WAR-5-CO:R:C:E 225287 PH
District Director
U.S. Customs Service
Detroit, Michigan 48226
RE: Internal Advice; Duty-Free Stores; Sale of Gasoline and
Diesel Fuel; 19 U.S.C. 1555(b); 19 CFR 19.35 through 19.39
Dear Sir:
In your memorandum of March 23, 1994 (File: WAR-1-IC:WJR
AMMEX5/TXTMONIC), you requested internal advice concerning a
proposal to sell "duty-free" gasoline and diesel fuel at a duty-
free store in your District. Our ruling follows:
FACTS:
You state that a duty-free store operator (the "operator")
in your District has proposed to sell duty-free gasoline and
diesel fuel at its duty-free store. You state that the operator
has modified the store under consideration by "adding fencing,
electronic gates, and constructing a private road leading
directly from their sterile compound to the toll booths on the
bridge plaza." The operator formally requested permission to
operate this facility as a sterile shop with "live" products.
During your physical inspection of the facility, you noted a
gasoline/diesel station within the sterile area.
You state that in your December 23, 1994, letter tentatively
approving the request, you excluded any bonded fuel operations.
On the same date, the operator requested that you reconsider your
position on the bonded petroleum operation. In a follow-up
letter dated January 24, 1994, the operator formally requested
that you approve a bonded petroleum product operation at its
duty-free store. In this letter, a copy of which you enclosed,
it is stated (in part):
The petroleum would be sold for export, and would indeed be
exported as all other bonded merchandise from this facility.
The product would be imported ... by bona fide importation
procedures including the use of licensed customs brokers,
bonded bulk carriers/cartman, and would be subject to
inventory control and monitoring verification, just like
other bonded merchandise from this facility.
The dispensing of petroleum products from the duty free
plaza would be similar to the exi[s]ting programs for air
carriers at various international airports.
In your memorandum you request advice on the issues in the
ISSUES portion of this ruling.
ISSUES:
(1) Does gasoline and diesel fuel of foreign origin qualify
for "duty free" control by Customs under the Warehouse
Entry/Withdrawal for Export procedures?
(2) If a facility is considered an "exit" point for bonded
merchandise, would it also qualify as an "exit" point for bonded
fuel?
3. Since the duty on foreign sourced fuel is only .0125
cents per gallon, the real savings would be the exemption from
federal and state excise taxes. Can copies of fuel warehouse
entries be given to the U.S. Internal Revenue Service for
enforcement purposes? What would be the restrictions if a
similar request is made by the State of Michigan?
(4) Are their any legal determinations or directives
covering the dispensing of bonded fuel at a border location?
Does fuel qualify as "personal use quantities for consumption
outside the United States?" Should sales be subject to other
restrictions?
LAW AND ANALYSIS:
Duty-free sales enterprises are provided for in 19 U.S.C.
1555(b). This provision was enacted by section 1908, title I,
Omnibus Trade and Competitiveness Act of 1988 (Public Law 100-
418; 102 Stat. 1315). Under this provision:
(1) Duty-free sales enterprises may sell and deliver for
export from the customs territory duty-free merchandise in
accordance with this subsection and such regulations as the
Secretary may prescribe to carry out this subsection.
...
(3) Each duty-free sales enterprise--
(A) shall establish procedures to provide reasonable
assurance that duty-free merchandise sold by the
enterprise will be exported from the customs territory;
...
(D) shall not be required to mark or otherwise place a
distinguishing identifier on individual items of
merchandise to indicate that the items were sold by a
duty-free sales enterprise, unless the Secretary finds a
pattern in which such items are being brought back into
the customs territory without declaration;
...
(7) The Secretary shall by regulation establish a separate
class of bonded warehouses for duty-free sales enterprises.
Regulations issued to carry out this paragraph shall take
into account the unique characteristics of the different
types of duty-free sales enterprises.
Before enactment of this provision in 1988, duty-free stores
were administered by Customs directives, rather than through any
specific legislation or regulations (see Treasury Decision 92-81,
published in the Federal Register on August 20, 1992 (57 F.R.
37692), and Duty Free International, Inc., Ammex Warehouse Co.,
Inc., and Ammex Tax & Duty Free Shops, Inc., v. United States,
CIT Slip Op. 93-246, printed at 28 Cust. Bull. & Dec. 3, January
19, 1994, p. 36).
In its administration of duty-free stores before enactment
of the 1988 legislation, Customs addressed the issue under
consideration. In a ruling letter dated October 30, 1972 (File:
DB 711.2 LO 200396), the then Assistant Commissioner of Customs,
Office of Regulations, held in regard to the proposed handling of
gasoline and diesel products in duty-free stores that:
We do not believe that the activities of "duty-free stores"
can be extended to unidentifiable fungibles sold on a retail
basis without seriously impairing our control over the
operations of these stores and the merchandise sold by them.
In this respect it should be noted that merchandise
purchased from a duty-free store when returned to the United
States, must be declared for the purpose of collecting the
duty and internal-revenue taxes. Customs would have no
practical means of enforcing this requirement against any of
the automobiles returning to the United States from Canada
with "unidentifiable" gasoline in their tanks.
