Temporary Regs Provide Rules for Vaccine Floor Stocks Tax

 [4830-01-u]

 ACTION: Temporary regulations.

 SUMMARY: This document contains temporary regulations relating to the floor stocks tax on vaccines held on August 10, 1993. These rules reflect changes to the law made by the Omnibus Budget Reconciliation Act of 1993 (Act). The temporary regulations provide guidance relating to the person liable for the tax, an exception to the tax, and the time for reporting and paying the tax.

 EFFECTIVE DATE: These regulations are effective August 10, 1993.

 FOR FURTHER INFORMATION CONTACT: Edward Madden (202) 622-4537 (not a toll-free call).

SUPPLEMENTARY INFORMATION:

BACKGROUND

The Act reinstates the manufacturers excise tax on vaccines under section 4131 of the Internal Revenue Code (Code) effective August 11, 1993. The vaccine tax is imposed on DPT (diphtheria, pertussis, tetanus) vaccine at the rate of $4.56 per dose, DT (diphtheria, tetanus) vaccine at the rate of $0.06 per dose, MMR (measles, mumps, rubella) vaccine at the rate of $4.44 per dose, and polio vaccine at the rate of $0.29 per dose.

 The Act also imposes a floor stocks tax, which does not appear in the Code, on these vaccines. The floor stocks tax is a one-time tax on taxable vaccines that were sold by the manufacturer, producer, or importer on or before August 10, 1993, on which no tax was imposed by section 4131 of the Code, and that were held at the last moment of August 10, 1993, for sale or use. The rates of floor stocks tax are equal to the tax rates for sales by the manufacturer, producer, or importer.

EXPLANATION OF PROVISIONS

 The regulations provide definitions relating to the floor stocks tax, identify the vaccines subject to the floor stocks tax, list the applicable rates of tax, and identify the persons liable for the tax (primarily doctors, public and private hospitals and clinics, and public health agencies).

 The regulations also provide a de minimis exception to the floor stocks tax. Under this exception, any person that holds vaccines subject to a total tax of $1,000 or less is not required to report or pay the tax. If the tax exceeds $1,000, the full amount of tax must be reported and paid. Vaccines held by members of controlled groups must be aggregated for purposes of the de minimis exception. The de minimis exception is not prescribed by statute, but is being established for administrative convenience as were the de minimis exceptions contained in the Floor Stocks Tax provisions of the Environmental Tax Regulations (see 26 CFR 52.4682-4). The $1,000 threshold for tax is consistent with the de minimis exemption requested by the Department of Health and Human Services, which administers the Vaccine Injury Compensation Trust Fund.

 The regulations provide that a return on Form 720, Quarterly Federal Excise Tax Return, must be filed by February 28, 1994, and that the tax also must be paid by February 28, 1994. Persons that are also required to report other excise taxes for the fourth quarter of 1993 must report the floor stocks tax and the other excise taxes on the same Form 720. The due date for the return is February 28, 1994, even if returns for the other excise taxes are ordinarily due at an earlier date. This rule does not extend the time for making deposits or payments of any excise tax.

 These regulations do not impose any specific recordkeeping requirements with respect to the floor stocks tax. However, the general recordkeeping requirements applicable to Form 720 apply. For example, inventories based on actual measurement, on a work-forward or work-back method, or any other method that accurately reflects vaccines held are acceptable.

SPECIAL ANALYSES

 It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to these regulations, and, therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, these temporary regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

DRAFTING INFORMATION

 The principal author of these regulations is Edward Madden, Office of Assistant Chief Counsel (Passthroughs and Special Industries). However, other personnel from the IRS and Treasury Department participated in their development.

LIST OF SUBJECTS IN 26 CFR PART 47

 Excise taxes, Reporting and recordkeeping requirements.

AMENDMENTS TO THE REGULATIONS

Accordingly, 26 CFR chapter I is amended as follows:

Paragraph 1. Part 47 is added to read as follows:

PART 47 -- Floor Stocks Taxes

SUBPART A -- [Reserved]

Sec. 47.1-1T through 47.1-5T [Reserved]

SUBPART B -- Vaccine Floor Stocks Tax of 1993

 47.2-1T  Scope of subpart B (temporary).

