Honorable Robert S. Calvert Opinion No. C-192
Comptroller of Public Accounts
Capitol Station RE: Whether Chapters 7 and 8, Title
Austin, Texas 122A, Taxation General, permit
sales of unstamped cigarettes
and untaxed cigars and tobacco
products under the stated circum-
stance 9.
Dear Mr. Calvert :
You have requested our opinion concerning the above referenced
matter, and we copy your letter as follows:
‘In administering Chapters 7 and 8, Title 122A,
Taxation-General, the statutes levying a tax on
the sale of cigarettes, cigar and tobacco products,
the office of the Comptroller of Public Accounts
of the State of Texas understood the law permitted
the sale and delivery of unstamped cigarettes and
tax-free cigar and tobacco products to ships and
barges, or their crews, when such ships are at dock-
side in ports of call In Texas. These ships and
barges are engaged in Interstate commerce via the
Intercoastal Canal and the Inland Waterways of the
United States. The cigarettes, cigars and tobacco
products are for consumption by members of such
ships ’ crews outside the geographical boundaries of
Texas . Attached hereto, we file with you a copy of
Ruling No. 1 on this subject, which rule was issued
applying to cigarettes November 14, 1961, and amended
to include cigars and tobacco products January 31,
1962. Also attached hereto is a copy of the form
filled out by the applicant for the purchase of
unstamped cigarettes and untaxed cigars and tobacco
products .
A question was recently raised as to whether
the law permitted sales of unstamped cigarettes
and untaxed cigars and tobacco products under the
circumstances set out above. Therefore, as Comp-
troller of Public Accounts of the State of Texas,
I respectfully request an opinion as to whether :
such sales are taxable sales under the law.”
. .
Honorable Robert S. Calvert, Page 2 (Opinion No. C- 192 )
The cigarette tax is levied on the “first sale” in this State
by Articles 7.02(l) and 7.06(l), Title 122A, Taxation General,
Vernon’s Civil Statutes.
There Is no statutory provision and no authority permitting the
sale of unstamped cigarettes to ships and barges or their crews when
such ships are at dockside In ports of call in Texas, for use by the
crews when they are out side of Texas , although they are engaged in
interstate commerce, unless the sale or transaction can be said to be
an act involving Interstate commerce.
We are of the opinion, under the authority of the cases herein-
after cited, that, these sales do not Involve interstate commerce, and
are, therefore, not exempt from the cigarette tax, and the sale of
unstamped cigarettes, under the stated circumstances, is Illegal.
In the case of Fontenot v. Searcy and Pfaff, 78 So.2d 204 :
(La. Ct .App. 1955); the defendant printed and ,manufactured ,for add’;
delivered to Leonard Krower and Son, ‘Inc., In New Orleans, a large
number of catalogues. Leonard Krower and Son, ,Inc., Is a Louisiana
Corporation having its domicile In New Orleans. The corporation re-
ceived delivery of the catalogues and distributed them gratuitously
to other persons, 20% in Louisiana and 80% to persons outside the
State of Louisiana. The defendant paid the sales tax on the 20% de-
livered In Louisiana but refused to pay on the 80% delivered out of
State, claiming they were manufactured by the defendant for “immediate
export ” and “In contemplation of and dependent upon a movement of
goods in Interstate commerce. ”
The Court said “the tax Is an assessment upon the amount of re-
tail sales, or, f,n other words, upon the transaction itself and not
the property. ” . . . once the catalogues were delivered, Searcy and
Pfaff, Ltd., was without interest or concern as to what Leonard Krower
and Son, Inc. , would do with them. The transaction was then completed
and the amount of the sale became subject to the tax, and the coinci-
dence that the purchaser subsequently saw fit to send some of the
property beyond the boundaries of Louisiana does not interfere,,with
the right of the State to recover the amount of the taxes due.