The 1988 legislation does not directly address the issue
under consideration. We have researched the legislative history
to the legislation. The only such history we have found which
may indicate an intent in this regard is found in the
Congressional Record (July 15, 1987, p. S 9952, remarks of
Senator Bentsen), where it was stated:
Section 921 [of a predecessor to the enacted legislation] is
not intended to change the way duty-free stores currently
operate, but rather to codify current practice by providing
a regulatory framework for continued operation of duty-free
stores in the future.
As noted above, at the time this statement was made and at
the time of passage of the 1988 legislation, the current practice
was not to allow unidentifiable fungibles, such as gasoline and
diesel products for use in automobiles, to be sold on a retail
basis by duty-free stores. Thus, the only legislative history we
have been able to find which may be applicable to this issue in-
dicates that there was no intent, at least by the Senator making
these remarks, to change the then current practice. Current
practice, as shown by the quoted ruling, was not to allow uniden-
tifiable fungibles, such as gasoline and diesel products for use
in automobiles, to be sold on a retail basis by duty-free stores.
Although the 1988 legislation does not directly address the
issue under consideration, the statute does contain a provision
indicating that "unidentifiable fungibles" were not intended to
be allowed to be sold in duty-free stores. Under 19 U.S.C.
1555(b)(3)(D), a duty-free enterprise shall not be required to
"mark or otherwise place a distinguishing identifier on
individual items of merchandise" to indicate that the items were
sold by a duty-free sales enterprise, unless the Secretary finds
a pattern in which such items are being brought back into the
Customs territory without declaration. This caveat (i.e.,
permitting the placement of a mark or other distinguishing
identifier on individual items of merchandise in the stated
circumstance) was added in Conference (see H. Conf. Rep. No. 100-
576, p. 769 (100th Cong., 2d Sess., 1988), printed at 1988
U.S.C.C.A.N. 1547, 1801-1803). Clearly, inclusion of this caveat
indicates an intent that the merchandise which could be sold in a
duty-free store would be "individual items of merchandise" which
could be marked or otherwise identified. "Unidentifiable
fungibles", such as gasoline and diesel products for use in
automobiles, are not such "individual items".
We have also reviewed the Customs Regulations (see 19 CFR
19.35 et seq.) issued under 19 U.S.C. 1555(b) and the regulatory
history for those regulations (see Federal Register of May 17,
1991 (56 F.R. 22833), August 20, 1992 (57 F.R. 37692), October
16, 1992 (57 F.R. 47409), and May 20, 1993 (58 F.R. 29349).
Nowhere in these materials is there any indication of an intent
to permit the sale by duty-free stores of the merchandise under
consideration. We note that the caveat discussed above (i.e.,
relating to marking or otherwise identifying individual items of
merchandise in the described circumstance) is specifically
provided for in the Customs Regulations (19 CFR 19.36(d)).
In its January 24, 1994, letter, the operator contends that
the gasoline and diesel fuel could be controlled "just like other
bonded merchandise from this facility" and that "dispensing of
petroleum products from the duty free plaza would be similar to
the exi[s]ting programs for air carriers at various international
airports." As demonstrated above, the gasoline and diesel fuel
could not be controlled like other bonded merchandise sold at
duty-free stores (i.e., because gasoline and diesel fuel are
"unidentifiable fungibles" not subject to marking or other
identification as provided for in the statute and regulations).
Further, the proposal is not similar to existing programs for air
carriers. We assume that the program to which the operator
refers is that authorized in 19 U.S.C. 1309 and the Customs
Regulations issued thereunder (19 CFR 10.59 - 10.65). Note that
these regulations specifically provide for fuel to be used as
supplies for vessels (and aircraft (19 CFR 10.59(d))) (i.e., see
19 CFR 10.62). Note also that the trade in which these vessels
and aircraft may be engaged is carefully circumscribed and that
there is a statutory and regulatory structure under which Customs
controls the movements of vessels and aircraft departing from,
arriving at, and moving between points in the United States (see
19 CFR Parts 4 and 122).
Based on the foregoing, we conclude that duty-free gasoline
and diesel fuel for automobiles may not be sold at a duty-free
store, as described in your memorandum and the materials
forwarded with your memorandum. In light of this conclusion, the
other issues which you raised are made moot and need not be
addressed.
HOLDING:
Duty-free gasoline and diesel fuel for automobiles may not
be sold, as described in the FACTS portion of this ruling, at a
duty-free store provided for in 19 U.S.C. 1555(b).
EFFECT ON OTHER RULINGS:
Ruling letter dated October 30, 1972 (File: DB 711.2 L
200396), FOLLOWED.
The Office of Regulations and Rulings will take steps to
make this decision available to Customs personnel via the Customs
Rulings Module in ACS and the public via the Diskette
Subscription Service, Lexis, Freedom of Information Act and other
public access channels 60 days from the date of this decision.
Sincerely,
John Durant, Director
Commercial Rulings Division