EPES TRANSPORTATION CORPORATION

JULY 13, 1939.-Committed to the Committee of the Whole House and ordered to be printed

Mr. KEOGH, from the Committee on Claims, submitted the following

REPORT

[To accompany S. 1042]

The Committee on Claims, to whom was referred the bill (S. 1042) for the relief of the Epes Transportation Corporation, having considered the same, report favorably thereon with an amendment and recommend that the bill as amended do pass.

The amendment is as follows:

Page 2, line 4, beginning with the word "Provided" strike out the remaining language of the bill and insert in lieu thereof the following: : Provided, That no part of the amount appropriated in this Act in excess of 10 per centum thereof shall be paid or delivered to or received by any agent or attorney on account of services rendered in connection with this claim, and the same shall be unlawful, any contract to the contrary notwithstanding. Any person violating the provisions of this Act shall be deemed guilty of a misdemeanor and upon conviction thereof shall be fined in any sum not exceeding $1,000.

The purpose of the proposed legislation is to provide for the payment of $6,537.95, to the Epes Transportation Corporation, of Virginia, in full settlement of all claims against the United States, said sum representing taxes (with interest and penalty) paid to the United States by such corporation on account of certain cigarettes and tobacco products which were withdrawn from bonded warehouse in Winston-Salem, N. C., by such corporation for export to foreign countries, but which were not exported, due to the fact that such cigarettes and tobacco products were stolen from the trucks of such corporation en route to the intended exportation point.

Your committee have thoroughly gone into the details of this case, and concur in the recommendation of the Senate, and append hereto the Senate Report No. 483, which will more completely describe the facts.

[S. Rept. No. 483, 76th Cong., 1st sess.]

The Committee on Claims, to whom was referred the bill (S. 1042) for the relief of the Epes Transportation Corporation, having considered the same, report favorably thereon with the recommendation that the bill do pass without amendment.

1

The bill provides for the payment of $6,537.95 to the Epes Transportation Corporation, of Virginia, in full satisfaction of all claims of such corporation against the United States, such sum representing taxes (with interest and penalty) paid to the United States by such corporation on account of certain cigarettes and tobacco products which were withdrawn from bonded warehouse in WinstonSalem, N. C., by such corporation for export to foreign consignees, but which were not exported due to the fact that such cigarettes and tobacco products were stolen from the trucks of such corporation en route to the intended exportation point.

This claim involves the internal-revenue tax (plus penalty and interest) paid by the R. J. Reynolds Tobacco Co. on certain cigarettes and smoking tobacco withdrawn from the bonded premises of its factories for export without the payment of tax, but which goods were not exported. According to the records of the Bureau of Internal Revenue, the R. J. Reynolds Tobacco Co., of Winston-Salem, N. C., withdrew 2,745,000 cigarettes and 102 pounds of smoking tobacco from its factories on April 4, 1934, for export to foreign countries and the cigarettes and smoking tobacco were laden on trucks of the Epes Transportation Corporation of Viginia for transportation to the port of export at Norfolk, Va. During transit of the goods from the bonded factory premises to the port of export the trucks on which the goods were laden were hijacked and part of the shipment-namely, 2,675,000 cigarettes and 54 pounds of smoking tobacco-were stolen. Therefore, the tax on the goods stolen was assessed against the R. J. Reynolds Tobacco Co., since the company, as manufacturers, was liable for the tax on the tobacco products withdrawn from its factories but not duly exported.

Subsequent to assessment of the tax, 670,000 cigarettes and 45 pounds of smoking tobacco were recovered by the police in Philadelphia, Pa., and returned to the bonded factory premises of the manufacturers at Winston-Salem, N. C. Therefore, the tax was redetermined on 2,005,000 cigarettes and 9 pounds of smoking tobacco stolen from the trucks in transit to the port of export and not recovered. The tax (plus penalty and interest) amounting to $6,537.95 was paid by the R. J. Reynolds Tobacco Co. to the collector of internal revenue for the district of Greensboro, N. C., on May 10, 1935. This tax, however, was paid under protest as it was the position of counsel who had been employed by the Reynolds Tobacco Co. at the instance of the Epes Transportation Corporation that the tax constituted exports within the meaning of article 1 of section 9, clause 5, of the United States Constitution, and that such was not, therefore, liable for tax having entered into its final journey in the ordinary course of exports.

