Slip Op. 00-55
UNITED STATES COURT OF INTERNATIONAL TRADE
______________________________
:
CITGO PETROLEUM CORPORATION, :
: Court No. 94-01-00023
Plaintiff, :
:
v. :
:
THE UNITED STATES, :
:
Defendant. :
_____________________________:
[Judgment for plaintiff.]
Dated: May 18, 2000
Dennis T. Snyder, P.A. (Dennis T. Snyder) for plaintiff.
David W. Ogden, Acting Assistant Attorney General,
David M. Cohen, Director, Commercial Litigation Branch, Civil
Division, United States Department of Justice (Lara Levinson
and Jeffrey A. Belkin), Richard McManus Office of the Chief
Counsel, United States Customs Service, of counsel, for
defendant.
OPINION
RESTANI, Judge: This matter challenging the imposition of
the Harbor Maintenance Tax (“HMT”) upon aircraft fuel
withdrawn from a bonded warehouse for use in international
flight is before the court on Cross Motions for Summary
Judgment, pursuant to USCIT Rule 56. The court finds that the
fuel cargo at issue is exempt from the tax.
COURT NO. 94-01-00023 PAGE 2
FACTS
Plaintiff, Citgo Petroleum Corporation, is a domestic
corporation that imports jet turbine fuel for sale to foreign
and domestic airlines engaged in international traffic from,
to and through airports in the United States. Pl.’s Statement
of Undisputed Material Facts ¶ 1 (hereinafter “Pl.’s
Statement”). Plaintiff imported jet turbine fuel into Port
Everglades, Florida. Id. at ¶ 3. During the course of 1991,
plaintiff discharged five cargoes of jet turbine fuel into a
United States Customs Service bonded storage tank at that
port. Id. at ¶¶ 2-3. At the time of unloading, plaintiff
filed warehouse entries and paid the HMT upon those cargoes.
Id. at ¶ 3.
Plaintiff subsequently withdrew the fuel and transported
it to receiving aircraft. Pl.’s Statement ¶¶ 4 & 6. When
technical requirements for duty-free treatment were met,
plaintiff claimed entitlement to duty-free and tax-free
treatment pursuant to 19 U.S.C. § 1309 (1994) for fuel for
some receiving aircraft.1 Id. at ¶ 6. For aircraft that
1 There appears to be no dispute as to the entitlement to
§ 1309 exemptions for the entries at issue. The only issue
presented to the court is whether the HMT is within the
exemption.
COURT NO. 94-01-00023 PAGE 3
Customs determined were not entitled to such exemption,
plaintiff tendered duties and taxes to Customs. Id. at ¶ 9.
Customs subsequently liquidated the entries. Pl.’s
Statement ¶ 11. After liquidation, plaintiff protested and
requested refunds of the HMT, alleging that the fuel was
exempt from the HMT pursuant to 19 U.S.C. § 1309. Pl.’s Mot.
for Summ. J., Tab A, at 1. Customs denied the protest. Id.
Plaintiff brings this action challenging the denial of its
protest. Jurisdiction lies under 28 U.S.C. § 1581(a) (1994).
Amoco Oil Co. v. United States, 63 F. Supp.2d 1332, 1334 (Ct.
Int’l Trade 1999); Thomson Consumer Elecs., Inc. v. United
States, 62 F. Supp.2d 1182, 1184 (Ct. Int’l Trade 1999).
The issue before the court is whether the HMT paid by a
domestic corporation upon cargoes of jet fuel imported into
bonded warehouses and later withdrawn as supplies for aircraft
engaged in foreign trade are “internal revenue taxes” within
the meaning of 19 U.S.C. § 1309(a). Section 1309 provides
that supplies for “aircraft registered in the United States
and actually engaged in foreign trade” may “be withdrawn . . .
from any customs bonded warehouse . . . free of duty and
internal-revenue tax.” 19 U.S.C. § 1309(a)(1)(C).
COURT NO. 94-01-00023 PAGE 4
DISCUSSION
First, it is clear that the HMT is a tax. Because the
HMT is a tax, it was declared unconstitutional as to exports.
United States v. U.S. Shoe Corp., 523 U.S. 360, 362-63 (1998).
The HMT is set forth in the Internal Revenue Code. Id. at
367. The court also found the HMT to be an internal revenue
tax in U.S. Shoe Corp. v. United States, 20 CIT 206, 208
(1996). The court incorporated the U.S. Shoe opinion in IBM
Corp. v. United States, No. 94-10-00625, 1998 WL 325156 (Ct.
Int’l Trade June 17, 1998), rev’d on other grounds, 201 F.3d
1367 (Fed. Cir. 2000). In IBM, the appellate court accepted,
at least for the purpose of argument, that the tax was an
internal revenue tax. IBM, 201 F.3d at 1371. It stated a bit
more, however.
