Honorable     Robert       S. Calvert       Opinion   No. C-192
Comptroller      of Public      Accounts
Capitol     Station                         RE:   Whether Chapters 7 and 8, Title
Austin,     Texas                                 122A, Taxation  General,  permit
                                                  sales of unstamped cigarettes
                                                  and untaxed cigars  and tobacco
                                                  products  under the stated circum-
                                                  stance 9.

Dear Mr. Calvert       :

          You have requested         our opinion    concerning    the   above   referenced
matter,    and we copy your        letter   as follows:

                   ‘In administering       Chapters 7 and 8, Title          122A,
              Taxation-General,        the statutes      levying   a tax on
              the sale of cigarettes,          cigar and tobacco       products,
              the office      of the Comptroller        of Public Accounts
              of the State of Texas understood              the law permitted
              the sale and delivery         of unstamped cigarettes          and
              tax-free     cigar and tobacco       products     to ships and
              barges,    or their     crews, when such ships are at dock-
              side in ports of call         In Texas.       These ships and
              barges are engaged in Interstate               commerce via the
              Intercoastal       Canal and the Inland Waterways           of the
              United States.         The cigarettes,       cigars  and tobacco
              products     are for consumption         by members of such
              ships ’ crews outside        the geographical       boundaries     of
              Texas . Attached hereto,          we file     with you a copy of
              Ruling No. 1 on this subject,             which rule was issued
              applying     to cigarettes      November 14, 1961, and amended
              to include      cigars   and tobacco      products   January 31,
              1962.    Also attached       hereto    is a copy of the form
              filled   out by the applicant          for the purchase      of
              unstamped cigarettes         and untaxed cigars        and tobacco
              products .

                   A question was recently     raised   as to whether
              the law permitted     sales of unstamped cigarettes
              and untaxed cigars     and tobacco    products  under the
              circumstances   set out above.       Therefore,  as Comp-
              troller   of Public Accounts     of the State of Texas,
              I respectfully    request   an opinion    as to whether   :
              such sales are taxable      sales under the law.”
                                                                      .        .




Honorable    Robert   S. Calvert,   Page 2 (Opinion     No. C- 192        )



         The cigarette     tax is levied  on the “first  sale” in this             State
by Articles     7.02(l)   and 7.06(l), Title  122A, Taxation   General,
Vernon’s    Civil   Statutes.

          There Is no statutory   provision and no authority    permitting  the
sale of unstamped cigarettes      to ships and barges or their     crews when
such ships are at dockside      In ports of call  in Texas, for use by the
crews when they are out side of Texas , although       they are engaged in
interstate     commerce, unless  the sale or transaction    can be said to be
an act involving     Interstate  commerce.

        We are of the opinion,     under the authority     of the cases herein-
after  cited,   that, these sales do not Involve   interstate    commerce, and
are, therefore,     not exempt from the cigarette    tax, and the sale of
unstamped cigarettes,      under the stated circumstances,     is Illegal.

          In the case of Fontenot v. Searcy and Pfaff,            78 So.2d 204 :
(La. Ct .App. 1955);      the defendant    printed   and ,manufactured    ,for add’;
delivered     to Leonard Krower and Son, ‘Inc.,        In New Orleans,      a large
number of catalogues.          Leonard Krower and Son, ,Inc.,      Is a Louisiana
Corporation     having its domicile       In New Orleans.     The corporation       re-
ceived delivery      of the catalogues      and distributed    them gratuitously
to other persons,       20% in Louisiana      and 80% to persons     outside   the
State of Louisiana.          The defendant    paid the sales tax on the 20% de-
livered     In Louisiana     but refused   to pay on the 80% delivered        out of
State,    claiming    they were manufactured       by the defendant     for “immediate
export ” and “In contemplation          of and dependent upon a movement of
goods in Interstate        commerce. ”

          The Court said “the tax Is an assessment           upon the amount of re-
tail   sales,    or, f,n other words, upon the transaction        itself  and not
the property.      ”   . . . once the catalogues      were delivered,    Searcy and
Pfaff,    Ltd.,   was without  interest    or concern as to what Leonard Krower
and Son, Inc. , would do with them.           The transaction    was then completed
and the amount of the sale became subject            to the tax, and the coinci-
dence that the purchaser        subsequently    saw fit to send some of the
property     beyond the boundaries      of Louisiana   does not interfere,,with
the right     of the State to recover      the amount of the taxes due.

