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TTB Ruling 2021-1


April 9, 2021
Number: 2021-1

Tax-Free Sales of Domestic Tobacco Products to Members of Foreign Missions in the United States

This Alcohol and Tobacco Tax and Trade Bureau (TTB) ruling establishes the procedures to allow foreign diplomatic and consular officials to purchase tax exempt domestic tobacco products for consumption in the United States, under the U.S. Department of State’s Office of Foreign Missions (OFM) procedures (“diplomatic sales”).  This authorization allows members of the domestic tobacco industry to use these procedures in handling domestic tobacco products destined for diplomatic sales.

More specifically, this TTB ruling authorizes domestic manufacturers of tobacco products to use the same procedure for such diplomatic sales as is already authorized for exporting tobacco products through duty-free stores, provided that such diplomatic sales are made through the procedures governing diplomatic sales established by OFM.  Because this now-authorized TTB procedure would result in export-labeled products being sold to individuals for consumption in the United States, this TTB ruling addresses statutory restrictions on export-labeled products, and finds (as explained further below) that such products may be sold by the proprietor of the duty-free store through OFM’s procedures without violating those restrictions.

In general, OFM is responsible for designating diplomatic tax exemption privileges and the procedures for exercising those privileges, including the eligibility of the specific recipients and product amounts.  Foreign diplomatic and consular officials in the United States purchase products from Class 9 customs bonded warehouses (also known as “duty-free stores”) without payment of tax under the procedures of, and as approved by, OFM’s Bonded Warehouse program.  Diplomatic sales of imported tobacco products are already addressed by OFM’s procedures and existing U.S. Customs and Border Protection (CBP) provisions (described further below).  However, when OFM designated the tax exempt benefit for diplomatic sales of domestic tobacco products, OFM specified that procedures to exercise this benefit would be established by the Department of the Treasury.

TTB, within the Department of the Treasury, administers the provisions of the Internal Revenue Code (IRC) that apply to domestic tobacco product manufacturers, including the provisions describing when such manufacturers are allowed to remove or transfer domestic tobacco products from their manufacturing facilities without payment of tax.  Under longstanding TTB procedures, such manufacturers are authorized to transfer products without payment of tax to duty-free stores, but only for exportation, and such products must bear markings indicating that they are intended solely for exportation. 

Thus, prior to this ruling, no TTB-authorized procedures existed to allow such manufacturers to transfer their products, without payment of tax, to duty-free stores when destined for diplomatic sales.  While sales of tobacco products to members of foreign missions for domestic consumption are not exportations, TTB finds that tobacco products that have been transferred from a domestic manufacturing facility under procedures in place for exportation through a duty-free store may be sold by the duty-free store to such members, subject to OFM procedures governing diplomatic sales.  This finding is based on TTB’s conclusion that, when handled in compliance with OFM procedures and consistent with the IRC and Harmonized Tariff Schedule personal use quantity exemptions discussed further below, neither duty-free store proprietors nor members of foreign missions are in violation of IRC provisions and TTB regulations related to sales or receipt of export-labeled tobacco products.    


OFM Establishment of a Diplomatic and Consular Exemption from Federal Excise Tax on Tobacco Products

The Foreign Missions Act, 22 U.S.C. 4301 et seq., directs the Secretary of State to determine the treatment that should be accorded to foreign missions in the United States after due consideration of the benefits, privileges, and immunities provided to missions of the United States in the country or territory represented by that foreign mission.  Pursuant to these authorities, the U.S. Department of State’s Office of Foreign Missions (OFM) designated as a “benefit” under the Foreign Missions Act an “exemption from Federal and State or local excise taxes imposed with respect to tobacco products (as defined in 26 U.S.C. 5702) manufactured, packaged or sold in the United States.”  Public Notice 6495, 74 FR 5019, January 28, 2009.  As stated in that notice, such benefit is “to be granted to foreign diplomatic and consular missions and personnel in the United States on the basis of reciprocity and as otherwise determined by the Department [of State], to include personnel of international organizations and missions to such organizations who are otherwise entitled to exemption from direct taxes[.]”  As mentioned above, OFM’s designation specified that procedures governing implementation of this benefit would be established by the Department of the Treasury.

