Rev. Ruling 63-165

Special Tax

Advice has been requested whether the proprietor of a distilled spirits plant is liable for the special tax as a wholesale dealer in liquor under the circumstances described below.

The proprietor of a distilled spirits plant desires to sell (at wholesale) from the business office located on the premises of his distilled spirits plant imported spirits which, at the time of sale, would be stored in a Class 2 customs bonded warehouse located contiguous to (or as an "island" surrounded by) his distilled spirits plant. In case of the customs "island" operation, the spirits in customs custody are conveyed by an approval route across the distilled spirits plant premises to the customs bonded warehouse pursuant to authorization under section 201.103 of the Distilled Spirits Plants Regulations.

Section 5111(a) of the Internal Revenue Code of 1954 imposes a special tax on every wholesale dealer in liquor.

Section 5113(a) of the Code provides, in part, that no proprietor of a distilled spirits plant shall be required to pay special tax under section 5111 on account of the sale at his principal business office as designated in writing to the Secretary of the Treasury or his delegate, or at his distilled spirits plant, of distilled spirits which, at the time of sale, are stored at his distilled spirits plant, or had been removed from such premises to a taxpaid storeroom operated in connection therewith and are stored therein.

Distilled spirits plants and customs bonded warehouses are distinctive establishments with separate and specifically delineated premises, and a customs bonded warehouse is not permitted to be located on any part of the "premises" of a distilled spirits plant as described in the plant registration.

Although spirits in customs custody may be conveyed when necessary across distilled spirits plant premises, pursuant to authorization under section 201.103 of the regulations, such spirits may not be stored or allowed to remain on the premises of a distilled spirits plant. In the instant case the spirits in question would, at the time of sale, be stored in the customs bonded warehouse.

Since the imported distilled spirits in question would not, at the time of sale, be stored at the distilled spirits plant (but in a customs bonded warehouse) the exemption from special tax provided in section 5113(a) of the Code would not be applicable in respect of such sales, irrespective of the proximity of the customs bonded warehouse to the distilled spirits plant. Accordingly, it is held that the proprietor would be liable for the special tax as a wholesale dealer in liquors in respect of his sales of the imported spirits.

Further, no part of the proprietor's business activity relating to the customs bonded warehousing operation (including the sales activity) may be conducted on the distilled spirits plant premises except pursuant to authorization under section 201.67 of the regulations.

26 U.S.C. 511; 27 CFR 194.24