Did California state or local sales tax apply to liquor withdrawn from bond free of duty and federal tax for U.S. or foreign vessels in foreign trade?
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This page answers the general question as of 1963. Ask about yours and see what current California tax law says, with citations.
Plain-English summary
A redacted corporation claimed a line 19 sales-and-use-tax-return deduction for alcoholic-beverage sales to steamship companies. Return Review questioned whether it was lawful.
The Board had addressed the seller in a January 27, 1959 letter, but that letter and its position are absent. By November 1963, legal staff had reexamined sales of liquor delivered out of bond without customs duty or federal Internal Revenue tax for supplies to U.S. or foreign vessels engaged in foreign trade.
Counsel cited 19 U.S.C.A. section 1309 as allowing the described duty- and federal-tax-free withdrawal. McGoldrick and National Distillers were cited as saying state tax could not apply to those articles because Congress had preempted state regulation or taxation of ship-supply withdrawals from bonded warehouses.
The conclusion was conditional: liquor qualifying under section 1309 was subject to neither California state nor local sales tax. Counsel told the seller to deduct it on line 12 and explain that it was liquor sold out of bond for ship supplies.
The source identifies no transaction, amount, vessel, voyage, withdrawal record, return period, assessment or later outcome. The live annotation states the preemption conclusion but leaves out the return review, prior letter, named cases, reporting instruction and state-versus-local distinction.
Common questions
Did the letter cover every sale to a steamship company?
No. Its conclusion was expressly limited to liquor qualifying under cited 19 U.S.C.A. section 1309 and delivered out of bond for the described ship-supply use.
Which vessels did counsel describe?
U.S. or foreign vessels engaged in foreign trade. The source supplies no particular vessel or voyage.
Why did counsel say California could not tax the sales?
The letter read the federal statute and two cited cases as federal occupation of the field for withdrawing ship supplies from bonded warehouses, excluding state regulation or taxation of those articles.
Did the answer include local sales tax?
Yes. The letter expressly said qualifying sales were subject to neither state nor local sales tax.
How was the seller told to report them?
As a line 12 deduction, explained as liquor sold out of bond for ship supplies. The source does not reproduce the return or explain why Return Review had questioned line 19.
Did the source resolve the seller's actual review?
It offered legal advice intended to resolve the issue going forward, but supplies no review finding, adjusted return, assessment, refund or later proceeding.
Citations and references
- 19 U.S.C.A. title 19, section 1309 — cited duty- and federal-tax-free withdrawal authority
- McGoldrick v. Gulf Oil Corp. (1940), 309 U.S. 414 — state-tax case
- National Distillers Products Corp. v. San Francisco (1956), 141 Cal. App. 2d 651, 297 P.2d 61 — name as printed; state-tax case
- January 27, 1959 Board letter — identified but not reproduced
- Line 19 deduction and instructed line 12 explanation — returns and records not reproduced
- Official Annotation 325.1580 — publishes a shorter federal-preemption conclusion
Source
- Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
- Annotation page: Annotation 325.1580
- Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/325-1580.pdf
Original ruling text
325.1580
STATE OF CALIFORNIA
STATE BOARD OF EQUALIZATION
November 12, 1963
F--- & S---, Inc.
XXX --- Street
--- --- X, California
Now:
-XXXXX
SR -- XX-XXXXXX
Gentlemen:
Our return review unit was uncertain as to the legality of your deduction on line 19 of your sales and use tax return for sales of alcoholic beverages to steamship companies. I have looked through our file and see that this is not the first time this matter has arisen. We hope, however, that this letter will be the means of easing your tax burden and at the same time resolve this matter for the future. Since our last letter to you on January 27, 1959, the board’s legal staff has had reason to reexamine its position on sales of liquor delivered out of bond free of duty and Internal Revenue tax for supply to United States or foreign vessels engaged in foreign trade. Section 1309 of title 19 U.S.C.A. allows the withdrawal of these articles free of duty and Internal Revenue tax. Two cases have stated that state tax cannot be applied to these articles. They are McGoldrick v. Gulf Oil Corp. (1940) 309 U.S. 414 and National Distillers Products Corp.v. San Francisco (1956) 141 Cal. App. 2d 651 (297 P.2d 61). These cases stand for the proposition that since federal law has regulated the withdrawal of ships supplies from bonded warehouses, Congress has pre-empted this field of commerce from state regulation or taxation. This being the case, sales of liquor qualifying under title 19 U.S.C.A., section 1309, is not subject to either the state or local sales tax and can be deducted on line 12 with the explanation that the amount constitutes sales of liquor out of bond for ships supplies. Very truly yours,
John H. Knowles
Associate Tax Counsel
JHK:ls
cc:
San Francisco – District Administrator
Headquarters – Return Review (ODP)
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