HQ 227261 - Internal Advice Request; Non-tax paid domestic merchandise; Bonded warehouse; 19 C.F.R. 177.11; 26 U.S.C. 5214 (a)(9); 19 U.S.C. 1557 (a)(1)(A); Bonded Warehouse Manual. - United States International Trade Commision Rulings

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HQ 227261

August 4, 1998

LIQ-14: WAR-2-02: ENT 7-07
RR:CR:DR: 227261 CK

Category: BONDED WAREHOUSE

Port Director of Customs
U.S. Customs Service
ATTN: Trade Manager
198 West Service Road
Champlain, New York 12919

RE: Internal Advice Request; Non-tax paid domestic merchandise; Bonded warehouse; 19 C.F.R. 177.11; 26 U.S.C. 5214 (a)(9); 19 U.S.C. 1557 (a)(1)(A); Bonded Warehouse Manual.

Dear Sir:

With your September 23, 1996, memorandum you requested Internal Advice on the availability of any provision which allows Customs to continue control of non-tax paid domestic merchandise remaining in the bonded warehouse after liquidation of the warehouse entry on which the merchandise was entered. You question that if the entry is liquidated in accordance with Customs Directives, what would ensure that the domestic merchandise is eventually exported and not sold domestically without Internal Revenue Tax being paid.

FACTS:

Domestic merchandise, non-tax paid alcohol, was entered into a Duty-Free store, Class 9 bonded warehouse, on a type 21 warehouse entry. On the same type 21 warehouse entry, foreign merchandise was entered into the Class 9 bonded warehouse. The domestic alcohol was transferred from the bonded premises of a distilled spirits plant in approved containers.

Each shipment of alcohol, both domestic and foreign was transferred on bonded carriers to the warehouse. Each warehouse entry, type 21, is clearly marked, "Merchandise destined only for export. It is not to be withdrawn or diverted for consumption." Additionally, during a telephone call with your Port in June 1998, you stated that the domestic and imported alcohol has been physically separated in the warehouse, and that while they are commingled on the warehouse entry documents, they are not physically commingled.

ISSUE:

May Customs retain control of non-tax paid domestic and imported alcohol, that is in a bonded warehouse, after it has been liquidated, in order to be assured the merchandise is exported and that the Internal Revenue Taxes are paid.

LAW/ANALYSIS:

Section 26 U.S.C. 1514 (a)(9), states, 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 (for the purposes of storage pending exportation) to any customs bonded warehouse from which distilled spirits may be exported, and distilled spirits transferred to a customs bonded warehouse under this paragraph shall be entered, stored, and accounted for under such regulations and bonds as the Secretary may prescribe." Therefore, the transfer of the domestic alcohol to the warehouse was authorized and correctly entered.

Section 19 U.S.C. 1557 (a)(1), states, that any merchandise subject to duty... may be entered for warehousing and be deposited in a bonded warehouse... Such merchandise must be withdrawn, at any time, within 5 years from the date of importation, for consumption upon payment of the duties and charges accruing thereon at the rate of duty imposed by law upon such merchandise at the date of withdrawal; or may be withdrawn for exportation or for transportation and exportation to a foreign country,... without the payment of duties thereon, or for transportation and rewarehousing at another port, or elsewhere, or for transfer to another bonded warehouse at the same port; except that-- (A) the total period of time for which such merchandise may remain in bonded warehouse shall not exceed 5 years from the date of importation. Therefore, the imported distilled spirits, even though entered on the same 21 type warehouse entry document as the domestic distilled spirits, is subject to this 5 year warehouse limitation.

Additionally, as to internal revenue taxes on imported distilled spirits, section 26 U.S.C. 5061 (2)(D) states, that distilled spirits, wines, and beer which are imported into the United States (other than in bulk containers)- no internal revenue taxes will be due on any article which is shown to the satisfaction of the Secretary to be destined for export.

In regard to the domestic distilled spirits, part 11.2(d)(2)(iii) of the Bonded Warehouse Manual states, distilled spirits on which internal revenue tax has not been paid may be withdrawn from an ATF-bonded distilled spirits plant, without payment of tax, for transfer to a Customs bonded warehouse from which the distilled spirits may be exported. (26 U.S.C. 5214(a)(9)).... The warehouse entry will be processed and liquidated in the same manner as any other warehouse entry, except that: 1. The goods need not be withdrawn within the 5-year period specified in Section 557 TA...

Therefore, although the domestic distilled spirits are liquidated in turn, they are not restricted to the 5-year warehouse limitation. Since, the distilled spirits in this case have been physically separated in the warehouse, you will be able to identify which goods need to be removed after 5-years and those goods may remain in the warehouse beyond the 5-year limitation.

Finally, Customs Directive (C.D.) 3260-29, dated June 15, 1989, section D(4) states,

"Domestic distilled spirits, whether destined for exportation or diplomatic use, are exempt from the payment of internal revenue tax within 14 days after removal from a bonded warehouse under 26 U.S.C. 5061 (d), as amended by Public Law 99-509."

Therefore, internal revenue taxes do not accrue for domestic distilled spirits until they have been removed from the warehouse. While the domestic distilled spirits are within the warehouse, no tax is due, as long as they are marked for exportation. In this case, the type 21 entry documents specify that the domestic and imported distilled spirits are destined for export, and as long as they remain in the Customs bonded warehouse no taxes are due on them. Additionally, as long as the distilled spirits remain in the Customs bonded warehouse they are under the supervision of Customs, whether liquidated or not. However, once they are removed the importer has within 14 days to pay the taxes if the merchandise is not exported, and the merchandise is no longer within Custom's control. As long as Customs is satisfied that the merchandise is destined for export, and will be exported, Custom's control and obligation regarding taxes are over.

HOLDING:

Customs may assert control of domestic and imported distilled spirits as long as the merchandise remains in a Customs bonded warehouse, whether the entry has been liquidated or not. However, Customs does not have control over the payment of internal revenue taxes due on such domestic distilled spirits after it has been removed from the warehouse. Taxes are not due until merchandise has been removed and may be paid within fourteen days of such removal, which is outside of Custom's control.

This decision should be mailed by your office to the internal advice requester no later than 60 days from the date of this letter. After sixty days, the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS, and to the public via the Diskette Subscription Service, Freedom of Information Act, and other public access channels.

Sincerely,

William G. Rosoff, Chief
Duty and Refund Determination
Branch

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