of gallons of wines (or fractional part thereof) that are sold directly to New York State residents for such residents' personal use during the preceding month. The return must be prepared in accordance with the instructions provided by the department and must be accompanied by all supporting schedules.

Section 2. A new paragraph 4 is added to subdivision (a) of section 60.1 of such regulations to read as follows:

(4)(i) A distributor that:

("a")("1") is an out-of-state winery and is required to register as a distributor solely because such person ships its wine directly to any New York State resident for such resident's personal use; and

("2") is licensed by the State Liquor Authority of New York State as a direct shipper, pursuant to section 79-c of the Alcoholic Beverage Control Law; or

("b") is licensed by the State Liquor Authority of New York State as a farm winery, pursuant to section 76-a of the Alcoholic Beverage Control Law, as a special farm winery pursuant to section 76-d of the Alcoholic Beverage Control Law, or as a micro-winery pursuant to section 76-f of the Alcoholic Beverage Control Law;

may apply to the department to file an annual tax return in lieu of the monthly returns required by paragraph (1) of this subdivision. Such annual return shall relate to the distributor's activities during the calendar year and shall be due on or before January 20th of the succeeding calendar year. Such return must show the information required in paragraph (1) of this subdivision, except that "month" shall be read as "year," and must be accompanied by proof of such distributor's continuing license as a direct shipper, farm winery, special farm winery or micro-winery.

(ii)("a") If a distributor meeting the requirements of subparagraph (i) of this paragraph (a "qualifying distributor") at any time during the period to be covered by an annual return ceases to be licensed by the State Liquor Authority, such distributor must file a return reflecting the distributor's activities from January 1st of such annual period through the end of the month during which the distributor ceased to meet the qualifications of subparagraph (i) of this paragraph. Such return must be filed on or before the 20th day of the month following the month during which the distributor ceased to meet the requirements of subparagraph (i) of this paragraph, and any tax due must be paid with filing of such return.

("b") If a distributor meeting the requirements of clause ("b") of subparagraph (i) of this paragraph at any time during the period to be covered by an annual return becomes reclassified with the State Liquor Authority as a winery other than a farm winery, a special farm winery, or a micro-winery, such distributor must immediately begin filing monthly tax returns, as described in paragraph (1) of this subdivision.

(iii) If it becomes necessary for a qualifying distributor to begin filing monthly returns during an annual period, pursuant to the provisions of clause ("b") of subparagraph (ii) of this paragraph, such distributor must also file a return reflecting the distributor's activities from January 1st of such annual period through the end of the month during which the distributor ceased to meet the qualifications of subparagraph (i) of this paragraph. Such return must be filed on or before the 20th day of the month following the month during which the distributor ceased to meet the requirements of such subparagraph (i) of this paragraph, and any tax due must be paid with filing of such return.

(iv) If it becomes necessary for a qualifying distributor to begin filing monthly returns during an annual period, pursuant to the provisions of clause ("b") of subparagraph (ii) of this paragraph, such distributor may apply to the department to file on an annual basis for the next or any subsequent calendar year if such distributor anticipates that it will again meet the requirements of clause ("b") of subparagraph (i) of this paragraph. Such application must include an explanation of why the distributor was required to begin filing monthly returns during the previous annual period and why the distributor does not expect such circumstances to re-occur in the upcoming annual period.

Text of proposed rule and any required statements and analyses may be obtained from:

John W. Bartlett, Tax Regulations Specialist 4, Department of Taxation and Finance, Taxpayer Guidance Division, Building 9, W.A. Harriman Campus, Albany, NY 12227, [phone], email: [e-mail]

Data, views or arguments may be submitted to:

Same as above.

Public comment will be received until:

45 days after publication of this notice.

Consensus Withdrawal Objection

This rule was previously proposed as a consensus rule and published in the State Register on October 24, 2007, and identified as TAF-43-07-00002-P. However, a Notice of Withdrawal was published in the State Register on April 2, 2008, because an objection was received from Southern Wine and Spirits (Southern).

Southern expressed concern that the rule allowing certain farm wineries, micro-wineries, and out-of-state direct wine shippers to file tax returns annually rather than monthly would diminish the state's ability to collect taxes, resulting in a potential loss of tax revenue. Southern indicated its belief that the rule would result in "[f]urther erosion of regulations that ensure tight controls of this industry" and that the low volume of wine shipped into New York State reported by out-of-state direct wine shippers is due to under reporting. In Southern's view, the rule provided an "[u]nfair competitive advantage to one sector in the industry at the expense of larger distributors."

