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 circumstance 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 dockside 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 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 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 hereinafter 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 received 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% delivered 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 retail 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 coincidence 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 appellant, a corporation engaged in business as importer, 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 manufacture 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 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 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, 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 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 

APPROVED FOR THE ATTORNEY GENERAL 

BY: I-I. Grady Chandler 

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