It is further shown by the record that subsequent to the payment of the tax in this case, the R. J. Reynolds Tobacco Co. filed claim for refund of the amount paid. The claim for refund was rejected and the manufacturers filed suit in the district court for recovery of the amount paid. The district court decided the suit in favor of the Government and, upon appeal, the appellate court affirmed the decision of the district court. The United States Supreme Court denied writ of certiorari on April 25, 1938. From an examination of these decisions it will be observed that no opportunity was open for the courts to pass upon the equities involved, the sole question turning upon whether or not actual proof of exportation was the test of legal status of exports claimed to have been exempt under the law.

Subsequently the Epes Transportation Corporation reimbursed the Reynolds Tobacco Co. for the amount paid to the Government.

The evidence clearly shows that the shipment of cigarettes and tobacco products were consigned for export, and for that reason was free of the usual excise tax on tobacco; that the tax was imposed because the cigarettes were not actually exported; that the truck carrying the tobacco was hijacked by members of a notorious band of criminals, two of whom were later killed and two electrocuted, and that no part of the cigarettes and tobacco products were ever ascertained to have entered domestic trade or use.

In view of all the circumstances your committee believe that the Epes Transportation Corporation should be refunded the amount it was compelled to pay to the Reynolds Tobacco Co. The tobacco was free from tax when it left the factories of the Reynolds Tobacco Co. and no tax would have been imposed had not the Epes Transportation Corporation truck been hijacked. The company should not be penalized for its failure to deliver the shipment to Norfolk under the circumstances. Under the conditions related it seems only fair and just that the Government return the tax so assessed.

The facts are fully set forth in the following communications, which are appended hereto and made a part of this report.

TREASURY Department,

Washington, February 10, 1939.

Hon. M. M. LOGAN,
Chairman, Committee on Claims,

United States Senate.

MY DEAR MR. CHAIRMAN: Further reference is made to your letter of January 28, 1939, enclosing for consideration three copies of bill S. 1042 (76th Cong., 1st sess.), "For the relief of the Epes Transportation Corporation" in the sum of $6,537.95, representing taxes (with interest and penalty) alleged to have been paid by the corporation on certain cigarettes and tobacco products withdrawn for export to foreign consignees, but which were not exported due to the fact that the cigarettes and tobacco products were stolen from the trucks of the corporation en route to the intended exportation point. It is noted that the opinion of this Department as to the merits of the bill is desired.

It appears that the subject matter of the proposed bill involves the internalrevenue tax (plus penalty and interest) paid by the R. J. Reynolds Tobacco Co. on certain cigarettes and smoking tobacco withdrawn from the bonded premises of its factories for export without the payment of tax, but which goods were not exported. According to the records of the Bureau of Internal Revenue, the R. J. Reynolds Tobacco Co. of Winston-Salem, N. C., withdrew 2,745,000 cigarettes and 102 pounds of smoking tobacco from its factories on April 4, 1934, for export to foreign countries and the cigarettes and smoking tobacco were laden on trucks of the Epes Transportation Corporation of Virginia for transportation to the port of export at Norfolk, Va. During transit of the goods from the bonded factory premises to the port of export the trucks on which the goods were laden were hijacked and part of the shipment, namely, 2,675,000 cigarettes and 54 pounds of smoking tobacco was stolen. Therefore, the tax on the goods stolen was assessed against the R. J. Reynolds Tobacco Co., since the company, as manufacturers, was liable for the tax on the tobacco products withdrawn from its factories but not duly exported.

Subsequent to assessment of the tax, 670,000 cigarettes and 45 pounds of smoking tobacco were recovered by the police in Philadelphia, Pa., and returned to the bonded factory premises of the manufacturers at Winston-Salem, N. C. Therefore, the tax was redetermined on 2,005,000 cigarettes and 9 pounds of smoking tobacco stolen from the trucks in transit to the port of export and not recovered. The tax (plus penalty and interest) amounting to $6,537.95 was paid by the R. J. Reynolds Tobacco Co. to the collector of internal revenue for the district at Greensboro, N. C., on May 10, 1935.

Subsequent to the payment of the tax in this case, the R. J. Reynolds Tobacco Co. filed claim for refund of the amount paid. The claim for refund was rejected and the manufacturers filed suit in the district court for recovery of the amount paid. The district court decided the suit in favor of the Government and upon appeal, the appellate court affirmed the decision of the district court. The United States Supreme Court denied writ of certiorari on April 25, 1938. (R. J. Reynolds Tobacco Co. v. Robertson, Collector of Internal Revenue, 94 Fed. (2d) 167, affirming 22 Fed. Sup. 187). Rehearing was denied May 23, 1938 (304 U.S. 563).

