Rev. Rul. 67-209

Advice has been requested as to which party, in the circumstances described below, is the `importer' and therefore liable for the manufacturers excise tax imposed under chapter 32 of the Internal Revenue Code of 1954.

X , a foreign corporation, organized a wholly owned subsidiary in the United States, Y , to market in this country certain articles manufactured by X . The articles in question are subject to the manufacturers excise tax imposed under chapter 32 of the Code when sold by the importer. Because of the procedural considerations involved in clearing the articles through customs, X arranged with Z to have this done. Z is an unrelated. United States company which has had many years of business experience with X in importing and selling other nontaxable articles manufactured by X . Under this arrangement Z is required to deliver all of the articles to Y , who has the sole right to merchandise the articles in the United States.

A typical transaction under the above arrangement begins when Y submits an order to Z who sends the order to X for confirmation and acceptance. When X fills the order, the bill of lading shows Z's customhouse broker to be the consignee of the articles. When the articles arrive they are cleared through customs by Z's broker and shipped by the broker directly to Y. Z is billed for the broker's service fees and expenses and Z , in turn, bills Y for the total landed cost of the articles, plus two percent. Payment to X is made by Z only after Z receives its invoice price from Y .

Revenue Ruling 56-409, C.B. 1956-2, 796, holds that the person who withdraws taxable articles from a customs bonded warehouse for sale or use in the United States is the `importer' for purposes of the manufacturers excise taxes. However, in determining who is an importer for purposes of the manufacturers excise taxes, consideration must be given to the substance of the transaction. See Revenue Ruling 61-179, C.B. 1961-2, 183, which holds under stated facts that one company is the importer of taxable articles for the purpose of the manufacturers excise tax although under the agreement involved there the articles were shipped to another company by the foreign supplier.

In the case of Handley Motor Company, Inc. v. United States , 338 F.2d 361 (1964), the U.S. Court of Claims held that the plaintiff was the importer of foreign automobiles and stated in part as follows:

A determination of who is the `importer' does not in the first instance turn on the law of sales. We think the `importer' is the first purchaser resident in the United States who arranges (as principal and not as an agent) for the goods to be brought into the United States, Rev. Rul. 60-106, 60-1 C.B. 490; cf. Rev. Rul. 56-409, 56-2 C.B. 796. The `importer' may in fact take title in the United States from the foreign seller, cf. Hooven & Allison Co. v. Evatt , 324 U.S. 652, 662-663 (1945); Blumenthal Print Works v. United States , 51 F.Supp. 208, 212 (E.D. La. 1943).

In a subsequent decision, Import Wholesalers Corporation v. United States , 368 F.2d 577 (1966), the Court of Claims stated that `However, the essence of the Handley ruling seems to be that the determination of who is the `importer' under the pertinent statute does not turn on technical rules such as the law of sales, but rather on the realities as to who arranges as principal and not as agent for the articles to be imported into the United States.'

The fact that the transaction in the instant case takes the form of a purported `sale' by X to Z and a purported `resale' by Z to Y is not necessarily determinative of the question of who is the `importer' for purposes of the manufacturers excise tax. As previously mentioned, it is necessary to look through the form to the substance of the transaction to determine whether the nominal importer actually functions as a typical import merchant, or merely serves in a representative capacity, charged only with the responsibility for bringing the goods into the commerce of the United States, after a sale contract has been negotiated independently by the principals involved.

In the instant case, Z does not assume any of the risks of a typical merchant importer. Z serves merely as a conduit through which orders are transmitted to X and through which merchandise, when received, is transferred to Y. The 2 percent added on to the landed cost of the merchandise is compensation commensurate with the nature of the service rendered by Z , that is, handling the importation of the goods into the United States and delivering the goods to Y , rather than a reasonable return on Z's capitals investment.

Under the circumstances previously described, it is held that Y , and not Z , is the importer of the taxable articles for purposes of the manufacturers excise tax. Accordingly, Y is liable for reporting and paying the tax imposed under chapter 32 of the Code on its sale or use of the taxable articles.

Revenue Ruling 56-409, C.B. 1956-2, 796, is hereby amplified.