Rev. Ruling 71-215
The proprietor of an internal revenue tobacco export warehouse requested advice as to whether certain cigarettes could be sold without payment of tax or duty to foreign diplomatic personnel in the United States. The cigarettes were manufactured in the United States and had been shipped to Belgium with the expectation they would there be laden aboard a Brazilian naval vessel as supplies. However, the itinerary of that vessel was changed so it did not proceed to Belgium. The cigarettes were then returned to the United States and placed in a customs bonded warehouse by the export warehouse proprietor pending the answer to his questions of tax and duty exemption.
If the cigarettes in question are considered to have been truly exported and then returned (imported) to the United States, they would be eligible for entry and withdrawal for use of foreign diplomatic personnel exempt from duty and tax as provided in Schedule 8, Part 2, Subpart C, Tariff Schedules of the United States. On the other hand, if the cigarettes are not considered as having been exported they would be subject to the tax imposed by section 5701 of the Internal Revenue Code of 1954. They would be exempt from tax only for those specific purposes provided in section 5704 of the Code, which does not provide an exemption for foreign diplomatic personnel in the United States.
The question, then, is whether the cigarettes had been exported and thereby achieved exemption form the internal revenue tax as specifically provided for in section 5704 of the Code, in which case they could be entered and withdrawn duty and tax exempt as aforementioned under the Tariff Schedules, or whether they had not been exported and would not be exempt from tax if removed for use by foreign diplomatic personnel in the United States.
The regulations in 26 CFR 290.27 specify in pertinent part that exportation can be consummated under section 5704 of the Code in either of two ways: (1) a severance from the mass of things belonging to the United States with the intention of uniting them with the mass of things belonging to some foreign country, or (2) clearance from the United States of consumption beyond the jurisdiction of the internal revenue laws of the United States.
Exportation to a foreign country was ruled on by the Attorney General in 1883 (17 Op. Atty. Gen. 579) and the United States Supreme Court in Swan and Finch Co. v. United States (190 U.S. 145). They held that export to a foreign country requires that two conditions be met: (1) an intent to export and (2) the execution of the intent by having the goods severed from the mass of things belonging to the United States and becoming a part of the mass of things belonging to the foreign country to which transported. In the instant case neither of the conditions was met. There was no intent that the cigarettes be introduced into the commerce of Belgium. While the cigarettes were landed in Belgium they were not formally entered or otherwise treated in such a way that they could be considered as having been severed for the mass of things belonging to the United States and becoming a part of the mass of things belonging to Belgium.
The regulations in 26 CFR 290.62 are relevant as to whether the cigarettes would be considered to have been exported under section 290.27 of the regulations because of clearance from the United States for consumption beyond the jurisdiction of the internal revenue laws. Section 290.62 of the regulations provides in pertinent part that cigarettes may be removed without payment of tax for delivery to vessels as supplies for consumption outside the United States subject to the other applicable provisions of the regulations. Sections 290.206 and 290.207 require certain evidence that the cigarettes were laden aboard the vessel on which they are to be consumed as supplies, which evidence (or adequate evidence in lieu thereof) is necessary under section 290.66 for relief from the internal revenue tax liability.
Evidence was available that the cigarettes in question had been shipped from the United States. Because of the nature of the transactions - that is, the cigarettes were to be laden on the intended vessel in a foreign port - the evidence that the cigarettes were shipped from the United States would normally have been acceptable for relief from the tax liability under 26 CFR 290.66 as adequate evidence in lieu of the certifications usually required in connection with the lading of ships' supplies. However, since the cigarettes were returned to the United States having never been laden aboard the vessel on which they were to used as supplies, they would not have achieved valid export status as vessels' supplies.
It is held that the cigarettes in question had not been exported under section 5704 of the Code. Accordingly, such cigarettes cannot be removed without payment of the internal revenue tax for the use of foreign diplomatic personnel in the United States.
26 U.S.C. 5704; 27 CFR 290.27