Texas Court Says 'Importer' Involved in Physical Movement of Goods for IRS Excise Tax Purposes
An "importer" for the purposes of assessing excise taxes must be involved in physically bringing goods into the U.S., the U.S. District Court for the Southern District of Texas ruled. Opining on whether tire wholesaler Texas Truck Parts & Tire was properly assessed excise tax on taxable tires, Judge Charles Eskridge said that since the company didn't arrange any of the transport of the tires from China nor secure their release from a customs-bonded warehouse, it is not an importer.
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Instead, the Chinese manufacturer is the importer in this case, given that it engaged in the act of actually entering the goods into the U.S., the judge held. In assessing how to define the term "importer," Eskridge looked to dictionary definitions of the terms "importer" and "bring" and noted that "under both, "the physicality of the action being described naturally pairs to an identifiable entity undertaking that activity, along with a possessory connotation accorded the one undertaking the transport activity."
The dispute arose after Texas Truck took to the court to recover excise taxes it paid on wheel imports from China. The IRS imposes this tax on tires sold by the "manufacturer, producer, or importer thereof" at a rate of 9.45 cents for each 10 pounds. Given that Texas Truck is neither a manufacturer nor producer, the key to the case hinged on the definition of "importer." Though there is no congressional nor IRS regulatory definition, the Treasury Department defined the term as "any person who brings such an article into the United States from a source outside the United States, or who withdraws such an article from a customs bonded warehouse for sale or use in the United States."
The U.S. said Texas Truck is an importer, while the company said it isn't, given that it didn't bring the tires into the U.S. or withdraw them from a customs-bonded warehouse. The court sided with the wholesaler. Eskridge initially pointed out that two evidentiary factors favored Texas Truck: the fact that it wasn't listed as the importer of record on CBP forms and the annual import spreadsheet maintained by Treasury showing the importer to be the Chinese manufacturers.
While one agency's interpretation of a statute or regulation doesn't bind another, it is "informative," Eskridge said. However, the government didn't cite or explain any "similar distance between IRS and CBP purview in this regard," the judge noted, writing that "[m]uch is left wanting, then, where the Government specifies no reason why the IRS would reject the designation of 'Importer of Record' on CBP Forms 7501 even as it otherwise entirely relied upon those forms to impose the subject excise taxes."
The judge then turned to a discussion of the ordinary meaning of the term "importer." Looking at the dictionary definition of "importer," the judge noted that an importer can be read to be one whose business engages in the "'act or practice of bringing in' goods from abroad." While "bring" carries different connotations, the most relevant one means moving a tangible item from one place to another. Read together, both terms imply moving a physical object into the U.S. As a result, the Chinese manufacturers and not Texas Truck are the importers here, the judge said.