District of Columbia, Petitioner, v. International Distributing Corporation, a Corporation, Respondent, 331 F.2d 817 (D.C. Cir. 1964)

The question before us in this case is whether a wholesaler of imported alcoholic beverages is liable for District of Columbia excise taxes, under D.C.Code § 25-124(a), on the sale of such beverages to foreign embassies and international organizations. The District of Columbia Tax Court held that there was no tax liability with respect to such sales. The District of Columbia petitions for review.

International Distributing Corporation ("the corporation") is engaged in the District of Columbia in the wholesale distribution of alcoholic beverages pursuant to license and permit issued respectively by the Alcoholic Beverage Control Board of the District of Columbia and by the United States Government. The corporation has on its premises a private bonded warehouse for storage of imported alcoholic beverages, to which it does not have independent access. A Deputy Collector of Customs is "in charge of" the warehouse¹  and has the only key; he opens the warehouse to place therein for storage alcoholic beverages from abroad purchased by the corporation and to withdraw therefrom such beverages as have been sold by the corporation. Neither the Federal law nor the District of Columbia Alcoholic Beverage Control Act imposes any tax on the beverages until they are to be withdrawn from the warehouse.

All the beverages involved in this case were stored in the bonded warehouse under the charge of a customs official as above stated, and all were sold by the corporation to "diplomatic purchasers." We use this term, for present purposes, as including foreign embassies and official members of their staffs, members of the armed forces of foreign nations on duty in the United States, and personnel of international organizations. Prior to withdrawal from the warehouse, the diplomatic purchaser had applied to the United States State Department for leave to withdraw, and pursuant to that Department's request, had been furnished by the Secretary of the Treasury with an official document, permitting the diplomatic purchaser as the "withdrawer" to withdraw from the warehouse for consumption "free of all duty and tax" a specified quantity of a named beverage. The corporation, owner of the warehouse, also had signed the document, authorizing (as the "importer") the withdrawal. Upon presentation of this document or permit to the customs official, that official opened the warehouse and permitted removal of the quantity of beverages specified in the withdrawal permit given to the diplomatic purchaser. The corporation billed the latter for the price of the beverages so withdrawn. This price did not include or reflect the amount of the tax the District now seeks to collect. If the District is held entitled to collect the tax, all agree that the price charged in the future to the diplomatic purchaser will be increased so as to include or reflect its amount.

As indicated, no Federal tax or duty was imposed when the beverages were withdrawn from the warehouse in such a transaction. The District of Columbia however later assessed against the corporation under Section 25-124(a) of the District of Columbia Code an alcoholic beverage tax on the beverages withdrawn in this manner during the months of December 1961 and February 1962.² 

Section 25-124(a), set out in the footnote,³  provides for the levy, collection and payment of a tax on all of certain named alcoholic beverages "imported or brought into the District by a holder of a wholesaler's license." The Tax Court held that although the beverages involved here were imported into the United States by the corporation, they were not subject to the jurisdiction of the District until they were removed from the customs bonded warehouse; and since by that time they had been sold by the corporation, they were not "imported and brought into the District" by it. It concluded that the corporation was not liable for the tax. Its reasoning was as follows:

"The idea of bonded warehouses and their use by the United States custom authorities negatives the proposition that at the time of sale the alcoholic beverages were in the possession of the petitioner [the corporation]. True it is that the private bonded warehouse was physically in the District of Columbia; and the liquors were stored therein; and in that sense they were in the District. In law, however, they were still without that jurisdiction, and did not become subject thereto until they had been withdrawn from the private bonded warehouse and removed from the control of the customs official. In the opinion of the Court the alcoholic beverages sold to the embassies and legations were brought into the District of Columbia by the purchasing embassies and legations."

We think the decision of the Tax Court is in clear accord with the congressional intention.

Reciprocity or comity in allowing diplomatic personnel to import goods duty-free and tax-free for their own use has long been traditional in international law and relations,⁴  and has been recognized by Congress.⁵  This tradition must be considered by us in determining the intention of Congress in enacting the statutes here involved.

Section 25-124(d) of the D.C.Code, as amended (Supp. I, 1962),⁶  provides:

"No tax [i. e., the tax imposed by Section 25-124(a)] shall be levied and collected on any alcohol exempt from tax under the laws of the United States, or on any alcohol sold for nonbeverage purposes by the holder of a manufacturer's or wholesaler's license, in accordance with the regulations promulgated by the Commissioners."

The District does not appear seriously to contend that the alcoholic beverages involved here were not, at the time of their importation and sale to embassies and international organizations, "exempt from tax under the laws of the United States."⁷  The District argues principally that the word "alcohol" in Section 25-124(d) should be limited to the definition given to that word by Section 25-103(a), and hence that the exemption from District tax does not apply to the alcoholic beverages involved in this case.⁸  The pertinent parts of Section 25-103 are:

"In the interpretation of this chapter, unless the context indicates a different meaning:

"(a) The word `alcohol' means ethyl alcohol, hydrated oxide of ethyl, or spirit of wine, from whatever source or by whatever processes produced.

"(b) The word `spirits' means any beverage which contains alcohol obtained by distillation mixed with drinkable water and other substances in solution, including brandy, rum, whisky, cordials, and gin.

"(c) The word `wine' means the product of the normal alcoholic fermentation of the juice of fresh, sound, ripe grapes, with the usual cellar treatment and necessary additions to correct defects due to climatic, saccharine and seasonal conditions, including champagne, sparkling, artificially carbonated and fortified wine. * * *

"(d) The word `beer' means * *

"(e) The words `alcoholic beverage' or `beverage' include the four varieties of liquor above defined (alcohol, spirits, wine, and beer) and every liquid or solid, patented or not, containing alcohol, spirits, wine, or beer and capable of being consumed by a human being. * * *"

We think that the context and setting of Section 25-124(d) may well require that the term "alcohol," as used therein, generally be given a broader meaning than that contained in the definition in Section 25-103(a). However, we need not in this case pass on whether that would be so generally.⁹  At least where diplomatic purchasers are involved, we must interpret Section 25-124(d) as protecting them from the tax which the District of Columbia here seeks to impose, and equally protecting from that tax the wholesaler who in selling to them follows the established procedures and law in adding his authorization to that already given by the Departments of State and Treasury for the withdrawal of such beverages from his bonded warehouse free of tax and duty.

We are reinforced in this conclusion by the provision in Section 25-137 of the District Code¹⁰  which exempts "embassies or diplomatic representatives of foreign countries" from the prohibition against importation into the District of "any wines, spirits, or beer in a quantity in excess of one gallon at any one time." Congress may well have regarded the diplomat who withdraws imported alcoholic beverages from a wholesaler's bonded warehouse as the importer thereof, in line with the Tax Court's view. If it did not, however, we think that in view of the inclusion of Section 25-137 (c), the failure of Congress to incorporate a specific tax exemption for diplomatic withdrawals in Section 25-124 was because it intended the general exemption in Section 25-124(d) to cover such withdrawals.¹¹ 

The decision of the Tax Court is

Affirmed.