
    COMPANIA RON CARIOCA DESTILERIA, INC. v. THE UNITED STATES
    No. 65-55.
    Decided December 3, 1958
    
      
      Mr. Norman J. Morrisson for the plaintiff. Mr. William Montgomery Smith was on the briefs.
    
      Mr. Benjamin H. Pester, with, whom was Mr. Assistant Attorney General Charles K. Bice, for defendant. Messrs. James P. Garland and David A. Wilson were on the brief.
   Whitaker, Judge,

delivered the opinion of the court:

Plaintiff sues to recover $12,387.12 paid in August and September 1946 to the United States deputy collector of internal revenue at San Juan, Puerto Eico. At that time plaintiff, engaged in the business of producing beverage distilled spirits, removed a quantity of such spirits from a bonded warehouse in Puerto Eico. Upon removal, since it contemplated shipment of these spirits to the United States, plaintiff paid to the defendant the amount of the United States internal revenue taxes which would be due the defendant upon entry into the United States.

However, the plaintiff did not immediately ship this entire quantity of spirits. If it had, this suit never would have arisen. On the contrary, plaintiff on May 20, 1952, still held 1,382.0475 proof gallons in his warehouse in San Juan. At this time, having decided not to ship these remaining spirits, plaintiff asked and received permission from the Department of Finance of Puerto Eico to return them to its bonded warehouse as non-tax paid spirits. The Federal strip stamps were destroyed under the supervision of an internal revenue agent, and the goods were re-entered into bond on June 19,1952.

On August 6, 1952, plaintiff filed a claim for refund with the deputy collector of United States internal revenue in San Juan for the money paid in August and September 1946 on the 1,332.0475 proof gallons which had been re-entered into bond. The Commissioner denied this claim on the ground that it was barred under section 3313 of the Internal Eevenue Code of 1939, which requires that a claim be filed within four years from the payment of the tax. (26 U. S. C. §3313,1952 ed.)

The sole question before this court is whether the plaintiff’s payment in 1946 was the payment of a “tax” within the meaning of section 3313, or merely a “deposit” for a tax liability which probably would arise at some future date. If it was the payment of a tax, plaintiff’s claim is barred by the statute of limitations applicable to suits for the recovery of taxes; if it was merely a deposit on account of a liability which was expected to accrue in the future, but which never accrued, a different statute of limitations is applicable, .under which plaintiff’s claim is not barred. Was the payment a deposit or the payment of a tax?

As is pointed out by plaintiff, the internal revenue laws of the United States do not apply to Puerto Eico. The Second Organic Act (§9, Act of March 2,1917,39 Stat. 954) states as follows:

The statutory laws of the United States not locally inapplicable, except as hereinbefore or hereinafter otherwise provided, shall have the same force and effect in Porto Eico as in the United States, except the internal revenue laws; provided, however, that hereafter all taxes collected under the internal revenue laws of the United States on articles produced in Porto Eico and transported to the United States, or consumed in the island shall be covered into the Treasury of Porto Eico.

The United States revenue laws apply only when the goods actually enter the United States. Section 3360 (a) of the Internal Kevenue Code of 1939 (26 U. S. C. § 336.0 (a) 1952 ed.) states:

Except as provided in section 3123, articles of merchandise of Puerto Eican manufacture coming mto the United States and withdrawn for consumption or sale shall be subject to a tax equal to the internal revenue tax imposed in the United States upon the like articles of merchandise of domestic manufacture. [Emphasis supplied]

However, for the convenience of the manufacturer, the exporter may pay before shipment from Puerto Eico the amount of duties and taxes which will be due when the goods enter the United States. (26 U. S. C. § 3360 (b) (2), 1952 ed.) This subsection provides:

All United States internal revenue taxes imposed by law on articles of Puerto Eican manufacture coming into the United States for consumption or sale may be paid by affixing to such articles before shipment thereof a proper United States internal revenue stamp denoting such shipment.

It is obvious that Congress in the enactment of this subsection did not mean to require the payment of the taxes before shipment. It merely permitted prepayment for the convenience of the taxpayer. Nor does a tax liability arise from the fact that the insular government, by section 29 of the Spirits and Alcoholic Beverages Act of Puerto Eico (Act of June 30, 1936, as amended by the Act of April 20, 1946), made this payment mandatory rather than permissive. Obviously the insular government cannot convert a permission granted by the United States to pay a tax levied by it before its due date into a duty to pay it before it becomes due.

There was no duty to pay the United States tax on beverage distilled spirits until they reached the United States. Thus, a payment before that time of taxes expected to accrue in the future could not have been a payment of taxes “erroneously or illegally assessed or collected,” for the collection of which plaintiff could have filed a claim for refund. Accordingly, section 3313, standing alone, has no effect upon the plaintiff here, for the refund sought was not a refund of a tax “erroneously assessed”, but of money deposited in anticipation of a tax liability which never accrued. Schenley Import Corp. v. United States, 129 C. Cls. 327.

