The tax imposed upon distilled spirits by Rev.Stat. § 3251, as
amended by the Act of March 3, 1575, 18 Stat. 339, c. 127, attaches
as soon as the spirits are produced, and cannot be evaded except
upon satisfactory proof, under § 3221, of destruction by fire or
other casualty.
When distilled spirits upon which a tax has been paid are
exported, they are to be regauged at the port of exportation
alongside of or on the vessel, and the drawback allowed is to be
determined by this gauge, although a previous gauge may have shown
a greater amount.
The execution of an exportation bond, under the internal revenue
laws, is only evidence of an intention to export, and it is open to
doubt whether the actual exportation can be considered as beginning
until the merchandise leaves the port of exportation for the
foreign country.
This was an action on a bond in the penal sum of $41,000, given
by the defendant Thompson and his sureties for the exportation of
certain distilled spirits. The bond was dated October 23, 1885, and
after reciting a prior bond given on the 8th of April, 1885, by the
same parties, conditioned for the delivery of certain distilled
spirits therein named on board ship at the port of Newport News,
Virginia, for exportation to Melbourne, Australia, and for the
performance of certain other things therein named, and after
further reciting that it was found desirable to deliver a portion
of such spirits on board ship at the port of New York for
exportation to Bremen,
Page 142 U. S. 472
namely, 929 packages of Bourbon whisky, the marks and numbers of
which were given, by certain railways to New York, from distillery
warehouse No. 63 in the Eighth District of the State of Kentucky,
was conditioned
"that if the whole of the aforesaid merchandise shall be safely
delivered to the collector of customs at the said port of New York
within fifteen days from date hereof, and if the said John B.
Thompson, principal, shall export or cause to be exported the said
merchandise in accordance with the internal revenue laws, and the
regulations of the Treasury Department made in pursuance thereof,
immediately on the arrival of said merchandise at said port of New
York, and shall within fifteen days thereafter produce to the
Collector of Internal Revenue for the 8th District of the State of
Kentucky the certificate of the collector of customs of the said
port of New York showing that the said merchandise has been duly
exported, and shall also produce within nine months thereafter his
certificate that the said merchandise has been duly landed at the
port of Bremen or at some other port without the jurisdiction of
the United States, or shall produce satisfactory proof of the loss
thereof at sea without fault or neglect of the owner or shipper
thereof, as required by law and regulations, then this obligation
to be void,"
etc.
The breach of the condition of the bond laid in the petition was
that the defendants failed to deliver to the collector of customs
at New York, within fifteen days, or within any other time, 1,065
gallons of the said spirits, as appeared from a regauge made on
October 27, 1885, the object of the suit being to recover the tax
of ninety cents a gallon on the said deficiency, being $958.50,
with interest at the rate of one percent per month, and a penalty
of five percent
The prior bond alluded to in the bond in suit was executed by
the same parties April 8, 1885, and recited that Thompson, the
principal, had made request to the collector of the Eighth District
of the State of Kentucky for the transportation of 1,085 packages
of Bourbon whisky to the port of Newport News for exportation, and
contained similar conditions to the bond in suit, except that it
provided for exportation by the way of Newport News, within seven
months from the date of such
Page 142 U. S. 473
bond, to Melbourne, Australia. It appeared that the 929 packages
covered by the bond in suit were part of the 1,085 packages covered
by the prior bond. It also appeared that the deficiency of 1,065
gallons in the spirits represented the loss thereon by evaporation
and leakage while the same were in warehouse, and previous to
transportation for export.
The answer, among other things, denied that the said 1,065
gallons were removed from the bonded warehouse, or that the
collector ever demanded the tax of the defendants, and further that
the bond in suit was given to meet the requirements of certain
rules and regulations of the Treasury Department, and that at the
time the prior bond was given, April 8th, the spirits on which it
was sought to collect the tax were in the packages covered by such
bond; that by the acceptance of said bond of April 8, the spirits
referred to therein were free from any obligation for taxes, and
were in due process of exportation on and after such date to
Bremen, Germany, where they have arrived, and that the tax sued for
was a deficiency tax upon the spirits covered by the bond of
October 23, 1885, which were actually exported, and to allow the
recovery of such tax would be to enforce an export duty on the
spirits exported, as aforesaid, in violation of the prohibition of
the Constitution of the United States in that particular. The
answer contained further averments not necessary to be noticed
here. The government demurred to each paragraph of the answer, and
the demurrer was sustained as to all such paragraphs except the
first, upon which there was a trial, resulting in a judgment and
verdict for the full amount claimed, namely, $1,023.61, with
interest, etc. A writ of error was sued out from the circuit court,
by which the judgment of the district court was affirmed. A writ of
error was thereupon sued out from this Court.