Because Congress codified the HMT as part of Title
26 of the United States Code, entitled “Internal
Revenue Code,” we may reasonably conclude that
Congress considered the HMT to be an internal
revenue tax. Furthermore, while it may be true that
the constitutionality of the HMT was challenged
because the HMT taxed goods exported out of the
United States, the HMT is clearly derived from
internal sources - the U.S. exporter - rather than
external sources - the foreign recipient; HMT
revenues were collected in the United States from
domestic companies based on their use of ports and
harbors in this country. Thus both the structure
and the content of the HMT point toward it being an
internal revenue tax, and thus entitled on refund to
the interest award provided under § 2411.
COURT NO. 94-01-00023 PAGE 5
IBM, 201 F.3d at 1371-72. This is also consistent with the
court’s decision in BMW Mfg. Corp. v. United States, in which
the court found that the HMT was not a customs duty. 69 F.
Supp.2d 1355, 1358 (Ct. of Int’l Trade 1999). BMW also
recognized that the HMT is a generalized charge for port use.
Id.; see also Texport Oil Co. v. United States, 185 F.3d 1291,
1297 (Fed. Cir. 1999) (“The HMT is a generalized Federal
charge for the use of certain harbors.”) There is nothing
inconsistent, however, between the general purpose of the
charge and its status as an internal revenue tax. As the
court recognized in BMW, Congress wanted the HMT charge
applied as widely as possible. BMW, 69 F. Supp.2d at 1358-59.
Against this background, the court addresses whether
Congress created an exemption to the HMT tax applicable in
this case in order to serve some other purpose. Congress has
provided some exemptions in the HMT act itself for various
reasons, including commercial competitiveness. See, e.g. 26
U.S.C. § 4462(d)(1) (1994) (relating to bonded commercial
cargo); see also BMW, 69 F. Supp.2d 1359 n.5. Plaintiff
claims no exemption in the HMT statute itself. Plaintiff
argues, however, that on its face 19 U.S.C. § 1309, which is
not in the Act establishing the HMT, would appear to provide
an applicable exemption. The court in BMW recognized that
COURT NO. 94-01-00023 PAGE 6
other general exemptions found outside the HMT might apply.
BMW, 69 F. Supp.2d at 1358.
Both parties agree that the key term “internal revenue
tax” found in § 1309 does not have an invariable meaning and
that statutory purpose is the key. United States v. Leeb, 20
F.2d 355, 356 (2d Cir. 1927). As indicated, the purpose of
the HMT is clear: to maintain harbors by charging for nearly
every port use. 26 U.S.C. § 4461 (1994). Section 1309 has an
equally evident purpose of promoting equal footing between
U.S. vessels and aircraft with foreign vessels and aircraft.
S. Rep. No. 86-1491 (1960), reprinted in 1960 U.S.C.C.A.N.
2780, 2785 (quoting with approval from the Bureau of the
Budget report that “the original and main purpose for the
exemption from duty and taxes of ships’ supplies was to place
U.S. vessels engaged in foreign trade on an equal footing with
foreign vessels. Such exemption extends back to the 19th
century tariff acts and was eventually extended to aircraft.”)
Section 1309's long history will be recounted in brief.
Section 22 of the Act of July 14, 1862, granted the
privilege of duty free withdrawal of articles from bonded
warehouses to be used as vessels-of-war supplies, if the
United States was granted reciprocal privileges. Act of July
14, 1862, § 22, 12 Stat. 543, 560. Section 16 of the Act of
COURT NO. 94-01-00023 PAGE 7
June 26, 1884, extended the privilege to any vessel engaged in
foreign trade. Act of June 26, 1884, § 16, 1 Rev. Stat. Supp.
440, 443. Section 16 of the Tariff Act of 1897 extended the
privilege further to duties and internal revenue taxes on
vessel supplies of either foreign or domestic production.
Tariff Act of 1897, § 16, 30 Stat. 151, 207 (July 24, 1897).
Now, of course, the privilege applies to aircraft as well as
vessels. See 19 U.S.C. § 1309. The privilege is also
reflected in international agreements to which the United
States is a party, as befits the reciprocal privilege history
of the provision.
Article 24(a) of the Convention on International Civil
Aviation (the “Chicago Convention”), exempted fuel and other
supplies aboard aircraft in international flight status from
taxation. Convention on International Civil Aviation, opened
for signature Dec. 7, 1944, art. 24(a), 61 Stat. 1180, 1186,
15 U.N.T.S. 295, 310 (entered into force Apr. 4, 1947). The
International Civil Aviation Organization (“ICAO”),
established by the Convention, extended the exemption to fuel
and other consumable technical supplies taken abroad.
