LIQ 4
OT:RR:CTF:ER
H294599 TP
Port Director
U.S. Customs and Border Protection
555 Battery Street
San Francisco, CA 94111
RE: Further Review of Protest No. 2809-2017-100740 regarding the refund of an excess payment of internal revenue taxes.
Dear Port Director:
We are writing in response to the protest and application for further review (“AFR”) for the above referenced protest. Our response follows.
FACTS:
On July 1, 2016, AW Direct, LLC (“AWD”) filed entry number xxx-xxxx115-3 for the importation of bulk red wine from Australia. The U.S. Customs and Border Protection (“CBP”) Entry Summary Form 7501 was filed on July 3, 2016. AWD alleges that an incorrect amount of the internal revenue (“IR”) alcohol excise tax was collected on the entry of bulk wine. The excise tax rate on imported alcohol is set by the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) and collected by CBP.
AWD asserts that at the time of entry, the shipment of bulk wine was declared as “tax deferred” on the corresponding section of CBP Entry Summary Form 7501. AWD asserts that due to an Automated Commercial Environment (“ACE”) processing error, the entry was incorrectly processed, and the IR taxes were erroneously assessed at the time of entry. AWD also contends that the IR tax was assessed when the bulk wine was bottled and shipped as a finished good from its bonded facility pursuant to 26 U.S.C. § 5364. Therefore, AWD argues that it was incorrectly charged the IR tax twice. The subject entry was liquidated on May 26, 2017. AWD filed this protest and AFR on November 17, 2017, to protest the alleged double assessment of IR taxes on its shipment of bulk wine. The Port of San Francisco, (“the Port”) states that it has no authority to issue the refund on IR taxes, pursuant to CBP regulations. The Port asserts AWD must submit its refund claim with the Assistant Regional Commissioner of TTB.
ISSUE:
Whether the importer is entitled to a refund of alcohol excise taxes from CBP.
LAW AND ANALYSIS:
As an initial matter, we note that the protest was timely filed on November 17, 2017, within 180 days of liquidation of the entry on May 26, 2017, under the statutory provisions for protests. See 19 U.S.C. § 1514(c)(3). Further, since the protest involves questions of law or fact that have not previously been ruled upon, the criteria for further review by this office have been met per 19 C.F.R. §§ 174.24(a) and 174.24(b). Namely, CBP has not previously ruled upon the issue of whether CBP may refund alcohol excise taxes pursuant to an ACE processing error.
Section 6423 of the Internal Revenue Code (“IRC”) of 1954, (as amended 26 U.S.C. § 6423), sets forth the conditions for the allowance of a credit or refund of alcohol or tobacco taxes. A credit or refund is due “only if the credit or refund is claimed on the grounds that an amount of alcohol or tobacco tax was assessed or collected erroneously, illegally, without authority, or in any manner wrongfully, or on the grounds that such amount was excessive.” See 26 U.S.C. § 6423(c). Typically, claims for a credit or refund are filed with TTB under its regulations promulgated under 26 U.S.C. § 6423(b). Pursuant to 27 C.F.R. § 70.504, an individual who wants to claim a refund or credit of tax must file a claim, as provided in 27 C.F.R. § 70.506, and comply with any other provisions of law or regulation which may apply to the claim. Individuals who want to claim a refund or credit of tax with TTB should refer to 27 C.F.R. §§ 70.504 through 70.506, which details the conditions to permit a credit or refund of IR tax and who can file such a claim.
However, in certain situations, CBP is permitted to issue refunds of alcohol taxes. The CBP regulation that covers the refunds of excessive duties and taxes is 19 C.F.R. § 24.36. The regulation establishes when the port director is authorized to issue a refund of alcohol taxes, and when a claim must be made directly to TTB. Pursuant to 19 C.F.R. § 24.36, the port director is only authorized to issue refunds that are exempted from the application of Section 6423 of the IRC, which sets forth the IR Service conditions to allow refunds on alcohol and tobacco taxes.
