Honorable Robert S. Calvert Opinion No. C-192

Comptroller of Public Accounts Capitol Station RE: Whether Chapters 7and 8, Title Austin, Texas 122A, Taxation General, permit sales of unstamped cigarettes anduntaxed cigars and tobacco products under the stated circumstance 9. Dear Mr. Calvert :

Youhave requested our opinion concerning the above referenced matter, andwecopy your letter as follows:

‘In administering Chapters 7and 8, Title 122A, Taxation-General, the statutes levying atax on the sale of cigarettes, cigar andtobacco products, the office of the Comptroller of Public Accounts of the State of Texas understood the lawpermitted 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 dockside in ports of call In Texas. These ships and barges are engaged in Interstate commerce via the Intercoastal Canal andthe Inland Waterways of the United States. The cigarettes, cigars andtobacco products are for consumption bymembers of such ships ’ crews outside the geographical boundaries of Texas

. Attached hereto, wefile with you a copy of Ruling No. 1

### onthis subject, which rule was issued applying to cigarettes November 14, 1961, andamended 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 anduntaxed cigars andtobacco products

. Aquestion was recently raised as to whether the lawpermitted sales of unstamped cigarettes anduntaxed cigars andtobacco products under the circumstances set out above. Therefore, as Comptroller 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 onthe “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 andnoauthority permitting the sale of unstamped cigarettes to ships andbarges or their crews when such ships are at dockside In ports of call in Texas, for use bythe crews whenthey are outside of Texas, although they are engaged in interstate commerce, unless the sale or transaction can be said to be an act involving Interstate commerce.

Weare of the opinion, under the authority of the cases hereinafter cited, that, these sales donot Involve interstate commerce, and are, therefore, not exempt from the cigarette tax, andthe 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 NewOrleans, a large number of catalogues. Leonard Krower and Son, ,Inc., Is a Louisiana Corporation having its domicile In NewOrleans. The corporation received delivery of the catalogues and distributed themgratuitously to other persons, 20%in Louisiana and 80%to persons outside the State of Louisiana. Thedefendant paid the sales tax onthe 20%delivered In Louisiana but refused to pay onthe 80%delivered out of State, claiming they were manufactured bythe defendant for “immediate export ”and “In contemplation of anddependent upon amovement of goods in Interstate commerce. ”

The Court said “the tax Is an assessment upon the amount of retail sales, or, f,nother words, upon the transaction itself and not the property. ”

. . . once the catalogues were delivered, Searcy and Pfaff, Ltd., waswithout interest or concern as to what Leonard Krower and Son, Inc. , would dowith them. Thetransaction was then completed andthe amount of the sale became subject to the tax, and the coincidence that the purchaser subsequently sawfit to send someof 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 Swanand Finch Companyv. United States, 190 U.S. 143 (1903), it is stated:

“During the years 1895, 1896, 1897, the appellant, acorporation engaged in business as importer, manufacturer andexporter of oils at New York City andelsewhere in the United States, having used In the manufacture of certain kinds of lubricating oils Imported rape seed oil on which duties hadbeen paid, placed on board of vessels bound for foreign ports, lubricating oils somanufactured, and claimed adrawback of the

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Honorable Robert S. Calvert, Page-3 (Opinion No. C-192 )

duties paid onthe imported rape seed oil used therein. The~Treasury Department allowed and paid the drawback on such manufactured oils as were shipped to foreign countries andthere landed, but refused to pay any on such as were placed on board for use and consumed in use on the vessels. Theappellant brought this suit in the Court of Claims to recover the drawbacks onthe last named oils.

. . .11 The Federal statutes at that time provided that where imported materials, onwhich the duties had been paid, were used In the manufacture of articles manufactured or produced In the United States, andthen exported, there should be allowed on the exportation of such articles adrawback equal in amount to the duties paid onthe materials used, less one per centum of such duties. Part of the lubricating oils placed on board the ship were used and consumed bythe ,ship during 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 onboard avessel bound for a foreign port, to be used and consumed on board the vessel during its voyage , and in fact soused 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 dobusiness ii Utah, manufactures cast Iron pipe in Provo, Utah, and sells the products throughout the Western States, Prices set byrespondent are for the goods delivered at a specific job site, and interstate delivery is usually madeby commoncarrier or In respondent Is ownequipment. In this case, however, the material we$manufactured to meet specifications of specific out-of-state jobs. The contract called for out-of -state shipment, and respondent set adestination price which Included the going commoncarrier freight charges between the twopoints involved. But delivery was madeandtitle passed to the purchaser at respondentts foundry in Provo. Thepurchaser then transported the pipe with its ownequipment to the predetermined out-of-state destination. The commoncarrier tariff was credited to the purchaser.

. . .”

The United States Supreme Court held that a State maylevy and collect a sales tax, since the passage of title and delivery to the purchaser took place within the State.

Inthe question before us, the cigarettes are delivered, paid for and title passes at the point of delivery at dockside, andthere
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is no question of interstate commerce Involved. Therefore, In our
. opinion the sale of unstamped cigarettes to the ships andbarges or their crew is contrary to the provisions of Chapter 

### 7, Title 122A, andtherefore, Illegal.

Chapter 

### 8of Title 122A, Taxation General, V.C.S., provides for atax onthe "first sale" In this State, of cigars and tobacco products. This Chapter is patterned after and is very similar to Chapter 

### 7herein above discussed.

Weare of the opinion that the sale of untaxed cigars and tobacco products to ships and barges for use of the crew whenoutside the territory of the State of Texas Is Illegal, for the samereasons as set forth above as to the sale of cigarettes.

SUMMARY The sale of cigarettes, cigars and tobacco products to ships andbarges 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 andtobacco products are to be consumed by the crew outside the boundaries of Texas, are taxable sales under the provisions of Chapters 

### 7and 

### 8, Title '122A, Taxation-General, Vernon's Civil Statutes. Very truly yours, WAGGONER

CARR Attorney General



### JHB/da **APPRoV~~D:** OPINIONCOMMITTEE W.V. Geppert, Chairman Marietta McGregor Payne Joe Trimble J. S. Bracewell Paul Phy APPROVED

FORTHEATTORNEY GENERAL BY: I-I.Grady Chandler
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