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Taking inventory for floor stocks tax.

Taking Inventory for Floor Stocks Tax

In addition to increasing the excise tax rate on alcoholic beverages, tobacco products and imported perfumes containing ethyl alcohol, the Omnibus Budget Reconciliation Act of 1990 also imposes a floor stocks tax on these items. In general, a floor stocks tax is a one-time excise tax placed on a commodity undergoing a tax increase. The floor stocks tax promulgated by the 1990 act applies to distilled spirits, wine, beer, imported perfumes and cigarettes held for sale on January 1, 1991. Taxpayers who are required to file the floor tax return include those who hold tax paid or tax determined wine, beer, distilled spirits or cigarettes for sale at wholesale or retail or imported perfumes containing ethyl alcohol for sale at wholesale (or retail if held at a location other than a retail premise).

The tax, determined by using Bureau of Alcohol, Tobacco and Firearms Form 5000.28, "Floor Stocks Tax Return," is applied at the following rates: Wine - $.90 per wine standard

U.S. gallon Beer - $9.00 per barrel (31 gallons) Distilled Spirits - $1.00 per proof

gallon Imported perfume - $1.00 per

wine gallon Small cigarettes (Class A - the

common 100mm and

120mm sizes) - $2.00 per

thousand Large cigarettes (Class B - not

common, those that weigh

more than three pounds

per thousand - $4.20 per


Persons exempt from the tax include those whose total amount of alcohol (distilled spirits, wine, beer and imported perfume) held on January 1, 1991, does not exceed 500 gallons and total number of cigarettes on January 1, 1991, does not exceed 30,000. Moreover, the tax does not apply to cigarettes held in vending machines. An exemption may also exists for "Small Domestic Brewers," defined as those brewers producing less than two million barrels per year. Generally, if such a brewer has removed 60,000 or fewer barrels from inventory during 1990, the tax will not apply.

It should be noted, however, that persons exempt from tax are still required to file a return; the due date for ATF Form 5000.28 is June 28, 1991.

Perhaps the most challenging aspect in computing the tax liability is the correct determination of the appropriate inventory. A physical inventory taken

between December 26, 1990, and January 10, 1991, must be used unless sufficient records of receipt and disposition exist to warrant the use of a book inventory. Supporting documentation for purposes of employing the book inventory method include the name of the supplier or customer and the transaction date. Under both methods, the record of inventory must include the name of the preparer and date of preparation, brand names of the commodities, type of product, container size, container number and alcohol content.

With regard to merchandise in transit, the regular application of GAAP is apparently required (i.e., merchandise shipped FOB destination is recorded as property of the shipper, and goods shipped FOB shipping point are considered inventory of the receiver). Products that are returned due to defects are not to be counted in inventory, while products returned because of poor market demand or returned to reduce inventory are counted.

As mentioned, the rate of the floor stocks tax is based on a variety of measurements. For example, wine and perfumes are measured in U.S. gallons, beer in barrels, cigarettes in thousands and distilled spirits in proof gallons. This may pose a conversion problem for many wholesalers or retailers whose inventories are recorded in some other standards of measurement. For this reason, the instructions for ATF Form 5000.28 contain various conversion formulas.

The conversion process for wine is relatively straightforward. Metric measurements (if any) need to be converted to gallons, and gallons must be multiplied by the number of gallons per case to arrive at the total wine inventory. Similarly, perfumes are taxed by the gallon. Thus, total ounces divided by 128 (128 ounces per gallon) will provide the correct amount of perfume inventory. Since the rate on beer is based on barrels, all U.S. and metric measurements must first be converted to gallons and then divided by 31 (31 gallons to a barrel). All amounts of cigarette packs, cartons and cases need to be converted into the total number of cigarettes. For instance, three cases of 12,000 small cigarettes would yield 36,000 cigarettes.

The conversion process for distilled spirits (whisky, rum, brandy, gin and similar products) is by far the most complex. All distilled spirits must be converted to proof gallons at the time the inventory is taken. If the inventory is already stated in proof gallons, the number of cases is simply multiplied by the number of proof gallons per case. Most likely, however, distilled spirits will be packaged in liters. If so, a conversion chart provided in the return's instructions must be used. The chart converts liters to proof gallons based on alcohol content. For example, an 80 proof liter of spirits would be multiplied by 0.21120 to derive proof gallons. A special formula applies if the alcohol content is not listed on the conversion chart.

The Bureau of Alcohol, Tobacco and Firearms reminds taxpayers that all inventory records must be kept for inspection by ATF officers for a period of three years from the date the return is filed. It also asks taxpayers to contact the ATF offices in their region if they have any questions regarding the floor stock tax.
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Article Details
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Author:Knell, Steven
Publication:The National Public Accountant
Article Type:column
Date:Mar 1, 1991
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