A bill to amend the Internal Revenue Code of 1986 to modify the cover over of certain distilled spirits taxes.
This bill revises how certain excise taxes on distilled spirits—especially Puerto Rico rum—are “covered over” to Puerto Rico and, in some cases, the Virgin Islands. It repeals a current limitation on how much of these taxes can be covered over to Puerto Rico and the Virgin Islands, effectively broadening potential transfers. At the same time, it creates a new requirement that a portion of Puerto Rico’s rum cover over be redirected to the Puerto Rico Conservation Trust Fund, with the amount governed by a formula tied to the tax rate per proof gallon and capped at a maximum. The amendments are designed to apply to distilled spirits brought into the United States after December 31, 2021, and the bill includes retroactive provisions to align with prior law. In short, the bill changes who gets the money from these taxes and adds a conservation-focused earmark for Puerto Rico.
Key Points
- 1Repeal of limitation on cover over to Puerto Rico and Virgin Islands: The bill repeals subsection (f) of Section 7652 and makes conforming changes, effectively removing prior caps or restrictions on how much distilled spirits tax revenue can be covered over to Puerto Rico and the Virgin Islands. This broadens the potential flow of revenue to those territories.
- 2New requirement for transfers to the Puerto Rico Conservation Trust Fund: The bill adds a new paragraph (a)(4) to Section 7652(a) mandating that, from rum taxes covered into Puerto Rico’s treasury, a transfer must be made to the Puerto Rico Conservation Trust Fund. This transfer is triggered only when the covered rate is at least $10.50 per proof gallon and is calculated to be at least 1/6 of the difference between $10.50 and the rate, up to a maximum of $13.25 per proof gallon. The transfer supports conservation and sustainable agriculture in Puerto Rico, per the fund’s defined purpose.
- 3Conservation fund definition and purpose: The fund to which the transfer goes is the Puerto Rico Conservation Trust Fund, defined as a fund created by a 1968 Memorandum of Understanding between the U.S. Department of the Interior and Puerto Rico, supporting conservation and restoration efforts, including sustainable agriculture and reforestation.
- 4Technical and cross-reference updates: The bill makes conforming amendments to ensure the new transfer is treated as part of the cover over calculation, and it adjusts related references in the Internal Revenue Code (including 7652(i)) to reflect the new structure.
- 5Retroactive and effective dates: The amendments apply to distilled spirits brought into the United States after December 31, 2021. The bill also provides retroactive rules tying its changes to earlier statutory framework, aligning the new rules with prior public laws (as if included in certain prior statutes).