Rev. Rul. 59-253

The Internal Revenue Service has previously approved a procedure and a type of evidence which were considered acceptable to establish a retailer's right to exemption from the retailers excise tax, with respect to sales of taxable articles, where such articles are sold for export in this country and are carried by the purchasers when they depart via a common carrier from the United States for thier foreign destination.

Under the procedure, a person who purchased an article subject to the retailers excise tax for export and wished to take the article with him when he departed via a common carrier from the United States for his foreign destination, was permitted to take such an article in a wax-sealed package. This sealed package was to be shown to a responsible employee of the common carrier by the purchaser at the time he boarded the foreign-bound aircraft or vessel and would be opened outside the territorial limits of the United States in the presence of the employee.

The proof of exportation was a so-called `Certificate of Exportation' which was to be signed and returned to the retailer within a reasonable time after the delivery of the articles to the purchaser. It was required that the certificate bear the signatures of the person who purchased the article and of a responsible employee of the common carrier. The certificate contained a statement that while proceeding from the United States for a foreign destination the passenger named thereon showed the employee of the common carrier a wax-sealed package which the passenger had carried aboard and that outside the territorial limits of the United States the passenger broke the wax seal and opened the package in the employee's presence. It was further stated in this certificate that upon examination of the contents of the package by the employee they appeared to be those described in the accompanying sales slip, and that they had not been used and would not be used within the United States.

Under the provisions of section 4056 of the Internal Revenue Code of 1954, the retailers excise tax does not apply to the sale of any article for export and which is in due course so exported. Section 320.21 of Regulations 51, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, provides that (a) to exempt from tax a sale for export it is necessary that two conditions be met, namely, (1) that the article be identified as having been sold for export and (2) that it be exported in due course; and (b) in order to establish exemption from tax in the case of the sale of a taxable article for export it is necessary that the retailer maintain adequate records and have in his possession documentary evidence showing that the article was so sold.

S.T. 936, C.B. 1949-1, 260, provides that where taxable articles are sold to an alien going abroad and are delivered directly by the retailer to the purser or other responsible official of a foreign-bound vessel, or to an official of a foreign-bound aircraft for delivery outside the United States to the purchaser whose destination is a foreign port, a certificate subsequently furnished to the retailer by the purser or other responsible official of the carrier, showing that the articles were delivered to the purchaser only after the carrier was outside the territorial limits of the United States, will be considered as satisfactory proof of exportation of the articles prior to use.

S.T. 939, C.B. 1951-2, 216, relates to the exemptions from the manufacturers and retailers excise taxes with respect to exportations where the sales of articles are made to United States citizens, including members of the United States Foreign Service and members of the Armed Forces of the United States, traveling to or located in a foreign country or a possession of the United States. S.T. 939 holds in part that where an article is sold for export to a purchaser who is traveling to a foreign country or a possession of the United States, exportation may be accomplished by delivery of the article to such person on board a vessel or aircraft outside the territorial limits of the United States. In such case, the proof of exportation may be evidenced by a statement signed by the purser or responsible official of the foreign bound vessel or aircraft, that the article had been received from the manufacturer (or retailer) for ultimate delivery to the purchaser only after the carrier would be outside the territorial limits of the United States and that delivery of the article to be purchaser had been so made.

It will be noted that the `Certificate of Exportation' procedure described above in paragraphs 2 and 3 differs from the exportation procedure prescribed in S.T. 936 and S.T. 939 in that it would permit the delivery of the articles by the retailer directly to the purchaser. The applicability of the exemption to the sale depends upon the return of the certified statement to the retailer. Where the articles are delivered directly to the purchaser, rather than to an official of the carrier, there is an increased risk that the articles will not be exported in due course or that the certificate will not be returned to the retailer. In such event, the retailer would incur liability for the tax upon the sale, usually without an opportunity to increase his sale price by an amount equal to the tax.

Accordingly, upon further consideration and in accordance with S.T. 936 and S.T. 939, it is held that where a taxable article is sold for export and the purchaser wishes to take it abroad with him, delivery may not be made direct to the purchaser. The retailer selling the article is required to deliver it to the purser or other responsible official of the foreign-bound aircraft or vessel. The proof of exportation required is a statement signed by the purser or other responsible official of the foreign-bound aircraft or vessel that the article has been received from the retailer for ultimate delivery to the purchaser only after the aircraft or vessel is outside the territorial limits of the United States and that delivery of the article has been so made.

Therefore, the `Certificate of Exportation' procedure outlined above does not provide an acceptable procedure for establishing the right to exemption from the retailers excise tax. In view of the fact that approval has been given to the use of the `Certificate of Exportation' procedure and under the authority of section 7805(b) of the Code, the use of such a procedure with respect to sales made prior to October 1, 1959, will be accepted as establishing the right to the exemption. However, the exportation procedure prescribed by S.T. 936 or S.T. 939, whichever is applicable, must be followed in order to establish the right to exemption with respect to sales made on and after October 1, 1959.