FOR-2-03-RR:IT:EC 227654 LTO
Mr. Marshall V. Miller
Miller & Company P.C.
4929 Main Street
Kansas City, Missouri 64112
RE: Foreign-Trade Zones; Retail Trade; Exportation; Swan and Finch Co. v. U.S.; Witco Chemical Corp. v. U.S.; Nissan Motor Manufacturing Corp. U.S.A. v. U.S.; The Conqueror;
Roehl Transport Inc. v. Wisconsin Division of Hearings and Appeals; Roland Electric Co. v. Walling, Wage and Hour Administrator; 19 U.S.C. 81c(a); 19 U.S.C. 81o(d); 19 U.S.C.
1309; 19 U.S.C. 1322(a); 19 CFR 101.1; 19 CFR 146.66; diesel
fuel; sale for consumption; Export Clause; instruments of international traffic; International Fuel Tax Agreement; zone-restricted status; HQs 223828, 224935
Dear Mr. Miller:
This is in response to your letter dated August 1, 1997,
requesting, on behalf of Detroit International Bridge Company, a
ruling regarding whether the proposed activity constitutes
"retail trade," which is prohibited from foreign-trade zones
(FTZs). We have also considered your additional submissions of
August 21, October 16 and November 22, 1997.
FACTS:
The Greater Detroit Foreign-Trade Zone, Inc., filed an
application with the Foreign-Trade Zones Board (FTZB) for FTZ No.
70. FTZB Order No. 176, dated July 21, 1981, authorized the
establishment of the zone (see Federal Register, July 30, 1981).
An Expansion Application for a new general-purpose FTZ site at
the Ambassador Bridge at Foreign-Trade Zone No. 70 was approved
by FTZB Order No. 843, dated August 26, 1996.
An Application for Activation has been filed with the Port
Director, Detroit Customs, for the storage and shipment for
export only of diesel fuel exclusively for commercial truck
vehicles. You state that the facility will be physically
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isolated and secured from any other pedestrian traffic or
passenger automobiles at the Bridge. The fuel will be available
only to commercial vehicles with monthly accounts on a wholesale
contract basis. It will be placed in the fuel tank of a truck to
be consumed by the truck in its operation, rather than to be
transported for delivery or resale. No leaded or unleaded
gasoline of the type used in passenger automobiles for personal
use will be held at the facility.
The fuel admitted to the general-purpose site will originate
in other countries or U.S. refineries with or without subzone
status. All merchandise admitted to the facility will be held in
zone restricted status. You state that no merchandise will be
available for Customs entry and use in the United States.
Because of the facility's proximity to the privately-owned
Ambassador Bridge, the only means of exiting the isolated and
secured zone site will be a dedicated, privately-owned exit road
that requires travel on the Ambassador Bridge to Canada. No exit
ramps will be available to allow vehicles to re-enter the United
States. Most trucks fueled at the site will have a Trip Manifest
which lists their destination as Canada.
ISSUE:
1. Whether the sale for consumption of diesel fuel from an FTZ
constitutes prohibited retail trade.
2. Whether the placing of diesel fuel in a truck's fuel tank in
an FTZ to be consumed by the truck destined for Canada
constitutes an "exportation."
LAW AND ANALYSIS:
1. Retail Trade
You contend that the proposed activity does not fall within
the definition of "retail trade," which is prohibited within an
FTZ by Section 15(d) of the Foreign-Trade Zones Act (19 U.S.C.
81o(d)). See 19 CFR 146.14. 19 U.S.C. 81o(d) provides that
"[n]o retail trade shall be conducted within the zone except
under permits issued by the grantee and approved by the Board.
Such permittees shall sell no goods except such domestic or duty-paid or duty-free goods as are brought into the zone from the
customs territory."
"Retail trade" is not specifically defined in the Foreign-Trade Zones Act. Based on various court decisions (Witco
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Chemical Corp. v. United States, 742 F.2d 615 (CAFC 1984); Roland
Electric Co. v. Walling, Wage and Hour Administrator, 326 U.S.
657 (1946)), you argue that the sale under consideration is not
retail but wholesale, and therefore, is not prohibited retail
trade. The cases cited, however, did not address the use of the
term "retail" in the context of the FTZ law.
In Witco Chemical Corp., the CAFC defined the term "retail"
in the context of a provision of the federal tax code (I.R.C.
