VES-3-02/07-CO:R:P:C 111051 GEV
Ms. Phyllis E. Marcus
Chief, Branch 2
Associate Chief Counsel
(International)
Internal Revenue Service
Washington, D.C. 20224
RE: Coastwise Trade; Passengers; Foreign-Flag Vessel;
46 U.S.C. App. 289
Dear Ms. Marcus:
This is in response to your memorandum dated May 11, 1990
(your ref: CC:INTL-Br2 INTL-948-86) requesting our assistance in
the application of the Jones Act to various fact patterns
involving foreign-owned and foreign-operated vessels. Our
findings are set forth below.
FACTS:
In developing regulations for the taxation of transportation
income you are interested in determining the circumstances under
which the operation of a cruise ship between a foreign port and
one or more U.S. ports would be in violation of the Jones Act.
You are also interested in whether the provisions of the Jones
Act consider related activities performed by unrelated or related
parties, or if they apply only to the activities of an individual
vessel. The specific fact patterns you wish us to consider are
as follows:
EXAMPLE 1. Passengers are transferred by bus from the
airport in City A in the United States to a port in City B
in a contiguous country. The passengers embark on a cruise
on a foreign-owned vessel in City B. The vessel travels
from City B to various intermediate U.S. ports. The cruise
concludes at a U.S. port in City C, where the passengers
disembark.
Would the facts violate U.S. Customs Service
regulations if the bus is either (a) owned by the company
that owns and operates the vessel; (b) the bus company is a
related or an unrelated company that has a contractual
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arrangement with the owner/operator of the vessel; or (c)
the bus company is an unrelated company that has a
contractual arrangement with a tour company, which is
related to the owner/operator or the vessel.
EXAMPLE 2. On the cruise in Example 1, passengers either
disembark or go ashore temporarily to take sight-seeing
excursions at an intermediate U.S. port. Would there be a
violation of the Act if:
(a) Passengers are allowed to remain on shore at the
intermediate U.S. port for an extended period of time (e.g.,
several days), but are on board when the vessel leaves port;
(b) Passengers are allowed to disembark at an
intermediate U.S. port?
EXAMPLE 3. Passengers begin a cruise on a foreign-owned and
operated vessel in City A in the United States. The vessel
travels to one or more U.S. coastwise ports and a foreign
port. The passengers disembark at a U.S. coastwise port.
Is it relevant that the intermediate foreign port is: (a) a
contiguous country foreign port; (b) a nearby foreign port;
or (c) a foreign port?
For example, could a foreign-owned and operated vessel
operate a cruise which carries passengers from Miami,
Florida through the Panama Canal to Acapulco, Mexico to San
Diego, California and finally to Seattle, Washington and not
violate Customs regulations? Similarly, what would be the
result for a foreign-owned and operated vessel that operated
a cruise from New York City to Philadelphia to Nassau, and
ultimately to Miami?
ISSUE:
Whether the transportation of passengers on foreign-flag
vessels as described above constitute violations of 46 U.S.C.
App. 289.
LAW AND ANALYSIS:
Title 46, United States Code Appendix, section 883 (46
U.S.C. App. 883), the merchandise coastwise law often called the
"Jones Act", provides, in part, that no merchandise shall be
transported between points in the United States embraced within
the coastwise laws, either directly or via a foreign part, or for
any part of the transportation, in any vessel other than a vessel
built in and documented under the laws of the United States and
owned by persons who are citizens of the United States (i.e., a
coastwise-qualified vessel). Section 289 of title 46 (46 U.S.C.
App. 289, the passenger coastwise law which appears to be more -
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relevant to your concerns) as interpreted by the Customs Service,
prohibits the transportation of passengers between points in the
United States embraced within the coastwise laws, either directly
or by way of a foreign port, in a non-coastwise-qualified vessel
(see above). For purposes of section 289, "passenger" is defined
as "... any person carried on a vessel who is not connected with
the operation of such vessel, her navigation, ownership, or
business." (19 CFR 4.50(b)) Section 4.80a, Customs Regulations
(19 CFR 4.80a, copy enclosed) is interpretive of section 289.
In its administration of 46 U.S.C. App. 289, the Customs
Service has ruled that the carriage of passengers entirely within
territorial waters, even though the passengers disembark at their
point of embarkation and the vessel touches no other coastwise
point, is considered coastwise trade subject to coastwise laws.