OFM’s Bonded Warehouse Program; CBP Provisions for Tax-Free Sales through Duty-free Stores

OFM’s Bonded Warehouse program is described in Diplomatic Note 18-1118: Bonded Warehouse Program Procedures (July 13, 2018), which establishes procedures by which diplomats and consular personnel may purchase articles free of tax.  Purchases must be made from a U.S. Customs and Border Protection-approved bonded warehouse facility.  

Under OFM’s Bonded Warehouse program, diplomatic and consular personnel may request OFM’s authorization to purchase certain products tax-free and duty-free.  OFM only approves purchase requests if the associated merchandise is “intended for either the official benefit of a foreign mission or for the personal use of their eligible members.”  Additionally, purchase requests are “required to be of reasonable quantities.”  OFM “expects responsible senior officials of all foreign missions to screen requests for reasonableness of quantity and frequency of submission” and “reserves the right to impose quantitative restrictions on foreign missions or their members.”       

CBP establishes duty-free stores under 19 U.S.C. 1555(b)(8)(D) to “sell[ ], for use outside the customs territory [of the United States], duty-free merchandise that is delivered from a bonded warehouse to an airport or other exit point for exportation by, or on behalf of, individuals departing from the [U.S.] customs territory.”  See also 19 CFR 19.35(a).  Tax-free withdrawals of imported goods from a duty-free store may also be made for sales to eligible diplomatic or consular officials for their personal use within the United States, upon the request of the Department of State.  See 19 CFR 19.36(a); 19 CFR Part 148, Subpart I.

TTB’s Statutory and Regulatory Authority

TTB collects tax on tobacco products manufactured in the United States and removed from factories for domestic consumption.  The “tobacco products” subject to tax are: cigars, cigarettes, smokeless tobacco (snuff or chewing tobacco), pipe tobacco, and roll-your-own tobacco.  See 26 U.S.C. 5701.  TTB also regulates domestic manufacturers of tobacco products, and has promulgated regulations governing tobacco product labeling and tobacco product manufacturer recordkeeping and reporting requirements for purposes of implementing these IRC tax provisions.  See 27 CFR Parts 40 and 44.

TTB administers provisions of the IRC that provide an exemption from Federal excise tax for tobacco products removed from bonded premises for exportation.  See 26 U.S.C. 5704(b) and 27 CFR 44.61(a) (“Tobacco products and cigarette papers and tubes may be removed from a factory or from an export warehouse [. . .] without payment of tax for direct exportation or for delivery for subsequent exportation.”).

Under the TTB regulations, manufacturers of tobacco products are relieved from the tax liability on tobacco products upon providing evidence of exportation or of proper delivery for exportation.  See 27 CFR 44.66.  TTB has long accepted evidence of receipt in a duty-free store as proof of proper delivery for exportation sufficient to relieve tax liability.  See TTB F 5200.14, Part IV.  Beginning in 2018, under CBP procedures, all domestic non-taxpaid tobacco products transferred to a duty-free store are formally entered into that warehouse via CBP’s Automated Commercial Environment.  See CSMS# 18-000091, Updated Procedures for Domestic Non-Tax Paid Tobacco Product Bonded Warehouse, (January 25, 2018).  Through the intra-governmental U.S. International Trade Data System, TTB may now access and verify information reported to TTB by manufacturers of tobacco products removing tobacco products without payment of tax and delivering them to duty-free stores for exportation. 