613A, Limitations on Percentage Depletion in Case of Oil and Gas
Wells). Id. at 617. The court found that, because there was no
statutory definition given nor any indication that Congress
intended to ascribe a special meaning to the term, it must be
presumed that Congress intended "retail" to have been used in its
ordinary and common meaning. Id. at 620-621. The common meaning
for "retail," according to the court, was as follows: "sales
made in small quantities to ultimate consumers to meet personal
needs, rather than for commercial or industrial uses of the
articles sold" (citing Roland Electric Co., which defined the
term in the context of the Fair Labor Standards Act). Id. A
similar definition can be found in the U.S. Customs Service
Foreign-Trade Zones Manual, Customs Publication No. 559 (October
1996) (which provides that "retail trade" is "generally, sales or
offers to sell goods or services in small quantities directly to
consumers or to individuals for personal use"). See also C.D.
3210-23, dated May 11, 1987 (wherein "retail trade" was defined
as "generally, sales or offers to sell goods or services to
individuals for personal use").
Unlike the legislative history for the statute in Witco
Chemical Corp., the legislative history for the Foreign-Trade
Zones Act does provide evidence of Congress' intent regarding the
use of the term "retail trade." Although not specifically
defined, "retail trade" was the subject of consideration and
discussion in Congressional documents even before the passage of
the Foreign-Trade Zones Act. A report of the Tariff Commission,
Free Zones in Ports of the United States, published as S. Doc.
No. 239, 67th Cong., 2nd Sess (1922), stated that the intent of
the bill as drafted, and in accord with the amendments suggested
by the Commission, was that there should be no privilege granted
within the zone as concerns imported goods not equally shared by
the Customs territory. This went to the extent of preventing the
use of imported equipment, foodstuffs, ships' stores, etc.,
without payment of duty. The Commission further stated that for
the effective protection of the revenue no imported goods should
be consumed therein unless duties are paid. S. Doc. 239, 67
Cong. 30 (1922).
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In hearings before the Subcommittee of the Committee on
Finance on S. 3170, entitled "Free Zones in Ports," 66th Cong.,
1st Sess. 85 (October 21, 1919), Mr. William Kent of the Tariff
Commission discussed the retail trade prohibition which, prior to
the hearing had been identical to that in H.R. 9724, 66th Cong.,
1st Sess. That is, the provision allowed only two types of
sales, required such sales to be done only by special permittees
and required that the goods come from the Customs territory. The
language of S. 3170 at the time of the hearings had been amended
to eliminate the limitations of ships' stores and zone employees'
food. Mr. Kent noted the change and said that as long as all of
these goods are to be brought in from the Customs territory there
was no need to limit the items to ships' stores and food.
In a letter incorporated into the record of the hearings,
Commerce Secretary William C. Redfield argued that the provision
for all foreign dutiable goods to have paid duty be stricken from
the bill. "Free Zones in Ports Hearings," op. cit., at pages 124
and 125. Secretary Redfield argued that the amount of foreign
articles consumed in a zone would be insignificant and the loss
of revenue would be small in comparison to the cost of enforcing
the provision.
Section 15(d) of the Act of June 18, 1934, Pub. L. 73-397
(the Foreign-Trade Zones Act) changed the language slightly to
add the words "domestic or duty-paid or duty-free" as the type of
goods that were subject to the provision. The change was made
during the House-Senate conference and no express reason was
given for the change. H.R. 9322, 73d Cong., 2nd Sess (May 31,
1934); H. Rept. 1521, 73d Cong, 2d Sess. 5 (May 9, 1934); and H.
Rept. 1884, 73d Cong., 2d Sess. (June 4, 1934). In any event,
the purpose of the provision is reflected in the statement (at
page 5 of H. Rept. 1521 that section 15(d) of H.R. 9322) limiting
retail trade to goods brought in from the Customs territory.
There is no suggestion that the change in language signified a
change in intent.
The legislative history for the Foreign-Trade Zones Act
shows that the concept of consumption for tariff purposes was
included within the concept of retail trade. This is
particularly evident in Secretary Redfield's letter to the
Finance Committee, described above, in which he argued that
Congress ought to allow such consumption because it would have an
insignificant effect on the revenue. Congress, in enacting the
provision, rejected that argument. Accordingly, sales for
consumption constitute retail trade.
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In light of this legislative history, the definitions
provided in other contexts (i.e., Witco Chemical Corp. and Roland
Electric Co.), are not persuasive when interpreting the "retail
trade" prohibition of 19 U.S.C. 81o(d). Moreover, the
"general" definitions provided in the FTZ Manual and in C.D.
3210-23 must be read in light of this legislative history.
You argue that the proposed activity is identical in all
material respects for the purpose of what constitutes "retail
trade" to jet fuel sales for export to commercial airlines. The
sale of jet fuel for export to commercial airlines is covered by
19 U.S.C. 1309(a), which provides an exemption from customs
duties and internal-revenue tax for supplies for certain vessels
and aircraft upon their withdrawal from a customs bonded
warehouse, from continuous customs custody elsewhere than in a
bonded warehouse, or from an FTZ. Section 1309(a) covers
aircraft registered in any foreign country and engaged in foreign
trade or trade between the United States and any of its
possessions, or between Hawaii and any other part of the United
States or between Alaska and any other part of the United States
(although the provisions for free withdrawals does not apply to
petroleum products for vessels or aircraft in voyages or flights
exclusively between Hawaii or Alaska and any U.S. airport or
Pacific coast seaport).
