United States v. 4,432 Mastercases of Cigarettes

This appeal and cross-appeal arise from the search and seizure by the United States Customs Service of over 44 million cigarettes, contained in 4,432 mastercases, for nonpayment of California cigarette taxes. The appeals require us to determine the extent of immunity from state and federal regulatory and taxing power that businesses can expect when they operate in foreign trade zones. We hold that an importer of goods destined for domestic consumption is not exempt from state excise taxes and administrative searches by federal Customs officials simply because it stores its merchandise in a foreign trade zone.

I. Facts And Procedural History

Between 1998 and 2000, Intrigue Trading, Inc. (“Intrigue”), a California corporation, was licensed by the Bureau of Aco-hol, Tobacco, and Firearms to import gray market cigarettes into the United States for domestic sale. The term “gray market cigarettes” refers to both American-made exported cigarettes that are re-imported into the United States, and American brands of cigarettes manufactured abroad for sale in foreign markets but then imported into the United States. Until the year 2000, importing gray market cigarettes was legal, as was…