711.622/89
The Secretary of the Treasury (Mellon) to the Secretary of State
Sir: I have the honor to make reference to your letter of November 11, 1926,72 with which you enclosed for an indication of my views in regard to a reply to be made thereto, a copy of a communication of October 25, 1926, from Messrs. Hunt, Hill & Betts,72 relative to an apparent conflict between the provisions of Section 702 of the Revenue Act of 192673 and Article VIII of the Treaty between the United States and Germany of Friendship, Commerce and Consular Rights.74
The question presented by you is as to whether there is a conflict between the provisions of the Revenue Act of 1926 and the Treaty referred to above; and in the event that I consider that there is a conflict, you also indicate a request for an expression of an opinion as to what measures it might be possible to take with a view to giving due regard to the provisions of Article VIII of the Treaty between the United States and Germany.
Section 702 of the Revenue Act of 1926 provides as follows:
“On and after July 1, 1926, and thereafter on July 1 in each year, and also at the time of the original purchase of a new yacht or other boat by a user, if on any other date than July 1, there shall be levied, assessed, collected and paid in lieu of the tax imposed by Section 703 of the Revenue Act of 1924,75 upon the use of yachts, pleasure boats, power boats, sailing boats, and motor boats with fixed engines, if foreign built and if of over five net tons and over thirty-two feet in length, not used exclusively for trade, fishing, or national defense, a special excise tax to be based on each such yacht or other boat at rates as follows: Yachts, pleasure boats, power boats, motor boats with fixed engines, and sailing boats of over five net tons, length over thirty-two feet and not over fifty feet, $2 for each foot; length over fifty feet, and not over one hundred feet, $4 for each foot; length over one hundred feet, $8 for each foot.
“In determining the length of such yachts, pleasure boats, power boats, motor boats with fixed engines, and sailing boats, the measurement of over-all length shall govern.
“In the case of a tax imposed at the time of the original purchase of a new yacht or boat on any other date than July 1, the amount to be paid shall be the same number of twelfths of the amount of the tax as the number of calendar months (including the month of sale) remaining prior to the following July 1.
[Page 937]“This section shall not apply to any yacht or other boat (1) which is used without profit by any benevolent, charitable, or religious organization, exclusively for furnishing aid, comfort, or relief to seamen, or (2) which was owned on January 1, 1926, by a citizen of the United States or by a domestic partnership or corporation.”
Article VIII of the Treaty of Friendship, Commerce and Consular Rights between the United States and Germany provides as follows:
“The nationals and merchandise of each High Contracting Party within the territories of the other shall receive the same treatment as nationals and merchandise of the country with regard to internal taxes, transit duties, charges in respect to warehousing and other facilities and the amount of drawbacks and bounties.”
Article VIII of the Treaty, while in a measure ambiguous, appears to provide with respect to internal taxes, that the nationals and merchandise of each country shall receive the same treatment within the territory of the other as is afforded by the country asserting the tax to its own nationals and merchandise. Your inquirer has stated that an apparent conflict between Section 702 of the Revenue Act and Article VIII of the Treaty has been pointed out by a German manufacturer of pleasure boats. In this connection it should be noted that the tax involved is one imposed upon the use in this country of foreign built boats.
Consideration has been afforded the question whether under the provisions of Section 702 of the Revenue Act a treatment is afforded the merchandise of Germany different from that which is afforded the merchandise of the United States. Assuming that a tax on the use of merchandise would come within the provisions of the treaty, a study of the apparent meaning of the term “merchandise” as used in the treaty seems to indicate that yachts or pleasure boats are not included within that term. In the case of the Marine City, (6 Fed. 413) it was held that the term “merchandise” conveys the idea of property used by merchants in the course of trade and is usually, if not universally, applied to property which has not yet reached the hands of the consumer. See also Passaic Mfg. Co. v. Hoffman (N. Y.) 3 Daly 495, 512; Blackwood v. Cutting Packing Co., 18 Pac. 248; Van Patten v. Leonard 8 NW 334; Hein v. O’Connor (Tex.) 15 SW 414 and In re San Gabriel Sanatorium Co. 95 Fed. 271 (citing Bouv. Law Dict.) In the case of Connolly v. The International, (83 Fed. 840) the Court said:
“We cannot limit the scope by speculating about the intent of Congress for the purpose of subjecting such water craft to taxation under the provision of tariff laws, which impose a tax on foreign ‘goods, wares and merchandise’. The ordinary sense of the latter terms (and they are used in this sense) does not embrace water craft of any description whatever. The language of the Supreme Court in the recent case of The Conqueror, 166 U. S. 110 (17 Sup. Ct. 510), on this subject is as applicable here as it was there.”
The sense in which this Department construes the term “merchandise” as used in the Treaty is that it was designed to include only such things as merchants ordinarily sell in the course of trade and does not include vessels which are in use. In reaching this conclusion consideration has been given the well known rule of statutory construction that where statutes and treaties are involved, effect will, if possible, be given to both, without violating the provisions of either.
I am, therefore, of the opinion that the effect of Section 702 of the Revenue Act of 1926 is not to impose a different tax in this country on the merchandise of Germany than is imposed on the merchandise of the United States, and that the Act of Congress does not violate the provisions of the treaty.
Respectfully,