The Department disagrees with these objections. This rule change was originally prompted by correspondence received from a small out-of-state winery that was filing monthly alcoholic beverage tax returns to pay a minimal amount of tax. Representatives from Wine America, The Wine Institute, and the New York State Wine and Grape Foundation reviewed and fully support the draft proposal. In addition, the amount of tax owed by most of the New York State farm and micro wineries as well as the out-of-state direct wine shippers is minimal. Accordingly, there is no need to continue to require monthly filing for these small wineries. It should also be noted that similar amendments were made in 2000 to allow distributors whose activities relate to the production of beer and are registered with the State Liquor Authority as micro-brewers or restaurant breweries to file annual alcoholic beverage tax returns.

Regulatory Impact Statement

1. Statutory authority: Tax Law, section 171, subdivision First, and sections 429(1) and 436 (not subdivided). Section 171, subdivision First of the Tax Law provides for the Commissioner of Taxation and Finance to make reasonable rules and regulations, which are consistent with the law, that may be necessary for the exercise of the Commissioner's powers and the performance of the Commissioner's duties under the Tax Law. Section 436 of the Tax Law provides for the authority provided by section 171 to be exercisable specifically with respect to the alcoholic beverage tax imposed by Article 18 of the Tax Law. Section 429(1) of the Tax Law, while providing generally for monthly alcoholic beverage tax returns, provides that the Commissioner may require tax returns to be made at such times and covering such periods as is deemed necessary in order to insure the payment of the tax.

2. Legislative objectives: The rule is being proposed pursuant to this authority to allow returns to be filed by certain filers for periods and upon such dates other than those prescribed in the Tax Law.

3. Needs and benefits: The rule amends section 60.1(a) of the Alcoholic Beverage Tax Regulations to allow certain New York State farm wineries, micro-wineries, and out-of-state direct wine shippers to apply to file annual alcoholic beverage tax returns rather than monthly returns as currently required. In addition, the rule reflects that out-of-state direct wine shippers are not required to report certain inventory information on their alcoholic beverage tax returns, which conforms to current department policy. Records show that the tax liability of these wine distributors is minimal; annual filing would reduce the burden placed upon these filers.

4. Costs:

(a) Costs to regulated persons: The regulated parties affected by this rule are approximately 750 out-of-state direct wine shippers and 185 licensed New York State farm wineries who are currently filing Form MT-40, "Return of Tax on Wines, Liquors, Alcohol, and Distilled or Rectified Spirits," each month. The regulated parties may elect to file an annual wine tax return. Form MT-40 will be modified to accommodate both monthly and annual filing. The administrative cost and burden of tax return filing will be reduced. However, to make the election to file an annual return, the regulated party will need to file Form MT-38, "Application For Annual Beer Tax Return Filing Status." Form MT-38 is a half-page form, currently used by certain beer distributors to elect to file annual beer tax returns. Form MT-38 will be modified to accommodate certain farm wineries, micro-wineries, and out-of-state direct wine shippers. The cost to the regulated parties choosing to file annually to fill out this application form is miniscule. Overall, there is no measurable cost impact resulting from adopting this rule, which will benefit the regulated parties.

(b) Costs to the State and its local governments including this agency: It is estimated that implementation of this regulation will cause an estimated minimal State revenue loss, based on a one time spin-down in revenues, of approximately $45,000 in State fiscal year 2009-2010. It is further estimated that the implementation of this regulation will cause an estimated minimal State revenue loss of less than $3,500 annually. It is estimated that annual, rather than monthly, processing of these returns should result in a slight reduction of this agency's administrative costs. This rule will have no cost in terms of revenue impact on local governments.

(c) Information and methodology: The estimated State fiscal year 2009-2010 State revenue loss is attributable to a one time spin-down in revenues as collections associated with alcoholic beverage tax (ABT) liabilities for certain New York State farm wineries, micro-wineries, and out-of-state direct wine shippers for the January and February 2009 monthly liability periods will be shifted from State fiscal year 2009-2010 under current regulations to State fiscal year 2010-2011 under the proposed regulations. The assumption for this estimate is that all eligible licensed New York State farm wineries, micro-wineries, and out-of-state direct wine shippers will choose the annual filing option. This is a one time spin-down as each subsequent fiscal year will receive a full 12 months of collections.

In addition, the estimated $3,500 annual State revenue loss is attributable to a minimal "cash flow" loss (i.e. interest) as ABT revenues which would have come in monthly under current rules will be delayed until January of the subsequent year under the rule. The estimate uses average quarterly collections for the 2007 calendar year for New York State farm wineries, micro-wineries, and out-of-state direct wine shippers and estimates the State revenue foregone in delaying the tax receipts. A two-month Jumbo CD with an annualized interest rate of 1.5% was used to project the estimated investment revenue lost to the State due to the delay in access to the tax receipts. It is projected that similar minimal "cash flow" losses (i.e. interest) will continue in subsequent years as ABT revenues are received on an annual basis rather than on a monthly basis. Estimates of forgone future interest will be based on market interest rates at the time.