         In the case of Swan and Finch         Company v.   United   States,       190
U.S.   143 (1903),  it is stated:

                 “During the years 1895, 1896, 1897, the appel-
             lant,   a corporation    engaged in business       as im-
             porter,   manufacturer    and exporter    of oils    at New
             York City and elsewhere       in the United States,
             having used In the manufacture         of certain    kinds
             of lubricating     oils  Imported rape seed oil on
             which duties    had been paid, placed on board of
             vessels   bound for foreign     ports,   lubricating     oils
             so manufactured,      and claimed a drawback of the

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Honorable    Robert      S.   Calvert,   Page -3 (Opinion    No.   C-192    )



             duties   paid on the imported rape seed oil used
             therein.     The ~Treasury Department allowed and
             paid the drawback on such manufactured      oils as
             were shipped to foreign     countries and there landed,
             but refused    to pay any on such as were placed on
             board for use and consumed in use on the vessels.
             The appellant    brought this suit in the Court of
             Claims to recover     the drawbacks on the last named
             oils.    . . . 11

          The Federal   statutes  at that time provided     that where imported
materials,     on which the duties    had been paid, were used In the manu-
facture    of articles   manufactured   or produced   In the United States,
and then exported,      there should be allowed     on the exportation    of such
articles     a drawback equal in amount to the duties       paid on the materials
used, less one per centum of such duties.           Part of the lubricating
oils   placed on board the ship were used and consumed by the ,ship dur-
ing the voyage,      and the remaining   oils  were shipped to foreign     countries
and there landed.

        The Supreme Court stated that ‘I. . . the question   is whether
goods placed on board a vessel   bound for a foreign  port,  to be used                      and
consumed on board the vessel   during its voyage , and in fact so used                       and
consumed, are exported.  It

        The Court held that the            oil used by the ship in route           Is not
being exported,  and therefore,            the appellant was not entitled           to the
drawback.         l




          In the case of State Tax Commission of Utah v. Pacific                     States
Cast Iron Pipe Company, &3-925                        (1963)    the respondent,       a
Nevada Corooration         auallfled    to do business       ii Utah, manufactures
cast Iron pipe in Provo, Utah, and sells                 the products     throughout     the
Western States,        Prices     set by respondent       are for the goods delivered
at a specific     job site,       and interstate     delivery     is usually     made by
common carrier      or In respondent Is own equipment.               In this case,      how-
ever,    the material      we$ manufactured      to meet specifications          of specific
out -of -state  jobs.                 The contract     called   for out-of -state       ship-
ment, and respondent         set a destination       price which Included         the going
common carrier      freight      charges between the two points           involved.      But
delivery    was made and title         passed to the purchaser         at respondentts
foundry in Provo.          The purchaser     then transported       the pipe with its
own equipment to the predetermined              out-of-state      destination.       The
common carrier      tariff    was credited      to the purchaser.          . . .”

         The United States Supreme Court             held that a State may levy and
collect   a sales tax, since the passage             of title and delivery to the
purchaser   took place within the State.

         In the       question before  us,     the cigarettes    are delivered,   paid
for   and title       passes at the point      of delivery    at dockside,   and there

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Honorable    Robert   S. Calvert,    Page 4 (Opinion       No. C- 192   )



is no question     of interstate   commerce Involved.    Therefore, In our .
opinion    the sale of unstamped cigarettes     to the ships and barges or
their   crew is contrary     to the provisions  of Chapter 7, Title  122A,
and therefore,     Illegal.

          Chapter 8 of Title    122A, Taxation    General,  V.C.S.,   provides
for a tax on the "first      sale"  In this State,    of cigars    and tobacco
products.     This Chapter is patterned     after   and is very similar     to
Chapter 7 herein above discussed.

        We are of the opinion    that the sale of untaxed cigars and
tobacco   products   to ships and barges for use of the crew when outside
the territory     of the State of Texas Is Illegal, for the same reasons
as set forth above as to the sale of cigarettes.


                                SUMMARY

                 The sale of cigarettes,      cigars   and tobacco     products
             to ships and barges or their        crews, when such ships are
             at dockside     in ports of call    in Texas, even though such
             ships and barges are engaged in Interstate           commerce and
             the cigarettes,      cigars and tobacco    products   are to be
             consumed by the crew outside        the boundaries    of Texas,
             are taxable     sales under the provisions       of Chapters 7 and
             8, Title '122A, Taxation-General,        Vernon's   Civil    Statutes.

                                        Very     truly   yours,

                                        WAGGONER CARR
                                        Attorney General




JHB/d a
APPRoV~~D:
OPINION COMMITTEE

W. V. Geppert,  Chairman
Marietta  McGregor Payne
Joe Trimble
J. S. Bracewell
Paul Phy

APPROVEDFOR THE ATTORNEYGENERAL
BY: I-I. Grady Chandler

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