OT:RR:CTF:ER
H214255 PTM
Assistant Port Director, Trade
U.S. Customs and Border Protection, Port of Detroit
477 Michigan Avenue, Room 200
Detroit, MI 48266
RE: Further Review of Protest No. 3801-12-100145 regarding the refund of an excess payment of internal revenue taxes.
Dear Assistant 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 October 24, 2011, Southern Wine & Spirits of America (“Southern Wine”) filed entry number 112-XXXXX20-2 for the importation of Malibu Rum liquor. The U.S. Customs and Border Protection (“CBP”) Entry Summary Form 7501 was filed on the same date. Southern Wine alleges that the incorrect internal revenue (“IR”) alcohol excise tax rate was listed on the entry. The excise tax rate on imported alcohol is set by the Bureau of Alcohol, Tobacco, Tax and Trade Bureau (“TTB”) and collected by CBP.
On November 23, 2011, Southern Wine filed a Post Entry Adjustment (“PEA”) for the entry. The PEA stated:
At the time of entry, the incorrect standard tax rate was used to calculate the I.R. Tax. Per the attached letter from the Alcohol and Tobacco Tax and Trade Bureau, the tax rate for Malibu rum is $11.92 per proof gallon /2.2031980. Due to this mis-calculation, the incorrect I.R. Tax was paid … . In view of the foregoing, we request liquidation of this entry with a refund of I.R. Tax ...
Attached with the PEA was a letter dated October 8, 2004, from TTB and addressed to Allied Domestic Spirits and Wine USA Inc. That letter responded to Allied Domestic Spirits’ application for a standard effective tax rate for its Caribbean Malibu Rum 21% alcohol by volume and Caribbean Rum 24% alcohol by volume. The letter stated “[u]nder the provisions of 27 CFR 27.77, we authorize the following standard effective tax rates: $11.92 per proof gallon for Caribbean Malibu Rum 21%, $11.92 per proof gallon for Caribbean Malibu Rum 24%.” The import specialist rejected the PEA. On February 3, 2012, the subject entry liquidated with IR tax assessed at the rate indicated at the time of entry.
Southern Wine filed this protest and AFR on February 21, 2012, to protest the liquidation of the subject entry with the assessed IR tax. Southern Wine alleges that the PEA was denied in error as the assessed IR tax rate was a mathematical error in computation. It also states that CBP has previously permitted PEA’s to correct IR tax rates assessed on imported alcohol and issued refunds. The port states that although Southern Wine indicated the wrong IR tax rate for this entry, it has no authority to issue the refund pursuant to CBP’s regulations, and that the Southern Wine must submit its 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 February 21, 2012, within 180 days of liquidation of the entry on February 3, 2012, 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 a PEA.
Title 26 of the Internal Revenue Code of 1954, section 6423 (26 U.S.C. §6423), sets forth the conditions to the allowance of a credit or refund of alcohol or tobacco cases. 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).
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. The port director is only authorized to issue refunds in cases that are excepted from the application of section 6423, Internal Revenue Code of 1954 (26 U.S.C. §6423), which sets forth the Internal Revenue Service conditions to allow refunds on alcohol and tobacco taxes.
The cases that are excepted from 26 U.S.C. §6423 are set forth in 19 C.F.R.§ 24.36 (d) (1)-(9). Southern Wine asserts that CBP may issue a refund pursuant to 19 C.F.R. §24.36(d)(5), which permits the port director to issue a refund when:
(5) The 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… (emphasis added).
Thus, 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. CBP has previously described a mathematical error as a “computation error.” See HQ H227627 (July 20, 1999) (stating “[t]he protestant has requested that Customs treat the mathematical error in the appearing factor as a clerical error…The computation error was brought to Customs attention by telephone…). 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”).
In the instant case, the collection of IR tax was based on the Southern Wine listing the IR tax rate at 3.566322 per proof gallon. Southern Wine characterizes the IR tax rate as a “mathematical error.” However, while listing the IR tax rate as 3.56632 per proof liter rather than the asserted correct rate of 2.2031980 per proof gallon is a clerical error, it does not involve any error in computation, consistent with the definition of a “mathematical error.” Southern Wine simply listed an IR tax rate on the entry summary that it now asserts is incorrect. Because Southern Wine’s alleged error does not involve an error in computation, there is no mathematical error. Therefore, the port director is without the authority to issue a refund under 19 C.F.R. §24.36(d)(5).
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 certified statement issued by the port director (upon request) must be filed directly with the assistant regional commissioner of TTB in the internal revenue region in which the claimant is located, along with the claim filed on the internal revenue Form 843. Id. See also, 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.
In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the protestant no later than 60 days from the date of this letter. Sixty days from the date of the decision, the Office International Trade, Regulations and Rulings, will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division