The legislative history for 19 U.S.C. 1309(a) provides that
"the original and main purpose for the exemption from duty and
taxes of ships' supplies was to place U.S. vessels engaged in
foreign trade on an equal footing with foreign vessels. Such
exemption extends back to 19th century tariff acts and was
eventually extended to aircraft." S. Rep. 1491 (1960), U.S.Cong.
& Adm.News 1960 - 175, pg. 2785. The reason U.S. vessels and
aircraft engaged in foreign trade were at a disadvantage with
foreign vessels and aircraft was due to the assessment of duties
and taxes on supplies removed from a bonded warehouse or an FTZ.
In the absence of 19 U.S.C. 1309, the removal of supplies from a
bonded warehouse or an FTZ in the manner described would have had
duty implications.
19 U.S.C. 1309 does not cover motor vehicles, nor is there a
similar exemption elsewhere for supplies for motor vehicles.
Further, Congress was well aware of the long-standing "retail
trade" prohibition when it added FTZs to 19 U.S.C. 1309 in 1953.
See Customs Simplification Act of 1953 (August 8, 1953). Thus,
the promulgation of 19 U.S.C. 1309 cannot constitute evidence
that similar transactions involving motor vehicles are permitted,
and, in fact, the lack of a similar provision for vehicles is
evidence that such transactions are not permitted.
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Interestingly, the International Fuel Tax Agreement (IFTA),
which you have cited to show that the fuel has been "exported"
when it enters Canada, treats such a transaction as a "retail
sale." The IFTA, which is discussed in greater detail below, "is
designed to facilitate the collection of state fuel taxes from
interstate motor carriers." See Roehl Transport Inc. v.
Wisconsin Division of Hearings and Appeals, Slip Op. 97-0211
(Wisc. App. 1997). The IFTA currently counts the 48 contiguous
states and ten Canadian provinces as members.
While the term "retail sale" is not specifically defined in
the IFTA, the agreement does differentiate between retail and
bulk sales. Under Section VII(A) of IFTA's Articles of
Agreement, "[j]urisdictions may require payment of motor fuels
taxes on retail sales of motor fuels delivered into the fuel tank
which propels the motor vehicle (emphasis added)." See IFTA,
Articles of Agreement, Section VII(D) (regarding tax payments on
fuel delivered into or withdrawn from bulk storage). Under the
IFTA, if a vehicle licensed under the IFTA in Oklahoma buys fuel
in Nebraska, the licensee will receive a refund/credit for the
tax on the fuel paid at the pump in Nebraska when the licensee
files the quarterly IFTA tax return to Oklahoma on the fuel
consumed by the vehicle.
To reiterate, the proposed transaction involves the sale of
diesel fuel, which will be placed in the fuel tanks of trucks
bound for Canada. The fuel will be consumed by the trucks
(rather than transported for delivery or resale) during their
operation. Such a transaction constitutes prohibited "retail
trade" under 19 U.S.C. 81o(d).
2. Exportation
In addition to finding that the proposed activity
constitutes prohibited "retail trade," we believe that the
placement of diesel fuel in a truck's fuel tank to be consumed by
the truck in its operation, rather than to be transported for
delivery or resale, does not constitute an "exportation."
As stated above, under 19 U.S.C. 81c(a), foreign merchandise may
be brought into an FTZ, manufactured and later exported therefrom
without the payment of duty. "Exportation" was defined by the
U.S. Supreme Court in Swan & Finch Co. v. United States, 190 U.S.
143 (1903), and then adopted in 19 CFR 101.1 (see T.D. 84-213, 49
FR 41170, Oct. 19, 1984), as follows: "a severance of goods from
the mass of things belonging to this country with the intention
of uniting them to the mass of things belonging to some foreign
country . . . ." See 17 Op. Attys. Gen. 579, 583 (July 2, 1883).
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The Court in Swan & Finch dealt with a circumstance similar
to the case at hand. In that case, lubricating oils manufactured
in the United States from imported, duty paid, rape seed, were
placed on board a vessel bound for a foreign port. Swan & Finch
Co. v. United States, 37 Ct. Cl. 101 (1901). The claimant
claimed a drawback of the duties paid on the imported rape-seed
used in the manufacture of the oils. Id. at 102. The Court
found that the oils, which were to be consumed by the vessel
during its voyage, rather than shipped to foreign countries and
there landed, were not "exported" for purposes of the drawback
statute (then, section 22 of the act of August 28, 1894,
reenacted as section 30 of the act of July 27, 1897). Swan &
Finch, 190 U.S. at 145.