Until an assessment is made for a tax alleged to be legally due, the statute of limitations does not begin to run. Rosenman v. United States, 323 U. S. 658. The Government’s contention that subsection (c) of 26 U. S. C. § 3770, read in conjunction with section 3313, supra, bars recovery, is without merit. Section 3770 (c) states that “an amount paid as a tax shall not be considered not to constitute an overpayment solely by reason of the fact that there was no tax liability in respect of which such amount was paid.” It has been held by three different courts of appeals that this does not affect the time the statute of limitations begins to run on the pre-payment of a possible future tax liability. Thomas v. Mercantile Bank, 204 F. 2d 943; United States v. Dubuque Packing Co., 233 F. 2d 453; Budd Co. v. United States, 252 F. 2d 456. It could not have begun to run at the time the payment was made in this case, not only because there had been no assessment of a tax, but also because at the time of the payment there was no assertion of a present liability for the tax. This liability would not accrue until shipment to the United States and withdrawal for consumption or sale. Shipment having been abandoned, no tax has accrued or will ever accrue. Section 3770 (c) does not apply to a case where there is no assertion of a present liability at the time the payment is made.

Section 3770 (c) does not expressly say that the statute of limitations begins to run at the time an amount is paid as a tax, if paid prior to assessment, and there is nothing in the language to indicate such an intention, nor that the statute of limitations was even in mind. The Committee report shows that it was the matter of interest that was in the mind of Congress, and not the statute of limitations. S. 221, 78th Congress, 1st Session, page 34 (1943 Cum. Bull. 1314, 1339) reads:

The income tax law requires the taxpayer to make a return of his tax and to pay the tax so returned. These requirements contemplate that in the discharge of these duties at the time, place, and manner prescribed honest mistakes will occur — mistakes both as to the amount of the tax and as to the existence of any tax liability; and that such honest mistakes made incident to the bona fide orderly compliance with the actual or reasonably apparent duties of the taxpayer are to be corrected under the provisions of law governing overpayments. In the opinion of your committee, existing law so provides. The language of certain court decisions (holding that certain payments, not made incident to a bona fide and orderly discharge of actual or reasonably apparent duties imposed by law, are not overpayments and accordingly that interest is not payable) has been read by some as meaning that no payment can result in an overpayment if no tax liability actually existed. Your committee does not believe that such reading is in any way a statement of existing law. The provisions of the bill, however, emphasize the need for clarity in this regard.

Since we are of the opinion that section 3770 (c) was not intended to affect the statutory period for the recovery of taxes erroneously paid, the holding in Rosenman v. United States, supra, governs the decision of this case. This was that the statute does not begin to run until the assessment is made, even though the payment is made prior to assessment. No assessment of the tax having been made in this case, the claim is not for the recovery of a tax erroneously assessed or collected, but for money had and received. The statutory period within which such suits must be brought is six years.

Judgment will be entered in plaintiff’s favor for $12,387.12.

It is so ordered.

McLaugheiN, District Judge, sitting by designation; MaddeN, Judge/ and Jones, Chief Judge, concur.

FINDINGS OE PACT

The court, having considered the evidence, the stipulation of the parties, and the briefs and argument of counsel, makes findings of fact as follows:

1. Plaintiff, hereinafter called “Carioca”, is a Puerto Eican corporation, in dissolution, with principal office and place of business at Palo Seco, Puerto Eico, and during the times material hereto it was engaged in producing beverage distilled spirits principally for shipment to the United States.

2. The distilled spirits involved herein, known as “Zombie” and “Rock and Rnm”, were produced in Puerto Rico by Carioca and placed in bonded warehouses established under the laws of Puerto Rico. The alcoholic strength of these beverages was less than 189 degrees proof. Such distilled spirits could bo removed from the warehouses only pursuant to the laws of Puerto Rico. They could not be removed for the purpose of shipment to the United States for consumption until the amount of United States internal revenue taxes that would have been due thereon, if those spirits had been landed in the United States for consumption, had been paid in Puerto Rico.

3. There is no United States tax on distilled spirits produced in Puerto Rico, unless they come into the United States and are there withdrawn for consumption or sale, in which event they are subject to a tax equal to the internal revenue tax imposed upon like articles of merchandise of domestic manufacture.

4. Between April 1, 1944 and October 31, 1951, distilled spirits produced in the United States were subject to a tax at the rate of $9.00 per proof-gallon, and, if rectified within the meaning of Section 2800 (a) (5) of the Internal Revenue Code of 1939, they were subject to an additional tax at the rate of 30 cents per proof-gallon. Distilled spirits of Puerto Rican manufacture if brought into the United States for consumption or sale between said dates were subject to taxes at the same rates.

