There are separate occupational taxes for alcohol producers, wholesalers, and retailers. Failure to comply with the alcohol SOT provisions can result in the assessment of civil and criminal penalties against the proprietors. ATF Uses a Combination of Efforts to Enforce SOT Compliance

ATF has implemented a combination of efforts to enforce compliance with the alcohol SOTs. These efforts include (1) sending known alcohol businesses their annual registration and stamp renewal returns, (2) matching ATF and state information on retailers, (3) publicizing occupational tax information, (4) licensing producers and wholesalers, (5) assessing civil and criminal penalties and interest, and (6) verifying SOT compliance during on-site inspections. ATF uses several methods to inform the public about the SOT requirements. The two offices also used different definitions of compliance. ATF’s Estimated Compliance Rates

ATF estimated that, as of April 3, 1998, 93 percent of the producers with permits, 95 percent of the wholesalers with permits, and 89 percent of the retailers known to ATF filed timely returns and timely paid the taxes due for tax year 1998. IG’s Estimated Retailer Compliance Rate

The IG reported an estimated average compliance rate of about 83 percent for retailers over tax years 1993, 1994, and 1995. A total of 43 states and the District provided usable data. Arguments for the SOT

Supporters of the SOTs have justified the taxes as a general source of revenue and as providing revenues intended to offset the costs of regulating the alcohol industry. Second, the tax rates are not likely to reflect the current costs of regulation because they are rarely changed. ATF Has Justified the SOTs as Facilitating ATF’s Enforcement of Laws and Regulations

The SOTs have been justified as facilitating ATF’s enforcement efforts by giving the agency the authority to enter the premises of alcohol dealers and to require that the dealers keep certain records. ATF officials said that ATF uses this authority in its efforts to control the alcohol distribution system, prevent illegal sales of alcohol, and enforce all federal taxes on alcohol. ATF officials believe that the access and recordkeeping authority provided by the SOTs is necessary for ATF enforcement efforts. SOTs Have Been Criticized for High Administrative Costs and Low Compliance

We concluded in two separate reports that the administrative costs of the SOTs were high relative to the costs of administering the alcohol and tobacco excise taxes and that compliance among retailers may have been low. Opponents Have Criticized the SOTs for Being Unfair

Opponents of the SOTs have criticized the taxes for being unfair. Because the taxes are a fixed amount per location, they may take more income from those with less ability to pay the tax, and, if compliance rates are low, compliant taxpayers would pay an unfair share of the tax burden. Special Tax Stamp Registration and Return Process

In May of each year, the Bureau of Alcohol, Tobacco, and Firearms (ATF) sends a notification package to each alcohol business known to ATF.
Why GAO Did This Study

Pursuant to a congressional request, GAO studied the alcohol special occupational taxes (SOT), focusing on: (1) the methods that the Bureau of Alcohol, Tobacco, and Firearms (ATF) uses to enforce compliance with the taxes and the costs incurred in these efforts; (2) compliance rates for alcohol producers, wholesalers, and retailers; and (3) arguments that have been made for and against these occupational taxes.

What GAO Found

GAO noted that: (1) ATF uses a variety of methods to enforce compliance with the alcohol SOTs; (2) among other information preprinted on the special tax renewal registration and return, ATF lists each known operating location and the total amount of taxes due; (3) ATF also informs the public about alcohol occupational tax requirements using a variety of media; (4) all but five states routinely provide retailer licensing information that ATF can compare with federal records to identify retailers who may not be in compliance; (5) ATF has assessed civil and criminal penalties, as well as interest, to enforce compliance with the SOT provisions; (6) ATF estimated that it cost a total of $1.9 million to administer the SOT programs for alcohol, tobacco, and firearm businesses in fiscal year 1997; (7) ATF and the audit staff at the Department of the Treasury's Office of the Inspector General (IG) have estimated rates of taxpayer compliance with the alcohol SOTs; (8) however, the two offices used different data, methods, and definitions of compliance to make their estimates; (9) ATF estimated that, as of April 3, 1998, 93 percent of the producers and 95 percent of the wholesalers with federal permits and 89 percent of the retailers known to ATF were compliant for tax year 1998; (10) IG estimated the average compliance rate for retailers over tax years 1993, 1994, and 1995 to be 83 percent; (11) supporters of the alcohol SOTs have justified the taxes both as a general source of revenue and as providing revenues to offset the costs to the government of regulating the industry; (12) however, the SOTs are not likely to accurately reflect the current costs of regulation because the tax rates have rarely been changed; (13) the SOTs give ATF the authority to enter the premises of alcohol dealers and require that retailers keep certain records; (14) ATF believes that the access and recordkeeping authority provided by the SOTs is necessary for its efforts to control the alcohol distribution system, prevent illegal sales of alcohol, and enforce other federal taxes on alcohol; (15) the SOTs have been criticized in the past because of relatively high administrative costs and low compliance rates among retailers; (16) opponents of the SOTs have criticized the taxes for being unfair; and (17) because the SOTs are a fixed amount per location, the SOTs may take more income from those with less ability to pay the tax, and, if compliance is low, compliant taxpayers may bear an unfair share of the tax burden.