ATF Ruling 82-9
The Bureau of Alcohol, Tobacco and Firearms (ATF) has been asked whether distilled spirits may be withdrawn from the bonded premises of a distilled spirits plant without payment of tax and transferred to a foreign-trade zone for the purpose of subsequent withdrawal of the beverages, upon payment of applicable excise taxes, to the Customs territory of the United States.
Section 5214(a)(8), of the Internal Revenue Code of 1954, as amended, provides, in part, that "Distilled spirits on which the internal revenue tax has not been paid or determined may, subject to such regulations as the Secretary shall prescribe, be withdrawn from the bonded premises of any distilled spirits plant in approved containers . . . without payment of tax for transfer to foreign-trade zones, as authorized by law. . ." (Emphasis supplied).
The phrase "as authorized by law" refers to the Foreign-Trade Zones Act (19 U.S.C. 81c). Thus, ATF's response to the question is based not only on ATF's interpretation of the provisions of the Internal Revenue Code, but also on ATF's interpretation of provisions of the Foreign-Trade Zones Act.
The introductory sentence of Section 3 of the Foreign-Trade Zones Act states, in part, that "Foreign and domestic merchandise of every description, except such as is prohibited by law, may, without being subject to the Customs laws of the United States, except as otherwise provided in this Act, be brought into a zone and may be stored, . . . and . . . sent into Customs territory of the United States therefrom, in the original package or otherwise; . . ." (emphasis supplied).
The fourth proviso of the Act provides, in part, that articles taken into a zone from Customs territory for the sole purpose of exportation or storage are considered to be exported for the purpose of gaining exemption from liability for Internal Revenue taxes.
The benefits of the fourth proviso (such as the right to transfer the article to a foreign-trade zone and thereby gain exemption from liability for Internal Revenue taxes) are not operate if articles are taken into a zone with the intent of eventual reentry into Customs territory. (S. Rep. No. 1107 81st Cong., 2d Sess. reprinted in (1950) U.S. Code Cong. Service 2533, 2537.)
The position of the Customs Service is in accord. Customs has held that under the Foreign-Trade Zones Act, articles, the growth, product or manufacture of the United States, subject to internal revenue taxes, and on which all internal revenue taxes have not been paid, may not be properly admitted into a foreign-trade zone in any status other than zone-restricted. That is, in the opinion of the Customs Service, the Foreign-Trade Zones Act does not authorize the operation at issue.
Thus, if nontaxpaid distilled spirits are transferred to a foreign-trade zone for a purpose other than exportation or storage pending exportation, excise tax liability on the beverages arises commencing with the date that such beverages are removed from bonded premises. If such tax liability is not timely paid, interest and penalty with respect to the unpaid taxes would arise under applicable statutory provisions.
Moreover, the fifth proviso of the Foreign-Trade Zones Act prohibits any operation in a foreign-trade zone which would be subject to the provisions of Chapter 51 of the Internal Revenue Code of 1954, if performed in Customs territory, unless such operation was permissible under the Act prior to July 1, 1949.
The storage of untaxpaid distilled spirits intended for consumption in the Customs territory of the United States is an operation subject to Chapter 51 of the code. This operation was not permissible in a foreign-trade zone prior to July 1, 1949. Accordingly, such operation is precluded by the fifth proviso of the Act.
Held, distilled spirits may not be withdrawn from the bonded premises of a distilled spirits plant without payment of tax and transferred to a foreign-trade zone for the purpose of subsequent withdrawal of the beverages (even if taxpaid upon removal) to the Customs territory of the United States.
27 CFR 252.30.