Section 47.2-5T also issued under section 13421(c) of the Omnibus Budget Reconciliation Act of 1993 (107 Stat. 312).

SUBPART A -- [Reserved]

Sections 47.1-1T through 47.1-5T [Reserved]

SUBPART B -- Vaccine Floor Stocks Tax of 1993

SECTION 47.2-1T SCOPE OF SUBPART B (TEMPORARY).

The regulations in this subpart B relate to the vaccine floor stocks tax imposed by section 13421(c) of the Omnibus Budget Reconciliation Act of 1993 (107 Stat. 312). The tax is imposed on untaxed vaccines held at the last moment of August 10, 1993. This subpart describes the specific articles subject to tax, the rates of tax, and the persons liable for tax. This subpart also provides an exception to the tax and requirements for payment of tax and filing a return reporting the tax. This subpart is effective on August 10, 1993.

SECTION 47.2-2T DEFINITIONS RELATING TO THE VACCINE FLOOR STOCKS TAX (TEMPORARY).

(a) TERMS USED IN SECTION 4131. For purposes of this subpart, terms that are also used in section 4131 have the same meaning as when so used.

(b) OTHER TERMS. For purposes of this section --

ACT refers to the Omnibus Budget Reconciliation Act of 1993 (107 Stat. 312).

CONTROLLED GROUP means --

(i) Any controlled group of corporations within the meaning of section 1563(a), except that the phrase "more than 50 percent" is substituted for the phrase "at least 80 percent" each place it appears therein and a controlled group of corporations includes members that are described in section 1563(b)(2) (relating to excluded members); and

(ii) Any other group of organizations, at least one member of which is not a corporation, that is a brother-sister group under common control or a combined group under common control, with terms having the following meanings for this purpose:

(A) ORGANIZATION means a sole proprietorship, a partnership, a trust, an estate, or a corporation.

(B) BROTHER-SISTER GROUP UNDER COMMON CONTROL means two or more organizations if --

(1) The same five or fewer persons who are individuals, estates, or trusts own (directly and with the application of section 1.414(c)- 4 of this chapter) a controlling interest of each organization;

(2) Taking into account the ownership of each person only to the extent that person's ownership is identical with respect to each organization, such persons are in effective control of each organization; and

(3) The five or fewer persons whose ownership is considered for purposes of the controlling interest requirement for each organization are the same persons whose ownership is considered for purposes of the effective control requirement.

(C) CONTROLLING INTEREST means --

(1) In the case of a corporation, ownership of stock possessing at least 50 percent of the total combined voting power of all classes of stock entitled to vote or at least 50 percent of the total value of the shares of all classes of stock of the corporation;

(2) In the case of a trust or estate, ownership of an actuarial interest (determined under section 1.52-1(f) of this chapter) of at least 50 percent of the trust or estate;

(3) In the case of a partnership, ownership of at least 50 percent of the profit interest or capital interest of the partnership; and

(4) In the case of a sole proprietorship, ownership of the sole proprietorship.

(D) EFFECTIVE CONTROL has the meaning given that term in section 1.52-1(d)(3) of this chapter.

(E) COMBINED GROUP UNDER COMMON CONTROL has the meaning given that term in section 1.52-1(e) of this chapter.

SECTION 47.2-3T IMPOSITION OF VACCINE FLOOR STOCKS TAX (TEMPORARY).

(a) VACCINES SUBJECT TO TAX. Section 13421(c) of the Act imposes a floor stocks tax on any taxable vaccine (as defined in section 4132(a)(1) of the Internal Revenue Code) --

(1) Which was sold by the manufacturer, producer, or importer on or before August 10, 1993;

(2) On which no tax was imposed under section 4131 (or on which such tax was imposed and subsequently credited or refunded); and

(3) Which is held at the last moment of August 10, 1993, by any person for sale or use.

(b) RATES OF TAX. The rate of floor stocks tax on each taxable vaccine is the rate of tax specified in section 4131(b)(1) of the Code.