However, the transportation of passengers to the high seas
(i.e., beyond U.S. territorial waters) and back to the point of
embarkation, assuming the passengers do not go ashore, even
temporarily, at another United States point, often called a
"voyage to nowhere", is not considered coastwise trade. It
should be noted that the carriage of fishing parties for hire,
even if the vessel proceeds beyond territorial waters and returns
to the point of the passenger's embarkation, is considered
coastwise trade.
In interpreting the coastwise laws, Customs has ruled that a
point in United States territorial waters is a point in the
United States embraced within the coastwise laws. The
territorial waters of the United States consist of those inland
U.S. waters deemed navigable, and the territorial sea, defined as
the belt, 3 nautical miles wide, adjacent to the coast of the
United States and seaward of the territorial sea baseline. The
U.S. Coast Guard determines whether a particular body of water is
deemed to be navigable waters of the United States in order to
ascertain its jurisdiction to enforce the laws it administers.
The U.S. Customs Service, in ascertaining its own jurisdiction to
enforce the navigation laws its administers, is strongly disposed
to follow the determinations of the U.S. Coast Guard in the
absence on Federal judicial decisions or explicit Congressional
enactment, although it is not required to do so.
In regard to Example 1 above, the relationship of the bus to
the vessel in terms of ownership or contractual arrangement is
irrelevant for purposes of section 289. The focus of section 289
is on the route of the vessel in question. In this fact scenario
the vessel embarked passengers at a port of a contiguous foreign
country (i.e., a "nearby foreign port" as defined in 19 CFR
4.80a(a)(2)), proceeded to various intermediate U.S. ports before
the passengers finally "disembarked" (as defined in 19 CFR
4.80a(a)(4)) at a U.S. port. Such a voyage does not constitute
coastwise transportation of passengers for purposes of section
289. It should be noted that the applicable provisions
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prohibiting the movement of passengers on foreign-based busses
between United States points are set forth in 19 CFR
123.14(c)(1).
In regard to Example 2 above, if passengers either disembark
(see the definitions of "embark" and "disembark" set forth in 19
CFR 4.80a(a)(4)) or go ashore temporarily to take sight-seeing
excursions at an intermediate U.S. port there would be no
violation of section 289 if they are either: (a) allowed to
remain on shore at the intermediate U.S. port for an extended
period of time (e.g., several days), but are on board when the
vessel leaves the port; or (b) allowed to disembark at an
intermediate U.S. port. The rationale behind this is the same as
that discussed above: in both scenarios the passengers in
question embarked at a non-coastwise point (City B in a
contiguous foreign country) and disembarked at a U.S. coastwise
point. Accordingly, there is no coastwise transportation of
passengers for purposes of section 289.
In regard to Example 3 above, the relevancy of whether an
intermediate foreign port is a "nearby foreign port" (as defined
in 19 CFR 4.80a(a)(2)) or a "distant foreign port" (as defined
in 19 CFR 4.80a(a)(3)) is crucial in determining whether or not
a violation of section 289 has occurred. In the first fact
pattern set forth in Example 3, the passengers embark at a
coastwise point (Miami) on a voyage to several coastwise points
(San Diego and Seattle) and a nearby foreign port (Acapulco). In
view of the fact that the passengers are disembarking at Seattle
(a coastwise port other than the port of embarkation) there is a
violation of section 289 (see 19 CFR 4.80a(b)(2)). The same
analysis holds true for the second fact pattern in Example 3; the
passengers embark at a coastwise point (New York City) on a
voyage to several coastwise points (Philadelphia and Miami) and a
nearby foreign port (Nassau) with the passengers disembarking at
Miami (a coastwise port other than the port of embarkation)
resulting in a violation of section 289.
It should be noted, however, that in each of the two fact
patterns set forth in Example 3, had a distant foreign port (see
19 CFR 4.80a(a)(3)) been substituted on the cruise itinerary for
the nearby foreign ports (i.e., Acapulco and Nassau) or merely
added to the existing itinerary and the passengers proceeded with
the vessel to the distant foreign port, there would have been no
violation of section 289 (see 19 CFR 4.80a(b)(3)).
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HOLDING:
The transportation of passengers on foreign-flag vessels as
described above constitutes violations of 46 U.S.C. App. 289 as
discussed above.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch
Enclosure