Any inquiry into a federal government jurisdiction must begin at the beginning – the Constitution. Article I, Section 8 lists the powers granted to the Congress. Clause 3 has to do with the regulation of certain types of commerce: “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes”. This is where the Constitution grants the federal government jurisdiction over foreign commerce, interstate commerce, and Indian commerce.
These three commerce jurisdictions are listed separately within title 28, “Judiciary and judicial procedure”, chapter 85, “District Courts; Jurisdiction”. Section 1336, now “Surface Transportation Board’s orders”, which was renamed from “Interstate Commerce Commission’s orders” in late 1995, is the interstate commerce jurisdiction. Section 1362 is “Indian tribes”, obviously the trade with the Indians jurisdiction. Section 1340 is “Internal revenue; customs duties”, which is the foreign commerce jurisdiction. The connotation of “internal revenue” is not readily understood to be within foreign commerce, but there can be no question that customs duties is foreign commerce.
The inquiry into the jurisdiction of internal revenue must then go to title 19, “Customs duties”. The index to title 19, “Customs duties” lists several statutes referencing internal revenue laws, in particular Title 19 U.S.C. Section 1309, Title 19 U.S.C. Section 1311, Title 19 U.S.C. Section 1753, and Title 19 U.S.C. Section 1754. Within the first section listed in the index, section 1309, there is a citation to another statute with a reference concerning internal revenue, that being title 19, section 1317.
Title 19, “Customs duties”, section 1317, “Tobacco products; supplies for certain vessels and aircraft”, subsection (a) states in part; “… for consumption beyond the jurisdiction of the internal-revenue laws of the United States, as defined by section 2197(a) of title 26…”. Here is a link to Title 19 U.S.C. Section 1317.
The section that defines the jurisdiction of the internal-revenue laws, title 26, section 2197, “Territorial extent of law”, is from the 1939 Internal Revenue Code. Here is a link to Title 26 USC Sec. 2197 (1939 Code).
Title 26, section 2197, subsection (a) states, in part: “shall be held to extend to such articles produced anywhere within the exterior boundaries of the United States…”. Subsection (b) states, in part: “…consumption beyond the jurisdiction of the internal revenue laws of the United States, as defined by subsection (a)…”. Thus both title 19 section 1317 subsection (a) and title 26 section 2197 subsection (b) cite to title 26 section 2197 subsection (a) for the definition of the jurisdiction of the internal revenue laws.
The jurisdiction of the internal revenue laws is therefore stated within title 26, section 2197, subsection (a) of the 1939 Internal Revenue Code as “anywhere within the exterior boundaries of the United States”, which is obviously the opposite of “anywhere within the interior boundaries of the United States”. In other words, the jurisdiction of the internal revenue laws is within the United States possessions and territories. The U.S. possessions and territories are the “external boundaries” of the United States.
As the legislative draftsmen of Congress have issued new versions of the Internal Revenue Code, they have continued to try to hide the true basis of the laws. The 1939 version of section 2197 from title 26 U.S.C. has been broken up in the 1986 version. Title 26 U.S.C. section 2197, subsection (a) is now codified at 26 U.S.C. Section 5065, “Territorial extent of law”, while title 26 U.S.C. section 2197, subsection (b) is now codified at 26 U.S.C. Section 5704, “Exemption from tax”, subsection (b). Here it states, in part: “… beyond the jurisdiction of the internal revenue laws of the United States…”, but there is no citation to the new location of the definition of the jurisdiction of the internal revenue laws at 26 U.S.C. section 5065.
Further inquiry into the jurisdiction of the internal revenue laws must be within title 26, “Internal Revenue”. Within the table of contents of the Internal Revenue Code is chapter 78, “Discovery of Liability and Enforcement of Title.”. This is a very important chapter, but, of course, the legislative draftsmen have buried this chapter with other “miscellaneous provisions” of the Code. (One must remember that the Internal Revenue Code is just what it says it is – a code. It is not meant to be understood by a casual reader.)
Within chapter 78, “Discovery of Liability and Enforcement of Title” are the following subchapters: Subchapter A, “Examination and Inspection”, Subchapter B, “General Powers and Duties”, [Subchapter C which is repealed], and Subchapter D, “Possessions”.
The first two subchapters, “Examination and Inspection”, and “General Powers and Duties”, obviously have to do with the “Enforcement of Title”. Since subchapter C is repealed, that leaves only subchapter D, “Possessions” for “Discovery of Liability”. This is in harmony with the inquiry into title 19, “Customs duties”, above.
There are five sections of code within Subchapter D, “Possessions”: Section 7651, “Administration and collection of taxes in possessions”, section 7652, “Shipments to the United States”, section 7653, “Shipments from the United States”, section 7654, “Coordination of United States and certain possession individual income taxes”, and section 7655, “Cross references”.
The word “shipments” in both section 7652 and section 7653 is the key to the underlying jurisdiction of revenue from the collection of duties on importing.
Chapter 77 within title 26 is titled “Miscellaneous provisions”. Within chapter 77 is section 7510, “Exemption from tax of domestic goods purchased for the United States”. It states: “The privilege existing by provision of law on December 1, 1873, or thereafter of purchasing supplies of goods imported from foreign countries for the use of the United States, duty free, shall be extended, under such regulations as the Secretary or his delegate may prescribe, to all articles of domestic production which are subject to tax by the provisions of this title.”.
The use of the terms “imported” and “duty free” in section 7510 above are obvious consequences of foreign commerce. To apply the terms “duty free” and “imported” to all articles of domestic production subject to internal revenue leads to the conclusion that such “domestic production” is from “within the exterior boundaries of the United States” – the U.S. possessions and territories.
Black’s Law Dictionary defines “duty” as a term used only within importation and exportation. The Constitution prohibits the federal government from imposing export duties from any of the States. However, there is no such prohibition of exporting duties that applies to the U.S. possessions.
Within the context of foreign commerce the term “internal revenue” makes sense. As the Constitution limits the federal government’s taxing authority in such ways that importing is its main source of revenue, the “importing” of articles into the States from its external boundaries, the U.S. possessions and territories, would create a source of “internal revenue”.
Since there is no prohibition of imposing exportation duties within the possessions, this would require a different set of laws from customs duties. In addition, all commerce within the U.S. possessions and territories is subject to the jurisdiction of the federal government. Unlike within the States where the federal government has no jurisdiction over intrastate commerce, no such limit exists in the U.S. possessions and territories. See the definition of “commerce” within Title 27 U.S.C. Section 214. This section at (4) defines “commerce” at (A) as commerce between any State, possession, or territory and any place outside thereof; at (B) as commerce between points in any State, possession, or territory, but through any place outside thereof; and at (C) as commerce wholly within a possession or territory, including the District of Columbia. So the there are several valid reasons for the implementation of a separate set of laws within customs known as the internal revenue laws.