MR. JUSTICE BROWN, after stating the facts in the foregoing
language, delivered the opinion of the Court.
Page 142 U. S. 474
The sole question presented for our consideration in this case
is whether defendants are liable for the tax upon 1,065 gallons of
spirits lost by evaporation between the giving of the first bond in
April, 1885, and the second bond on October 23 of the same year.
This depends upon the construction of the excise laws of Congress
regulating the taxing and exportation of distilled spirits
manufactured in this country. By Rev.Stat. section 3248, distilled
spirits are defined to be
"that substance known as 'ethyl alcohol,' 'hydrated oxide of
ethyl,' or'spirit of wine,' which is commonly produced by the
fermentation of grain, starch, molasses, or sugar, etc., . . .
and the tax shall attach to this substance as soon as it is in
existence as such."
By § 3251, as amended by the Act of March 3, 1875, 18 Stat.
339,
"There shall be levied and collected on all distilled spirits .
. . a tax of ninety cents on each proof gallon, or wine gallon when
below proof, to be paid by the distiller, owner, or person having
possession thereof, before removal from the distillery bonded
warehouse."
By section 3293, as amended by the Act of May 28, 1880, 21 Stat.
145, provision is made for the entry and deposit of all spirits
removed to the distillery warehouse, requiring that
"the said distiller or owner shall
at the time of making
said entry give his bond . . . conditioned that the principal
named in said bond shall pay the tax on the spirits as specified in
the entry, or cause the same to be paid, before removal from said
distillery warehouse, and within three years from the date of said
entry. . . . If it shall appear at any time that there has been a
loss of distilled spirits from any cask or other package hereafter
deposited in a distillery warehouse, other than the loss provided
for in section 3221 of the Revised Statutes of the United States
[which authorized an abatement of taxes upon satisfactory proof of
actual destruction by accidental fire or other casualty while in
any distillery warehouse] which, in the opinion of the Commissioner
of Internal Revenue, is excessive, he may instruct the collector of
the district in which the loss has occurred to require the
withdrawal from warehouse of such distilled spirits and to collect
the tax accrued upon the original quantity of distilled
Page 142 U. S. 475
spirits entered into the warehouse in such cask or package
notwithstanding that the time specified in any bond given for the
withdrawal of the spirits entered into warehouse in such cask or
package has not expired."
The evident intention of Congress to be gathered from these
provisions is that the tax shall attach as soon as the spirits are
produced, and that such tax shall not be evaded except upon
satisfactory proof, under section 3221, of destruction by fire or
other casualty.
The spirits covered by this bond were put in defendant
Thompson's own warehouse, and were originally intended to be
entered for exportation to Melbourne, Australia, and in pursuance
of such intention the bond of April 8, 1885, was given. At this
time, the spirits were regauged, in obedience to section 17 of the
Act of May 28, 1880, 21 Stat. 149, which provides that
"whenever the owner of any distilled spirits shall desire to
withdraw the same from the distillery warehouse, or from a special
bonded warehouse, he may file with the collector a notice giving a
description of the packages to be withdrawn, and request that the
distilled spirits be regauged. . . . If upon such regauging it
shall appear that there has been a loss of distilled spirits from
any cask or package without the fault or negligence of the
distiller or owner thereof, taxes shall be collected only on the
quantity of distilled spirits contained in such cask or package at
the time of the withdrawal thereof from the distillery warehouse or
special bonded warehouse."
Under this provision of the law, an allowance for outage or loss
by evaporation while in warehouse was then duly made, but instead
of being exported to Melbourne, the spirits were kept in the
warehouse until the period of seven months named in the bond of
April 8, 1885, as the time limited for exporting had nearly
expired, and until it was too late to export by the way of Newport
News without a breach of the conditions of the bond. Thereupon the
distiller determined to export the bulk of these packages through
the port of New York to Bremen, and accordingly they were again
entered for exportation, and the second exportation bond of October
23 was executed, under which the exportation was made.