In the case of Swan and Finch Company v. United States, 190
U.S. 143 (1903), it is stated:
“During the years 1895, 1896, 1897, the appel-
lant, a corporation engaged in business as im-
porter, manufacturer and exporter of oils at New
York City and elsewhere in the United States,
having used In the manufacture of certain kinds
of lubricating oils Imported rape seed oil on
which duties had been paid, placed on board of
vessels bound for foreign ports, lubricating oils
so manufactured, and claimed a drawback of the
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.,,.,
Honorable Robert S. Calvert, Page -3 (Opinion No. C-192 )
duties paid on the imported rape seed oil used
therein. The ~Treasury Department allowed and
paid the drawback on such manufactured oils as
were shipped to foreign countries and there landed,
but refused to pay any on such as were placed on
board for use and consumed in use on the vessels.
The appellant brought this suit in the Court of
Claims to recover the drawbacks on the last named
oils. . . . 11
The Federal statutes at that time provided that where imported
materials, on which the duties had been paid, were used In the manu-
facture of articles manufactured or produced In the United States,
and then exported, there should be allowed on the exportation of such
articles a drawback equal in amount to the duties paid on the materials
used, less one per centum of such duties. Part of the lubricating
oils placed on board the ship were used and consumed by the ,ship dur-
ing the voyage, and the remaining oils were shipped to foreign countries
and there landed.
The Supreme Court stated that ‘I. . . the question is whether
goods placed on board a vessel bound for a foreign port, to be used and
consumed on board the vessel during its voyage , and in fact so used and
consumed, are exported. It
The Court held that the oil used by the ship in route Is not
being exported, and therefore, the appellant was not entitled to the
drawback. l
In the case of State Tax Commission of Utah v. Pacific States
Cast Iron Pipe Company, &3-925 (1963) the respondent, a
Nevada Corooration auallfled to do business ii Utah, manufactures
cast Iron pipe in Provo, Utah, and sells the products throughout the
Western States, Prices set by respondent are for the goods delivered
at a specific job site, and interstate delivery is usually made by
common carrier or In respondent Is own equipment. In this case, how-
ever, the material we$ manufactured to meet specifications of specific
out -of -state jobs. The contract called for out-of -state ship-
ment, and respondent set a destination price which Included the going
common carrier freight charges between the two points involved. But
delivery was made and title passed to the purchaser at respondentts
foundry in Provo. The purchaser then transported the pipe with its
own equipment to the predetermined out-of-state destination. The
common carrier tariff was credited to the purchaser. . . .”
The United States Supreme Court held that a State may levy and
collect a sales tax, since the passage of title and delivery to the
purchaser took place within the State.
In the question before us, the cigarettes are delivered, paid
for and title passes at the point of delivery at dockside, and there
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Honorable Robert S. Calvert, Page 4 (Opinion No. C- 192 )
is no question of interstate commerce Involved. Therefore, In our .
opinion the sale of unstamped cigarettes to the ships and barges or
their crew is contrary to the provisions of Chapter 7, Title 122A,
and therefore, Illegal.
Chapter 8 of Title 122A, Taxation General, V.C.S., provides
for a tax on the "first sale" In this State, of cigars and tobacco
products. This Chapter is patterned after and is very similar to
Chapter 7 herein above discussed.
We are of the opinion that the sale of untaxed cigars and
tobacco products to ships and barges for use of the crew when outside
the territory of the State of Texas Is Illegal, for the same reasons
as set forth above as to the sale of cigarettes.
SUMMARY
The sale of cigarettes, cigars and tobacco products
to ships and barges or their crews, when such ships are
at dockside in ports of call in Texas, even though such
ships and barges are engaged in Interstate commerce and
the cigarettes, cigars and tobacco products are to be
consumed by the crew outside the boundaries of Texas,
are taxable sales under the provisions of Chapters 7 and
8, Title '122A, Taxation-General, Vernon's Civil Statutes.
Very truly yours,
WAGGONER CARR
Attorney General
JHB/d a
APPRoV~~D:
OPINION COMMITTEE
W. V. Geppert, Chairman
Marietta McGregor Payne
Joe Trimble
J. S. Bracewell
Paul Phy
APPROVEDFOR THE ATTORNEYGENERAL
BY: I-I. Grady Chandler
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