(c) PERSON LIABLE FOR TAX. The person liable for the floor stocks tax on any vaccine subject to tax is the person that holds the vaccine at the last moment of August 10, 1993. For purposes of the floor stocks tax, a vaccine is held at the last moment of August 10, 1993, by the person that has title to the vaccine (whether or not delivery to that person has been made) at such time, as determined under applicable local law. There is no exemption from the floor stocks tax for the United States or for State or local governments. Each business unit that has, or is required to have, its own employer identification number is treated as a separate person for purposes of the floor stocks tax.

SECTION 47.2-4T DE MINIMIS EXCEPTION TO VACCINE FLOOR STOCKS TAX (TEMPORARY).

(a) DE MINIMIS EXCEPTION -- (1) IN GENERAL. Except as otherwise provided in this section, if the aggregate amount of floor stocks tax payable by a person does not exceed $1,000, that person is not required to report or pay the tax.

(2) ALL AMOUNTS HELD SUBJECT TO TAX IF THRESHOLD EXCEEDED. If the aggregate amount of floor stocks tax payable by a person exceeds $1,000, that person is required to report and pay the total amount of tax as determined without regard to this section.

(3) CONTROLLED GROUPS. A member of a controlled group (as defined in section 47.2-2T) is not excepted from reporting and paying floor stocks tax under this section if the aggregate amount of floor stocks tax payable by all members of the controlled group exceeds $1,000.

(b) EXAMPLES. The following examples illustrate the rules of this section:

EXAMPLE 1. A holds 50 doses of DPT vaccine and 60 doses of polio vaccine on the last moment of August 10, 1993. A is not a member of a controlled group. A is not required to report and pay the floor stocks tax on any of the taxable vaccines because the aggregate amount of floor stocks tax payable by A (determined without regard to this section) does not exceed $1,000 ((50 x $4.56 per dose of DPT vaccine) + (60 x $0.29 per dose of polio vaccine) = $245.40).

EXAMPLE 2. D, E, and F are members of the same controlled group. On the last moment of August 10, 1993, D holds 100 doses of DPT vaccine and 160 doses of polio vaccine; E holds 80 doses of DPT vaccine, 10 doses of MMR vaccine and 60 doses of polio vaccine; and F holds 20 doses of MMR vaccine and 10 doses of DT vaccine. Without regard to this section, D is liable for a tax of $502.40 ((100 x $4.56 per dose of DPT vaccine) + (160 x $0.29 per dose of polio vaccine)); E is liable for a tax of $426.60 ((80 x $4.56 per dose of DPT vaccine) + (10 x $4.44 per dose of MMR vaccine) + (60 x $0.29 per dose of polio vaccine)); and F is liable for a tax of $89.40 ((20 x $4.44 per dose of MMR vaccine) + (10 x $0.06 per dose of DT vaccine)). Because the aggregate amount of floor stocks tax payable by all members of the group ($1,018.40) exceeds $1,000, each member of the controlled group must report and pay the floor stocks tax.

SECTION 47.2-5T REQUIREMENTS WITH RESPECT TO PAYMENT AND RETURN (TEMPORARY)

(a) PAYMENT OF TAX. The floor stocks tax is to be paid without assessment or notice on or before February 28, 1994.

(b) FILING OF RETURN -- (1) FORM 720. Except as provided in section 47.2-4T(a) (relating to the de minimis exception), every person liable for the floor stocks tax must make a return of the tax on Form 720, Quarterly Federal Excise Tax Return. The return is to be prepared and filed in accordance with the instructions relating to the return.

(2) TIME FOR FILING -- (i) IN GENERAL. The Form 720 required by paragraph (b)(1) of this section must be filed on or before February 28, 1994, and is a return for the fourth calendar quarter of 1993. A first return reporting only floor stocks tax is also a final return and therefore, in accordance with the instructions to Form 720, the box for "final return" must be marked.

(ii) RETURN REPORTING OTHER TAXES. A person must file only one Form 720 for a quarter. If a person is required under part 40 of this chapter to file Form 720 for the fourth calendar quarter of 1993 for other excise taxes earlier than February 28, 1994, that person files a single Form 720 the quarter by February 28, 1994. This paragraph (b)(2)(ii) does not extend the time for making deposits or paying any excise tax.