West India Oil Co. (PR) v. Domenech

Background

A fuel-oil company imported refined fuel and stored it in bonded warehouses under U.S. customs control in Puerto Rico. The company withdrew some oil duty-free and sold it to ships for use on voyages. Puerto Rico imposed a local sales tax on those deliveries, and lower courts sustained the tax. The company argued the tax conflicted with federal customs and tariff rules that allow duty-free withdrawal for ship supplies.

Reasoning

The Court’s core question was whether Puerto Rico’s tax was barred by federal customs laws. The majority relied on a 1927 amendment to Puerto Rico’s Organic Act that, the Court said, gave Congress’s consent for Puerto Rico to tax imported goods “as soon as” they are brought into the island. The Court held that this congressional grant allowed Puerto Rico to tax the fuel oil even though customs rules let it be withdrawn duty-free for ship use. The majority therefore affirmed the lower courts and rejected the company’s argument that federal customs law preempted the tax.

Real world impact

The decision means Puerto Rico may collect local sales taxes on imported fuel oil delivered to ships after withdrawal from bond. United States customs and postal officials are directed by the Organic Act amendment to help local authorities collect such taxes. The ruling affects oil sellers, ship operators, Puerto Rico tax collectors, and federal customs administration by allowing local taxes on goods still under bonded procedures.

Dissents or concurrances

A dissent argued the ruling conflicts with a recent federal decision protecting bonded exports from local taxes and said the tax should be invalid to preserve federal trade policy and equal treatment with states.