WAR-5/ENT-7-07-CO:R:C:E 224772 JRS
Barry M. Boren, Esquire
Dadeland Towers, Suite 412
9200 South Dadeland Blvd.
Miami, Florida 33156
RE: Ruling Request Regarding a Telephone Duty-Free Sales
Operation; duty-free stores; 19 U.S.C. 1555(b)(2)(B); Omnibus
Trade and Competitiveness Act of 1988 (Pub. L. 100-418); 25
statute miles from the exit point; 19 CFR 19.35(b)
Dear Sir:
This is in response to your ruling request dated June 8,
1993, on behalf of your client, a duty-free store operator, for
our approval of his proposal to establish a telephone duty-free
sales operation.
FACTS:
The duty-free store operator desires to establish a business
to sell duty-free merchandise to passengers departing the United
States. The specifics of the proposal are set out below.
The orders for these sales are placed via a toll-free (1-800) telephone number which allows passengers to place orders
from anywhere in the United States. A centralized office
receives these calls and is not necessarily located within 25
miles of the passenger's exit point; it is your interpretation
that such a sales office is not considered an airport store or
border shop as defined by the Omnibus Trade and Competitiveness
Act of 1988.
Upon receiving an order, the telephone sales person prepares
a purchase order which includes the following information:
1. Passenger's name and address;
2. Passenger's point of departure from the United States;
3. Date of departure, airline and flight number;
4. Quantity of the goods purchased;
5. Brief description of the goods purchased;
6. Price of each item, the appropriate extension, and the
total price;
7. Passenger's passport number and country of issue; and
8. Credit card information, including credit card number
and expiration date.
Upon receiving the order, the company verifies the credit
information and obtains an authorization number from the credit
card agency. After being approved, a copy of the purchase order
is sent by facsimile to a bonded warehouse located within 3 miles
of the departing passenger's exit point.
Within 24 hours of the flight's scheduled departure, the
bonded warehouse generates a four-part sales ticket which
includes the following information in accordance with 19 CFR
144.37(h)(2):
1. Serial number of the sales ticket and its date of
preparation;
2. Appropriate blanket permit number;
3. Quantity of goods sold;
4. Brief description of the goods sold;
5. Full name and address of the purchaser;
6. Required statutory warnings about returning duty-free
merchandise to the United States;
7. Statement authorizing the company to charge the
merchandise to the passenger's credit card; and
8. Place for the passenger's signature.
One copy of the sales ticket is used by the warehouse to
pick and bag the order and is retained by the warehouse. Once
the order is picked, a copy of the purchase order is placed
inside the bag and the bag is sealed. The 3 remaining copies of
the sales ticket are affixed to the outside of the bag. The bags
are assorted by flight and when all the merchandise for a
particular flight is picked, the bonded warehouse generates a
five-part delivery manifest for the departing flight. This
document contains the airline, flight number, date of departure,
point of departure, and a list of all the sales tickets
identification numbers being delivered to the flight. The
delivery manifest accompanies the shipment.
When the bonded cartman ("delivery cartman") arrives at the
warehouse to pick up the shipment, he examines the packages and
signs the delivery manifest to verify that he received all the
packages listed on the manifest. A copy of the signed manifest
is retained by the warehouse. If the warehouse uses an in-house
bonded cartman, this copy of the delivery manifest would not be
necessary.
The cartman delivers the packages to a staging area or crib
designated by the airport operator where the airport operator's
cartman ("operator's cartman") takes possession of the shipment.
From our phone conversation on July 2, 1993, you stated that the
airport operator's cartman was also a customs bonded cartman.
(Please note that if this is not the case, such a delivery would
be unacceptable and would invalidate the rest of your proposal.)
The operator's cartman signs the delivery manifest and verifies
that he received all the listed packages and gives one copy to
the "delivery cartman" as a receipt.
The operator's cartman takes the package to the jetway
(exit point) and awaits the departing passengers. As each
passenger (purchaser) identifies himself, the operator's cartman
matches the passport name and number listed on the sales ticket
to the information and picture in the departing passenger's
passport. Before receiving the package, the passenger is
required to sign the sales ticket. This signature verifies that
the passenger received the package at the exit point and that the
goods have been exported. One copy of the sales ticket is given
to the departing passenger.
Once the flight has departed, the operator's cartman takes
the two remaining copies of the sales tickets and any undelivered
packages back to the operator's crib. The cartman separates the
two sets of sales tickets and staples each set to the delivery
manifests noting any undelivered items on the manifests.
At least once a day, the delivery cartman returns to the
operator's crib and picks up the signed sales tickets and any
undelivered packages. The cartman has the responsibility to
examine the number of sales tickets attached to the delivery
manifest and the number of bags being returned (still sealed) to
verify that each of the original packages is accounted for. If
there are any discrepancies, he notes it on the manifest before
signing it. One copy of the signed manifest along with the
attached sales tickets is left with the airport operator.
The delivery cartman then returns the remaining documents
and the undelivered packages to the bonded warehouse. The
undelivered packages are returned to stock and the inventory
records are corrected accordingly. The signed sales ticket along
with the signed delivery manifest is filed in the appropriate
file folders within 2 business days of the time the merchandise
originally left the bonded warehouse.
The flow of the paperwork (sales tickets, delivery
manifests, and purchase orders) at the conclusion of each
transaction is set forth below. The four-part sales tickets are
distributed as follows:
1. One unsigned copy remains in the warehouse;
2. One copy is given to the passenger when he picks up the
package and he signs it.
