Rev. Rul. 59-342

Advice has been requested whether tobacco products may be delivered, without payment of tax, for use as ship's supplies (sea stores) on vessels operating in transoceanic foreign trade out of United States ports on the Great Lakes or the St. Lawrence Seaway.

Section 5704 of the Internal Revenue Code of 1954 provides, in part, as follows:

A manufacturer or export warehouse proprietor may transfer tobacco products and cigarette papers and tubes, without payment of tax, to the bonded premises of another manufacturer or export warehouse proprietor, or remove such articles, without payment of tax, for shipment to a foreign country, Puerto Rico, the Virgin Islands, or a possession of the United States, or for consumption beyond the jurisdiction of the internal revenue laws of the United States; and manufacturers may similarly remove such articles for use of the United States; in accordance with such regulations and under such bonds as the Secretary or his delegate shall prescribe.

Section 141.1 of the Regulations Relating to Shipment or Delivery of Manufactured Tobacco, Snuff, Cigars, or Cigarettes, and cigarette papers or tubes, for Use as Sea Stores Without Payment of Internal Revenue Tax, however, prohibits the shipment or delivery of tobacco products and cigarette papers and tubes, without payment of tax, for use as ships' supplies, `to vessels on the Great Lakes or a waterway through which runs the international boundary.'

Due to the opening of the St. Lawrence Seaway Great Lakes ports are now open to direct world-wide commerce with foreign ports with the result that traffic in the Great Lakes is no longer limited to vessels operating exclusively thereon.

Since vessels in commerce between United States ports on the Great Lakes or the St. Lawrence Seaway and foreign ports, other than Canadian ports on the Great Lakes or the St. Lawrence Seaway, are engaged in foreign trade and do not operate exclusively on the Great Lakes, it is held that tobacco products and cigarette papers and tubes may be shipped or delivered, without payment of tax, for use as ships' supplies (sea stores) on such vessels. However, such shipments or deliveries cannot be made to vessels operating exclusively between United States and Canadian ports on the Great Lakes or the St. Lawrence Seaway in view of the regulatory provision cited.