Page 142 U. S. 476
There seems to be no provision in this act for a second
regauging or allowance for outage in case the spirits are not
actually withdrawn from the warehouse after the first regauging,
provided for in section 17. Nor does there seem to have been any
other notice to the collector, or a request for regauging, as
contemplated in that section. It would seem to be just and
equitable if from any cause not arising from his own fault the
owner should fail to export the liquors under the first regauging,
he should be entitled at any time within the three years provided
by the same act to make another request for regauging, and be
entitled to an allowance for any deficiency for evaporation
occurring after the prior regauging; but the law seems to
contemplate but one notice of withdrawal, and the regulation of the
commissioner, circular No. 296, requires that, where spirits
covered by an exportation bond are actually removed from the
distillery warehouse for exportation, the gauger shall carefully
reinspect each package, and if an additional outage is found to
exist in any of the packages so inspected, which reduces the number
of taxable gallons in the packages as last previously reported, he
shall report the same to the collector, and the collector shall at
once require payment of the tax on the taxable gallons represented
by such reduction, even though it is alleged that the loss is
occasioned by a casualty. This regulation was within the scope of
the commissioner's authority, and was in force when the second bond
was given.
By Revised Statutes section 3329, provision is made for the
exportation of distilled spirits "upon which all taxes have been
paid," and minute regulations prescribed for the method of such
exportation, one of which is that
"the casks or packages shall be inspected and gauged
alongside of or on the vessel by the gauger designated by
said collector, under such rules and regulations as the Secretary
of the Treasury may prescribe,"
and
"the drawback allowed shall include the taxes levied and paid
upon the distilled spirits exported . . .
as per last gauge of
said spirits prior to exportation,"
etc. By section 3330, provision is made for the withdrawal of
distilled spirits from bonded warehouses, for exportation in the
original
Page 142 U. S. 477
casks, without the payment of taxes, under regulations to be
prescribed by the Commissioner of Internal Revenue, with a
proviso
"that the bonds required to be given for the exportation of
distilled spirits shall be cancelled upon the presentation of
satisfactory proof and certificates that said distilled spirits
have been landed at the port of destination named in the bill of
lading, or upon satisfactory proof that after shipment, the same
were lost at sea without fault or neglect of the owner or shipper
thereof."
Taking these provisions together, it is evident that when
spirits upon which the tax has been paid are exported, they are
regauged at the port of exportation
alongside of or on the
vessel, and the drawback allowed is determined by the
amount of this gauge, notwithstanding a previous gauge may
have shown a greater amount. The result is that the owner receives
no drawback upon any deficiency occurring prior to the last
regauge. While section 3330, regulating the export of spirits upon
which the tax has not been paid, does not contain similar
provisions, it is very improbable that Congress should have
intended to exempt the deficiency in the case of exportations
without payment of tax, and tax it in case of drawbacks upon
exportations after payment of tax.
Defendant's position that the spirits in this case were in
process of exportation after the execution of the bond of April 8
is untenable. Exportation is defined to be the act of carrying or
sending merchandise abroad, and it cannot be considered as
beginning until the spirits are removed from the warehouse for that
purpose. The execution of the bond is evidence of nothing more than
an intention to export. As well could the taking out of a passport,
or the engagement of passage upon a transatlantic steamer, be
regarded as the commencement of a journey to foreign parts. Indeed,
it may admit of doubt whether exportation can be considered as
beginning until the merchandise leaves the port of export for a
foreign country. That the execution of the bond was not the
commencement of exportation is also evident in this case from the
fact that the exportation provided for in the first bond, by the
way of Newport News, was wholly abandoned, and a
Page 142 U. S. 478
second bond was executed in October covering an export to Bremen
through the port of New York. As the exportation which was actually
made was not contemplated at all when the first bond was given, how
is it possible to say that this was the beginning of such
exportation? If the giving of the bond can in any sense be said to
be the commencement of the exportation, it must apply to the bond
which was given to cover the export which was actually made, and as
the evaporation occurred before that time, we do not think that the
constitutional inhibition against the taxation of articles exported
from a state is drawn in question.
As the law contemplated but one withdrawal entry for
exportation, and made allowance only for a deficiency upon such
entry, it was within the power of the collector to assess a tax
upon the deficiency that accrued between the dates of the two
bonds, since that deficiency represented spirits that could not be
exported and were not within the exemption of any statute.
The Act of December 20, 1879, 21 Stat. 59, providing for an
allowance to be made for leakage or loss by any unavoidable
accident "occurring during transportation from a distillery
warehouse to the port of export," cuts no figure in this case,
since the evaporation occurred before the spirits left the
distillery warehouse, and before the execution of the last
bond.
The case is doubtless one of considerable hardship to the
defendants, but, in view of the exceeding stringency of the laws
with respect to the taxation of distilled spirits, we do not see
our way to relieve them from the payment of this tax, and the
judgment of the court below is therefore
Affirmed.
MR. JUSTICE FIELD dissented.