5. On August 5, 1946, Carioca, pursuant to the provisions of United States Internal Revenue Service Regulations 24, secured a permit from the Treasurer of Puerto Rico to withdraw 1,453.39 proof-gallons of Zombie for shipment to the United States and to pay the taxes thereon as required by Puerto Rican law. An insular internal revenue agent gauged the spirits and certified that the taxable quantity to be withdrawn under the permit was 1,453.30 proof-gallons.

6. On August 6,1946, Carioca paid to the Deputy Collector of United States Internal Revenue at San Juan, Puerto Rico, the sums of $13,079.70 and $435.90, representing the amount that would have been due and collected as United States internal revenue taxes at the rate of $9.00 per proof-gallon and 30 cents per proof-gallon, respectively, on the 1,453.30 proof-gallons covered by the permit, if brought into the United States for consumption or sale in the United States. The aforesaid sum of $13,079.70 is included in Certificate of Deposit No. 26, dated August 6,1946, and the aforesaid sum of $435.90 is included in Certificate of Deposit No. 18, dated August 6,1946.

7. On September 9,1946, Carioca, following the procedure described in finding 5, secured a permit to withdraw and tax-pay for shipment to the United States 1,293.69 proof-gallons of Rock and Rum. The insular internal revenue agent gauged the spirits and certified that the taxable quantity to be withdrawn under the permit was 1,293.60 proof-gallons.

8. On the same date, Carioca paid to the Deputy Collector of United States Internal Revenue at San Juan, Puerto Rico, the sums of $11,642.40 and $388.08, representing the amount that would have been due and collected as United States internal revenue taxes at the $9.00 and 30-cent rates, respectively, on the 1,293.60 proof-gallons covered by the permit if brought into the United States for consumption or sale. The aforesaid sum of $11,642.40 is included in Certificate of Deposit No. 48, dated September 9, 1946, and the aforesaid sum of $388.08 is included in Certificate of Deposit No.[illegible], dated September 10,1946.

9. Upon receipt of the monies described in findings 6 and 8, the Deputy Collector of United States Internal Revenue at San Juan promptly deposited them directly with a local bank to the credit of the Treasurer of Puerto Rico, as shown by Certificates of Deposit, described in findings 6 and 8.

10. On November 1,1951, Carioca still held in inventory in Puerto Rico 1,332.0475 proof-gallons of the Zombie and Rock and Rye covered by the permits referred to in findings 5 and 7 above, and reported the same in its floor stock tax return pursuant to the Revenue Act of 1951. This floor stock tax in the amount of $1,998.99 was paid on February 1,1952.

11. By letter dated May 20, 1952, Carioca requested permission of the Department of Finance of Puerto Rico to return this remaining inventory of 1,332.0475 proof-gallons to its bonded warehouse as non-taxpaid spirits.

12. The Department of Finance granted this request by letter dated May 28,1952, subject to two conditions: (1) that the Federal strip stamps on tbe bottles be destroyed by an Internal Revenue Agent and evidenced by a certificate of destruction signed by an authorized representative of Carioca and the Internal'Revenue Agent supervising the destruction; and (2) that the distilled spirits be entered into the bonded warehouse of Carioca’s rectifying plant.

13. The conditions imposed by the authorization of May 28, 1952, were complied with. A certificate dated June 23, 1952, signed by Carioca’s General Manager and the Internal Revenue Agent in charge of its plant, stating that the strip stamps were destroyed on June 19, 1952, and the goods entered in Carioca’s bonded warehouse, was filed, as required.

14. On August 23,1954, said inventory of 1,332.0475 proof-gallons of distilled spirits was destroyed in Puerto Rico pursuant to authorization of the Puerto Rican government.

15. On August 7,1952, Carioca filed with the Deputy Collector of United States Internal Revenue at San Juan, Puerto Rico, on Form 843, a claim for refund in the amount of $14,386.11, which was numbered DS-371794 by the Commissioner of Internal Revenue.

16. On August 3, 1953, the Commissioner of Internal Revenue allowed said claim for refund in the amount of $1,998.99, representing floor stock tax paid on February 1, 1952, and rejected it as to $12,387.12 on the ground that tax at the rate of $9.00 per proof-gallon and rectification tax at the rate of 30 cents per proof-gallon having been paid in August and September, 1946, the claim was barred under Section 3313 of the Internal Revenue Code of 1939 which requires that all claims for refund of internal revenue taxes alleged to have been erroneously assessed must be filed within four years next after the payment of such tax.

CONCLUSION OS’ LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that the plaintiff is entitled to recover, and it is therefore adjudged and ordered that it recover of and from the United States twelve thousand three hundred eighty-seven dollars and twelve cents ($12,387.12). 
      
       Later, on August 23, 1954, this inventory was destroyed in Puerto Rico, pursuant to authority of the Puerto Rican Government, for reasons not explained by the record and immaterial here.
     