Policies on Taxation in the Field of International Air
COURT NO. 94-01-00023 PAGE 8
Transport, Section I(1), ICAO Doc. 8632 (3d ed. 2000)
[hereinafter “Policies on Taxation”].2
Defendant argues that the international agreements do not
apply or inform the interpretation of 19 U.S.C. § 1309 because
the payor of the tax is a domestic corporation. That does not
appear to be a limitation within the agreements.3 The focus
of the agreements, as with § 1309, seems to be reciprocal
benefits for aircraft in international flight. The ultimate
purchaser, no doubt, would have higher fuel prices passed on
to it.
Also, the government argues that, because pursuant to 26
U.S.C. § 4461(c)(2)(B) liability for the HMT attaches at the
time of unloading of the imported fuel, the exemption found in
the international agreements does not apply. The ICAO
policies at issue, however, clearly specify refunds of duties
or taxes previously paid. See Policies on Taxation, Section
2 This principle has remained consistent since 1966, when
the ICAO first adopted this policy. See Policies on Taxation
in the Field of International Air Transport, Section I, ICAO
Doc. 8632-C/968 (2d ed. 1994 and 1st ed. 1966).
3 This argument seems somewhat nonsensical. Taxes are
usually paid by domestic parties and customs duties by United
States’ importers.
COURT NO. 94-01-00023 PAGE 9
I(1).4
4 Section I of the applicable policy reads in relevant
part:
The Council resolves that:
1. With respect to taxes on fuel, lubricants or other
consumable technical supplies:
a) when an aircraft registered in one Contracting
State, or leased or chartered by an operator of
that State, is engaged in international air
transport to, from or through a customs
territory of another Contracting State its fuel,
lubricants and other consumable technical
supplies shall be exempt from customs or other
duties on a reciprocal basis, or alternatively,
in the cases of fuel, lubricants and other
consumable technical supplies taken on board as
per subparagraphs ii) or iii) such duties shall
be refunded, when:
* * *
ii) the fuel, etc., is taken on board for
consumption during the flight when the aircraft
departs from an international airport of that
other State either for another customs territory
of that State or for the territory of any other
State, provided that the aircraft has complied,
before its departure from the customs territory
concerned, with all customs and other clearance
regulations in force in that territory;
* * *
b) the foregoing exemption being based upon
reciprocity, no Contracting State complying with
this Resolution is obliged to grant to aircraft
registered in another Contracting State or aircraft
leased or chartered by an operator of that State any
treatment more favourable than its own aircraft are
(continued...)
COURT NO. 94-01-00023 PAGE 10
The resolution at issue specifically covers “import, export,
excise, sales, consumption, and internal duties and taxes of
all kinds levied upon the fuel, lubricants and other
consumable technical supplies.” Id. at Section
I(1)(d)(emphasis added). There appears to be no limit to the
exemption based on whether it is the airline or the supplier
that must pay the tax or when it attaches.
4(...continued)
entitled to receive in the territory of that other
State;
c) notwithstanding the underlying principle of
reciprocity, Contracting States are encouraged to
apply the exemption, to the maximum extent possible,
to all aircraft on their arrival from and departure
for other States;
d) the expression “customs and other duties” shall
include import, export, excise, sales, consumption
and internal duties and taxes of all kinds levied
upon the fuel, lubricants and other consumable
technical supplies; and
e) the duties and taxes described in d) above shall
include those levied by any taxing authority within
a Contracting State, whether national or local.
These duties and taxes shall not be or continue to
be imposed on the acquisition of fuel, lubricants or
consumable technical supplies used by aircraft in
connection with the international air services
except to the extent that they are based on the
actual costs of providing airports or air navigation
facilities and services and used to finance the
costs of providing them[.] [Emphases added.]
Policies on Taxation, Section I(1), ICAO Doc. 8632.
COURT NO. 94-01-00023 PAGE 11
Moreover, 19 U.S.C. § 1309 is not limited by the drawback
statute at issue in Texport, 185 F.3d at 1296-97. 19 U.S.C.
§ 1313 (1994) which was at issue there, only allowed drawback
of duties paid upon importation. There is nothing in either
the HMT statute or 19 U.S.C. § 1309 which indicates an
intention to narrow § 1309 so that it would only allow refund
of duties or taxes paid on importation. Nor is there any sign
that Congress wished to disregard specific international
commitments on aircraft fuel supplies. Rather, it seems that
19 U.S.C. § 1309 is broadly worded to be consistent with the
international agreements discussed herein.5 The court would
be remiss in adopting a narrow reading. Both the plain words
of § 1309 and its purpose indicate a refund of the taxes paid
should be made.
5 See supra note 3.
COURT NO. 94-01-00023 PAGE 12
Accordingly, in each instance at issue herein in which
plaintiff qualified for the 19 U.S.C. § 1309 exemption, a
refund of the HMT shall be made.
_______________________
Jane A. Restani
JUDGE
Dated: New York, New York
This 18th day of May, 2000.