Citgo Petroleum Corp. v. United States

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withdrawn from a bonded warehouse for use in international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.