Excise taxes imposed on insuring exported goods held unconstitutional if based on the value of goods.

• Author: Mitra, Surjya K.
• Position: Brief Article

In International Business Machines Corp. (IBM), Ct. Fed. Cls., 6/23/94, the court held that the excise tax imposed by Sec. 4371 was unconstitutional, since it violated the Export Clause of the Constitution.

IBM sold computer equipment manufactured in the United States through its foreign subsidiaries. IBM required all of its U.S. manufactured products sold to its foreign subsidiaries to be covered by casualty insurance. Insurance was purchased from U.S. insurers if bought by IBM and from foreign insurers if procured by a foreign subsidiary.

The Service asserted that IBM was liable for the excise tax on premiums paid to foreign insurers with respect to U.S. risks under Sec. 4371. The IRS believed that IBM was an insured party because the insurance policies were obtained for its use and benefit.

The key question presented to the court was whether the insurance...