Ending de Minimis Back in Tax Bill; Tobacco Drawback May Return Also
The latest version of the tax bill introduced by the Senate over the weekend ends commercial de minimis on July 1, 2027, as the House version does. The Congressional Budget Office estimates that would increase revenues by $39 billion between 2027 and 2034.
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The bill also changes the civil penalty for attempts to introduce goods under de minimis that violate any other customs law, to up to $5,000 on the first violation and up to $10,000 on repeat violations. That change would take effect 30 days after enactment.
The restrictions on tobacco substitution drawback, which are in the House version, are not in the bill text, but Sen. Markwayne Mullin, R-Okla., has requested that they be added back. It's not yet known if there will be a vote on his amendment; however, Sen. Thom Tillis, R-N.C., who took credit for removing the provision, is voting no on the bill, so satisfying him is no longer an issue.
The other issue for trade compliance professionals is the excise taxes that would be owed by solar farms, battery storage and wind turbines that include a certain amount of parts from Chinese firms -- whether made in China, the U.S. or elsewhere -- with the percentage escalating each year.
According to a Bipartisan Policy Institute explainer of how the foreign entity of concern restrictions would work, components covered by contracts finalized before June 16 wouldn't count toward the FEOC content, as long as the components are sold or placed into service before Jan. 1, 2030.
The bill calls the parts requirement the material assistance cost ratio, and it's based on how much of the value of parts is not from Chinese firms. For calendar year 2026, at least 50% of the solar components (not counting the existing contracts) would have to be from outside China; that rises to 60% in 2027, 70% in 2028, 80% in 2029 and 85% in 2030. For inverters for solar panels, it's 50% in 2026, 55% in 2027, 60% in 2028, 65% in 2029 and 70% in 2030.
For battery components for energy storage, it's 60% in 2026, 65% in 2027, 70% in 2028, 80% in 2029, and 85% in 2030.
For wind turbine components, it's 85% in 2026, 90% in 2027.
There also are restrictions on receiving tax credits if a firm is engaged in a licensing agreement with a Chinese firm.
Chinese firms that are listed on stock exchanges outside of China may be excluded from the restrictions, if less than 25% of the equities are owned by a restricted company, or 40% are owned by a combination of restricted parties.
The Treasury Secretary is instructed to issue guidance on how to follow the FEOC restrictions -- including rules on circumvention -- by Dec. 31, 2026. There also will be safe harbor tables on how to identify the total direct costs of manufactured products and components from FEOCs. Before that guidance is available, the bill instructs companies to use tables in IRS Service Notice 2025–08.
The Bipartisan Policy Center said the Senate's version of the FEOC restriction is less severe than the House version, and they said the gradual phase-in is a good idea, but said it's highly complex, and could stifle investment, particularly ahead of the guidance.