3. One signed copy is retained by the airport operator;
4. The final signed copy is returned to the bonded
warehouse.
The five copies of the delivery manifest are distributed as
follows:
1. One copy remains in the bonded warehouse verifying
receipt of the goods by the delivery cartman;
2. One copy to the delivery cartman verifying that the
operator's cartman received the goods;
3. One copy to the airport operator verifying that the
signed sales tickets and the unclaimed packages were
returned to the delivery cartman;
4. One copy to the delivery cartman verifying that the
signed sales tickets and unclaimed packages were
returned to the bonded warehouse; and
5. One copy to the bonded warehouse acknowledging receipt
of the sales tickets and the unclaimed packages.
The copies of the purchase order are distributed as follows:
1. One copy is retained by the sales office;
2. One copy (facsimile) is retained by the bonded
warehouse; and
3. One copy is given to the departing passenger inside the
sealed bag. This copy serves as the passenger's receipt
for the transaction.
We assume that all the information furnished above is true
and accurate; our analysis of the instant proposal is based on
that assumption being correct. 19 CFR 177.9(b)(1).
ISSUE:
Whether a centralized telemarketing sales office is included
within the definition of a "duty-free sales enterprise" as
defined in 19 U.S.C. 1555(b)(8)(D) and, as such, subject to the
25 statute miles requirement of 19 U.S.C. 1555(b)(2)(B).
LAW AND ANALYSIS:
Section 1908, Title I, of the Omnibus Trade and
Competitiveness Act of 1988, enacted August 23, 1988, and
effective with respect to section 1908 fifteen days after the
date of enactment amended section 555(b) of the Tariff Act of
1930 (19 U.S.C. 1555(b)) to provide, among other things (in
section 1555(b)(7)) that the Secretary, by regulation, establish
a separate class of bonded warehouses for duty-free sales
enterprises, taking into account the unique characteristics of
the different type of "duty-free sales enterprises." Please note
that "duty-free sales enterprises" are administratively referred
to as "duty-free stores."
The Customs regulations (duty-free stores), implementing
section 1908 of the Omnibus Trade and Competitiveness Act of
1988, were published in the Federal Register as T.D. 92-81 on
August 20, 1992, with an effective date of October 19, 1992.
The Customs regulations designated duty-free stores as a new
class of Customs bonded warehouse, namely, Class 9 (see 19 CFR
19.35 and 144.37(h)) (prior to the enactment of the Act of 1988,
duty-free stores usually were hybrid class 2 and class 8 customs
bonded warehouses).
19 U.S.C. 1555(b)(8)(D) provides:
The term "duty-free sales enterprise" means a person
that sells, for use outside of the customs territory,
duty-free merchandise that is delivered from a bonded
warehouse to an airport or other exit point for
exportation by, or on behalf of, individuals departing
from the customs territory.
The different types of duty-free sales enterprises referred
to in 19 U.S.C. 1555(b) are airport stores and border stores.
See 19 U.S.C. 1555(b)(8)(A) and (B). Border stores include
stores on both land and water borders; however, the regulations
include seaport duty-free stores within the meaning of "border
stores." The statute requires that duty-free stores must be
located either within the same port of entry or within 25 miles
from the exit point from which a purchaser of duty-free
merchandise departs the customs territory. Please note that the
Customs administrative limit of 3 miles from the exit point as
set out in Policy Statement 3200-06, entitled "Location of Duty-Free Shop Bonded Facilities," issued November 13, 1981, has been
superseded by the law's plain language of "25 statute miles." 19
U.S.C. 1555(b)(2)(B); 19 CFR 19.35(b).
The concept of a physical retail store (class 9 bonded
warehouse) located in an airport or elsewhere within 25 miles
from the exit point (a border store) is central to being a duty-free store. On the basis of the definitions contained in section
1555(b), a telemarketing company, which takes advance orders for
duty-free sales over the telephone and which is not the bonded
warehouse operator who has control over and responsibility for
the duty-free merchandise, is not within the scope of the duty-free store law and regulations. The telemarketing sales office
cannot be designated as a duty-free store operator. Therefore, a
telemarketing office may be located anywhere in arranging advance
sales of duty-free merchandise for a duty-free store so long as
the actual duty-free shop operator effectuates the sales as
detailed in the instant proposal, which complies with the
existing law. It appears from the facts presented that your
client is already a duty-free store operator and wants to either
associate itself with a telemarketing company or establish
himself as one. The duty-free shop operator (a class 9 bonded
warehouse operator), however, must abide by the regulations
regarding the 25-mile requirement, that is, the warehouse must be
located in the same port or within 25 miles of the port from
where the departing passenger leaves the customs territory.
HOLDING:
A telemarketing sales company which takes advance purchase
orders of duty-free merchandise from departing passengers over
the telephone does not fall within the definition of a duty-free
store because (1) it is not a physical retail store located at an
airport or a border store within 25 miles from the exit point,
and (2) it does not have control over the duty-free merchandise
to effectuate the sale at the airport.
There is no Customs law which prevents a duty-free store
operator from entering into a business arrangement of advance
sales with a telemarketing company, which is located either
inside or outside the 25-mile exit point, so long as the duty-free merchandise itself is located within the 25-mile limit of
the port from where the departing passenger exits the customs
territory.
Sincerely,
John Durant, Director Commercial Rulings Division