Friday, August 26, 2005

Customs Makes the Brown Bomber Proud

I don't really do sports metaphors, but this one seems to make sense. There is an ongoing prize fight in the usually sleepy area of duty-free stores that is worth mentioning if only because it highlights the fact that Customs (or the Justice Department) can sometimes get obsessed with an issue that does not seem to fit into the big picture.

In this corner is Ammex, Inc., which operates a duty-free store and gas station at the Ambassador Bridge between Detroit and Windsor. Not far from the Joe Louis Arena. Because of the way the roads work, there is no way for a car to enter from the U.S. side and return to the U.S. without passing through Canada (if only for a moment). So, everything purchased from the the store is destined for exportation. It just is. Here is a map that kind of proves it.

In the other corner is Customs, which, in 1994, denied Ammex's request to be permitted to sell motor fuel at its duty-free store. Customs said because fuel is a fungible item, there is no way prevent it from being reimported and avoiding duties.

In Round 1, the Court of International Trade held for Ammex that there was no basis to deny the request. Customs grudgingly granted the request.

Customs, in what can only be described as a below the belt shot, then asked the IRS what it thought about all this. The IRS responded with a general statement of useful information that the fuel sales were taxable. Based on that, Customs revoked the permit to sell duty-free fuel.

Ding, Round 2. Ammex sought to have Customs held in contempt for taking the permit away after the CIT ordered that Customs allow the sales. The CIT and Federal Circuit both denied the request.

Ding, Round 3. Ammex went back to the CIT and asked, "How come Customs can revoke the permit without even checking whether the IRS had actually collected any taxes?" Or something to that effect. The CIT said that was a mistake and held for Ammex. Customs appealed.

Ding, Round 4. The Federal Circuit said that there are two laws involved. The first says that a tax is "imposed" on "the entry into the United States of any taxable fuel for consumption, use or warehousing." For those who care, that is 26 U.S.C. § 4081(a)(1)(A)(iii). The second is the law that says merchandise on which a federal tax has been "assessed" cannot be treated as duty-free. Customs figured that first law made the fuel ineligible for duty-free sale.

Well, it turns out that the Federal Circuit sees a difference between a tax that is imposed and one that is assessed. Assessment is defined as the recording of the liability. It also means the "fixing of an amount of liability." A tax is "imposed" on the other hand, whenever there is a liability. It is the creation, not the calculation of a liability.

Nothing in the record of this case shows that the IRS ever assessed the tax.

Round 4, goes to Ammex. Here is the opinion.

For whatever reason, Customs seems bound and determined to prevent these guys from selling motor fuel that might be used by motorists making a U-turn in Canada. They have a point. But, the bigger point is that they need to do this right.

So, guess what is going to happen in Round 5. You don't have to be Gary Kasparov or Madame Blavatsky to see it coming. Pretty soon, Ammex will get a letter from the IRS assessing the tax. At that point, it might be a TKO.

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