Under the IRC at 26 U.S.C. 5704(b), tobacco products that are removed by the domestic manufacturer without payment of tax for exportation must bear marks, labels, or notices as required by regulation.  With some limited exceptions, the TTB regulations provide that the packages of such products must be marked, “Tax-exempt. For use outside U.S.,” or, “U.S. Tax-exempt. For use outside U.S.”  See 27 CFR 44.185.  Tobacco products so marked may not be sold, transferred, or delivered by a manufacturer of tobacco products into the U.S. domestic market.  See 26 U.S.C. 5754(a); 27 CFR 40.213. 

The IRC at 26 U.S.C. 5761 imposes civil penalties on persons within the jurisdiction of the United States who sell or receive tobacco products that have been labeled or shipped for exportation.  However, these restrictions and penalties do not apply to persons who receive export-labeled tobacco products in the quantities allowed entry into the United States free of tax and duty under chapter 98 of the Harmonized Tariff Schedule of the United States (HTSUS); for example, travelers who purchase tax-free and duty-free export-labeled tobacco products when exiting the United States may return to the United States with such products, in the quantities specified in chapter 98, without implicating these penalties.  See 26 U.S.C. 5761(d)(2).  The IRC also imposes tax liability and criminal penalties on anyone who, with the intent to defraud the United States, diverts domestic tobacco products that have been removed from the manufacturer’s facility without payment of tax for exportation.  See 26 U.S.C. 5751 and 5762(a)(5).


TTB has determined that domestic tobacco products transferred by domestic manufacturers to duty-free stores for exportation may be made available to diplomatic and consular personnel from duty-free stores under the provisions of OFM’s Bonded Warehouse program.  TTB has further determined that the IRC does not prevent eligible diplomatic personnel from purchasing such domestic tobacco products through OFM’s Bonded Warehouse program for personal consumption in the United States.

Although domestic tobacco products entered into duty-free stores will have been marked for exportation under TTB regulations, the IRC does not impose a penalty on the receipt of domestic tobacco products that are labeled for exportation in the quantity allowed entry free of tax and duty under HTSUS chapter 98 (except in the case of delivery sales).  See 26 U.S.C. 5761(c), (d)(2).  Under the same chapter of the HTSUS, diplomatic and consular officials may receive articles for personal or family use free of tax and duty upon the request of the Department of State (see subchapter VI of HTSUS chapter 98). 

The IRC specifies that the personal use quantity exemption at 26 U.S.C. 5761(d)(2) does not apply to “delivery sales,” which are defined by certain sale scenarios set forth at 26 U.S.C. 5761(d)(3).  However, a “delivery sale” does not include the exercise by diplomatic and consular personnel of the privilege of tax-free acquisition of domestic tobacco products, upon specific approval of the transaction through OFM’s Bonded Warehouse program.  This is the case even though some characteristics of a delivery sale may be present in such transactions.  A duty-free store may, for instance, use a carrier to ship products to a diplomatic purchaser. 

HELD, based upon the above, that duty-free store proprietors are not subject to civil penalties, tax liability, or criminal penalties based on their sale of domestic export-labeled tobacco products to members of foreign missions, for their personal consumption, when those transactions are authorized by OFM.

HELD FURTHER, that members of foreign missions are not subject to civil penalties, tax liability, or criminal penalties based on their receipt of domestic export-labeled tobacco products when those transactions are authorized by OFM. 

Manufacturers of tobacco products who remove tobacco products without payment of tax in compliance with TTB requirements are relieved from tax liability under 27 CFR 44.66 when domestic tobacco products are delivered to, and properly entered into, a duty-free store for exportation, regardless of whether the products are ultimately: (1) exported, or (2) sold in reasonable quantities for the domestic use of diplomatic and consular personnel as determined through OFM’s Bonded Warehouse program.



Mary G. Ryan
Alcohol and Tobacco Tax and Trade Bureau


Page last reviewed: April 9, 2021
Page last updated: April 9, 2021
Maintained by: Regulations and Rulings Division

Last updated: March 28, 2024