The instances that are exempted from 26 U.S.C. § 6423 refunds are set forth in 19 C.F.R. § 24.36(d). AWD does not specifically point to an exemption, as a basis for why the excise tax should be refunded. However, 19 C.F.R. § 24.36(d)(5), outlines the only possible exemption applicable to this scenario, a refund allowance when : “[t]he refund of tax is pursuant to a claim based solely on errors of computation of the quantity of the imported article, or on mathematical errors in computation of the tax due.” CBP has previously described a mathematical error as a “computation error.” This is consistent with established dictionary definitions of a “mathematics error.” See, e.g., American Heritage Dictionary (4th Ed. 2009) (defining “mathematics error” as “the difference between a computed or measured value and a true or theoretically correct value”). See HQ H214255 (July 3, 2014). Thus, under 19 C.F.R. § 24.36(d)(5), the port director may only issue a refund on IR taxes when CBP collects excessive tax based on an error of computation in quantity of alcohol or when the over collection is the result of a mathematical error in computation of tax due.
As AWD has not asserted any basis for a refund under the regulations, CBP will only discuss refund eligibility under 19 C.F.R. § 24.36(d)(5). A clerical error is not eligible for a refund pursuant to 19 C.F.R. § 24.36(d)(5) because it does not constitute an error in computation of the quantity of the imported article or mathematical error in the computation of tax due. In HQ H214255, dated July 3, 2014, CBP determined whether the port was entitled to issue a refund where the importer listed the wrong IR tax amount on entry forms. In this case, the importer filed a Post Entry Adjustment (“PEA”) stating that at the time of entry, the incorrect standard tax rate was used to calculate the IR tax. The importer alleged that the PEA was denied in error as the assessed IR tax rate was a mathematical error in computation. CBP found that the incorrect IR tax that was listed on the entry documents did not involve any error in computation; instead, the importer listed an IR tax rate on the entry summary which it later asserted was incorrect, and therefore, the port director did not have the authority to issue a refund under 19 C.F.R. § 24.36(d)(5).
In the present case, the alleged incorrect assessment of IR taxes on the entry of bulk wine was allegedly based on an ACE processing error. AWD asserts that the IR tax should have been deferred as declared at entry. However, the alleged incorrect assessment of IR taxes does not involve an error based on the computation of the quantity of the imported article or a mathematical error in computation of the tax due, as required. AWD does not assert that the amount of IR taxes CBP assessed was in error, but that the timing of the assessment was in error. As similarly held in HQ H214255, this type of “error” does not fall within the meaning of a computation error, i.e. an error in “the difference between a computed or measured value and a true or theoretically correct value.” See HQ H214255. Accordingly, this error does not fall under any of the exceptions provided in 19 C.F.R. § 24.36(d)(1)-(10). Therefore, as CBP held in HQ H214255, the port director does not have the authority to issue AWD a refund of its IR alcohol excise tax, under 19 C.F.R. § 24.36, as there was no mathematical or commutation error.
In any instance in which a refund of overpaid excise tax is not covered by 19 C.F.R. § 24.36(d), CBP may certify the amount of excise taxes that were overpaid and the importer may apply for a refund directly with TTB. See 19 C.F.R. § 24.36(e). Under this provision, when CBP is not authorized to issue a refund directly, it may still assist the importer in pursuing a refund from TTB by providing proof of the entry and payment of internal revenue tax deposited via the procedure outlined in the regulation. The notice of refund provided and the statement issued by CBP (upon request) must be filed directly with the Director of the National Revenue Center of TTB along with the claim filed on the TTB Form 5620.8. Id. See also, 27 § C.F.R. 70.505 and HQ H095403 (Nov. 28, 2011) (identifying the procedure set forth in 19 C.F.R. § 24.36(e) as the proper method to request a refund of overpaid alcohol excise taxes from TTB after final liquidation of the entry).
HOLDING:
CBP is without authority to issue a refund of IR taxes collected on imported alcohol where the importer has not demonstrated that its case is of a type which is excepted from the application of section 6423, Internal Revenue Code and enumerated in 19 C.F.R. § 24.36(d). Therefore, you are instructed to DENY the protest.
Sixty days from the date of the decision, the Office of Trade, Regulations and Rulings will make the decision available to CBP personnel, and to the public on the Customs Rulings Online Search System (CROSS) at https://rulings.cbp.gov/, which can be found on the U.S. Customs and Border Protection website at http://www.cbp.gov and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division