The tobacco products involved in the case were withdrawn for export by the R. J. Reynolds Tobacco Co. without the payment of tax under authority of section 1 of the act of August 4, 1886, which provides:

"That manufactured tobacco, snuff, and cigars may be removed for export to a foreign country without payment of tax, under such regulations, and the making of such entries, and the filing of such bonds and bills of lading as the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, shall prescribe."

It will be observed that the law as quoted above authorizes the withdrawal of tobacco products for export, without the payment of tax, in accordance with the provisions prescribed by regulations. Such withdrawals are governed by Internal Revenue Regulations 73. Article 3 of the regulations prescribes the giving of a bond conditioned as to require evidence of actual exportation. Thus, as a condition precedent to release from liability for tax the articles withdrawn for export must be duly exported. With respect to the taxability of articles withdrawn for export, the Bureau of Internal Revenue has uniformly held that such articles are relieved of liability to tax only upon proof of exportation. There is no provision of law under which taxable articles (including cigarettes and smoking tobacco) withdrawn for export without the payment of tax and not exported, may be exempted from liability to the tax, since exemption is granted not upon withdrawal for export but upon proof of actual exportation.

The cigarettes and tobacco withdrawn for export by the R. J. Reynolds Tobacco Co. and which were stolen before delivery to the exporting vessel was accomplished, were subject to the internal-revenue tax. In addition, the tax due was paid to the Government by the R. J. Reynolds Tobacco Co. However, it is understood that the Epes Transportation Corporation has reimbursed the R. J. Reynolds Tobacco Co.

The payment by the Epes Transportation Corporation arose either by contract or by reason of its liability as a common carrier. The United States was not in any way responsible for the failure of the Epes Transportation Corporation to deliver the cigarettes and tobacco to the port of exportation at Norfolk, Va. The liability of the R. J. Reynolds Tobacco Co. for the tax has been determined by the courts after extended litigation. It does not appear that the Epes Transportation Corporation has any claim against the United States in connection with the payment made by it to the R. J. Reynolds Tobacco Co. in this case.

In view of the facts as set forth above, it is the opinion of this Department that the proposed bill S. 1042 for the relief of the Epes Transportation Corporation should not be enacted.

In the event that further correspondence relative to this matter is necessary, please refer to IR: MT:T-C1-R-8687.

Very truly yours,

Hon. M. M. LOGAN,

Chairman, Committee on Claims,

JOHN W. HANES, Acting Secretary of the Treasury.

DEPARTMENT OF JUSTICE, Washington, D. C., April 29, 1939.

United States Senate, Washington, D. C.

MY DEAR SENATOR: This acknowledges your request of March 28 for my views concerning a bill (S. 1042) to provide for a refund to the Epes Transportation Corporation of the sum of $6,537.95, representing certain taxes paid by it on a shipment of tobacco products.

The records of this Department indicate that in April 1934 the Reynolds tobacco factory at Winston-Salem, N. C., shipped certain cigarettes to the Virginia State line, at Norfolk, Va. The shipment appears to have been consigned for export, and for that reason was free of the usual excise tax on tobacco. It was carried between Winston-Salem and Norfolk in a truck operated by the Epes Transportation Corporation of Virginia.

While en route the truck was hijacked by members of a notorious band of criminals, known as the Tri-State Gang. The cigarettes were stolen and never recovered. The representatives of the Epes Transportation Corporation state that they have reason to believe that the entire shipment of cigarettes was subsequently dropped by the robbers into a nearby river, presumably because the lack of revenue stamps on the cigarettes made the robbers fearful of disposing of them in some other manner.

The representatives of the Epes Transportation Corporation state that because the cigarettes were not actually exported the Reynolds Tobacco Co. was required to pay the excise tax thereon, with interest and penalties, and that the Epes Transportation Corporation reimbursed the Reynolds Tobacco Co. for that

amount.

The activities of the Tri-State Gang were under investigation by the Federal Bureau of Investigation of the Department of Justice, and several members of the band were apprehended and successfully prosecuted. The Epes Transportation Corporation and its employees rendered to the Bureau every cooperation in their power in connection with the investigation.

Whether the bill should receive favorable consideration involves a question of legislative policy as to which I prefer not to offer any suggestions.

Sincerely,

FRANK MURPHY,

Attorney General.