These conclusions are based upon the information and methodology discussed above and an analysis of the rule from the Department's Taxpayer Guidance Division, Office of Tax Policy Analysis, Transaction and Transfer Tax Audit Bureau, Office of Budget and Management Analysis, and Management Analysis and Project Services Bureau.

5. Local government mandates: This rule imposes no mandates upon any county, city, town, village, school district, fire district, or other special district.

6. Paperwork: The rule imposes no reporting requirements, forms or other paperwork upon regulated parties beyond those required by statute. The instructions for Form MT-40, "Return of Tax on Wines, Liquors, Alcohol, and Distilled or Rectified Spirits," currently provide special instructions for out-of-state direct wine shippers. It is noted that this rule will reduce the number of returns required to be filed by the affected parties who apply and are allowed to file annual returns and, in turn, processed by the Department.

7. Duplication: There are no relevant rules or other legal requirements of the Federal or State governments that duplicate, overlap, or conflict with this rule.

8. Alternatives: The intention of the Department is to allow the option of annual filing for affected parties which will benefit both the affected parties and the Department. An alternative would be to offer quarterly filing, which would not be as beneficial to the affected parties or the Department.

9. Federal standards: The rule does not exceed any minimum standards of the Federal government for the same or similar subject area.

10. Compliance schedule: No time is needed in order for regulated parties to comply with this rule nor does the rule impose any new compliance requirements. The rule will take effect on the date that the Notice of Adoption is published in the State Register and affected parties will be allowed to make the election to file annual ABT returns for tax years beginning on or after January 1, 2009. Once the rule has been adopted, the department intends to issue a technical memorandum explaining the changes to affected parties, along with the revised application for annual filing, Form MT-38.

Regulatory Flexibility Analysis

A Regulatory Flexibility Analysis for Small Businesses and Local Governments is not being submitted with this rule because the rule will not impose any adverse economic impact or any reporting, recordkeeping, or other compliance requirements on small businesses or local governments beyond those required by statute.

The rule allows certain New York State farm wineries, micro-wineries, and out-of-state direct wine shippers to file annual alcoholic beverage tax returns rather than monthly returns as currently required. In addition, the rule reflects that out-of-state direct wine shippers are not required to report certain inventory information on their alcoholic beverage tax returns, which conforms to current department policy.

Representatives from Wine America, The Wine Institute, and the New York State Wine and Grape Foundation reviewed and support the draft proposal. In addition, the following organizations were notified that the Department was in the process of developing this rule and were given an opportunity to participate in its development: the Small Business Council of the New York State Business Council, the Division for Small Business of Empire State Development, the National Federation of Independent Businesses, the Retail Council of New York State, the New York State Association of Counties, the Association of Towns of New York State, the New York Conference of Mayors and Municipal Officials, and the Office of Local Government and Community Services of the New York State Department of State. The notified groups did not submit any comments concerning the rule.

Once the rule has been adopted, the department intends to issue a technical memorandum explaining the changes to affected parties, along with the revised application for annual filing, Form MT-38.

Rural Area Flexibility Analysis

A Rural Area Flexibility Analysis is not being submitted with this rule because it will not impose any adverse impact on rural areas or any reporting, recordkeeping, or other compliance requirements on public or private entities in rural areas. The rule allows certain New York State farm wineries, micro-wineries, and out-of-state direct wine shippers to file annual alcoholic beverage tax returns rather than monthly returns as currently required. In addition, the rule reflects that out-of-state direct wine shippers are not required to report certain inventory information on their alcoholic beverage tax returns, which conforms to current department policy.

Representatives from Wine America, The Wine Institute, and the New York State Wine and Grape Foundation reviewed and support the draft proposal. In addition, the following organizations were notified that the Department was in the process of developing this rule and were given an opportunity to participate in its development: the Small Business Council of the New York State Business Council, the Division for Small Business of Empire State Development, the National Federation of Independent Businesses, the Retail Council of New York State, the New York State Association of Counties, the Association of Towns of New York State, the New York Conference of Mayors and Municipal Officials, and the Office of Local Government and Community Services of the New York State Department of State. The notified groups did not submit any comments concerning the rule.

Once the rule has been adopted, the department intends to issue a technical memorandum explaining the changes to affected parties, along with the revised application for annual filing, Form MT-38.

Job Impact Statement

A Job Impact Statement is not being submitted with this rule because it is evident from the subject matter of the rule that it would have no impact on jobs and employment opportunities. The rule allows certain New York State farm wineries, micro-wineries, and out-of-state direct wine shippers to file annual alcoholic beverage tax returns rather than monthly returns as currently required. In addition, the rule reflects that out-of-state direct wine shippers are not required to report certain inventory information on their alcoholic beverage tax returns, which conforms to current department policy.