811.512 Boats/2
The Secretary of the Treasury ( Mellon ) to the Secretary of State
Sir: I have the honor to reply to your letter of December 16, 1927,76 with which you enclosed a copy of a memorandum transmitted to you from the German Embassy77 objecting to the tax imposed by Section 702 of the Revenue Act of 1926, in so far as it affects the taxation of German built yachts. You have raised the inquiry whether there is some force in the argument that Section 702 does, in fact, violate Article VIII of the Treaty of Friendship, Commerce and Consular Rights between the United States and Germany, and you ask my advice as to whether or not it might be advisable to bring this matter to the attention of the Chairman of the appropriate committee of Congress.
Article VIII of that treaty provides that “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, …”. In my letter of January 8, 1927, you will recall that this Department expressed its opinion that foreign built yachts and boats in use in the United States are not within the ambit of the term “merchandise” as used in the Treaty. Examination of additional court decisions, beyond those cited in that letter, strengthens the view that “merchandise” includes only property which merchants ordinarily sell in the course of trade and, consequently, does not include vessels. In this regard your attention is invited to the fact that Section 702 of the 1926 Revenue Act does not impose the tax upon the builder nor upon the yacht, but upon the use. In view of all the circumstances and of the possible effect upon other provisions of the law, I regret that I must adhere to my former conclusion conveyed to you on January 8th last.
I am informed that the Ways and Means Committee of the House of Representatives, during its consideration of the pending revenue bill, considered the issues raised in the memorandum from the German Embassy. As you are aware, the bill as reported by the Committee and as passed by the House of Representatives on December 15, 1927, continues the tax, at materially increased rates, on foreign built yachts.
In view of the position of the German Government, however, and of the possible effect upon our commerce with Germany, as outlined in your letter, I see no reason why the matter should not be brought to the attention of the Chairman of the Senate Committee on Finance.
Respectfully,