You argue that the Swan & Finch decision does not apply for
several reasons. First, you claim that the Court "defined
'exportation' based upon that term's use in the drawback statute,
and its precedential value should be weighed accordingly." As
your client has no intention of claiming drawback on the diesel
fuel, you claim that Swan & Finch is not controlling. This
argument, of course, ignores the verbatim adoption of the
definition used by the Court, as first quoted in the Attorney
General's decision cited above, in the Customs Regulations. For
cases where the Swan & Finch definition was favorably cited, see,
e.g., Hugo Stinnes Steel and Metals Co. v. United States, 453 F.
Supp. 94 (Cust. Ct. 1980); National Sugar Refining Co. v. United
States, 488 F. Supp. 907 (Cust. Ct. 1980).
Second, you correctly point out that the Court considered
the purpose of the drawback statute and found that drawback was a
"governmental grant of a privilege or benefit" (Id. at 146), and
was therefore to be construed in favor of the government and
against the party claiming the grant. The FTZ law, however, also
is a governmental grant of a privilege or benefit--it provides a
duty deferral and exemption on the admission and withdrawal of
goods (for exportation) from an FTZ.
In HQ 223828, dated July 1, 1992, we explained:
Liability for duty arises upon importation (19 CFR 141.1). An importation is the arrival of goods at
a United States port from a foreign port or place
with intent then and there to unlade them [cases
cited therein]. Merchandise admitted into [an FTZ]
has been imported. The contention that duty cannot
be imposed on goods admitted into a FTZ because [an]
FTZ is considered to be outside the customs territory
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was rejected as an overbroad reading of the [FTZ]
statute. Nissan Motor Manufacturing Corp. U.S.A. v.
United States, [884 F.2d 1375 (CAFC 1989)].
Foreign articles while in an FTZ are not duty-free, but
conditionally free. See HQ 224935, dated September 17, 1993
(wherein we found that the shipment of cable between U.S. points
rather than to a foreign country was not an "exportation," and
consequently, duty was payable when the manufactured cable was
withdrawn from the FTZ). In Nissan, the CAFC made it clear that
duty is simply deferred while the merchandise is in the zone and
that the deferral applies only with strict compliance to the
statute ("Congress signalled its intention to make the imposition
of immediate duties dependent on the operations that occur in [an
FTZ] when it listed the activities that could be performed on
merchandise brought into a zone [19 U.S.C. 81c]." Id. at 1377).
Thus, both the drawback and FTZ statutes provide a means to avoid
the payment of duty, either by refund or exemption. Moreover,
the definition found in the Customs Regulations for the term
"exportation" applies to both the drawback and FTZ laws.
Third, you argue that the proposed activity qualifies as an
exportation under the Export Clause of the U.S. Constitution,
which reads, "[n]o Tax or Duty shall be laid on Articles exported
from any state." U.S. Const., Art. 1, sect. 9, cl. 5. You cite
several cases where the U.S. Supreme Court "broadly" defined the
term "exported." The Court, however, in rendering its decision
in Swan & Finch, considered the applicability of the Export
Clause, and approved the definition now found in the Customs
Regulations. The Court specified that the term "cannot mean
simply a carrying out of the country" (Id. at 145), yet this is
basically the interpretation that you now request.
As stated above, in discussing the Nissan Motor
Manufacturing Corp. U.S.A. decision, liability for the duty laid
on the diesel fuel arose at importation. Such duty was, however,
deferred while the merchandise remained in the zone. Once
removed from the zone, the deferral would remain in place only
upon strict compliance with the statute--in this case, only if
the diesel fuel was exported. A review of the court decisions on
the Export Clause shows that the imposition of duty in this
instance does not violate the Export Clause.
In Aguirre v. Maxwell, 1 Fed. Cases 212 (No. 101)(CC.SD.NY
1853), a special tonnage duty on Spanish vessels coming to the
United States from Cuba or Puerto Rico, then Spanish possessions,
was imposed. The payment was due before the vessel cleared for a
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return voyage to either island. The court held that the Export
Clause has no application to the imposition of a tax on a foreign
vessel arriving in the United States. The court found that
requiring the payment before departure did not turn the import
duty into an export tax or duty.
In Cornell v. Coyne, 192 U.S. 418 (1904), the Supreme Court
considered a tax imposed on the manufacture of filled cheese and
on the importation of such cheese. The plaintiffs asserted that
the failure of the tax law to provide for a remission of either
tax if the cheese was made for exportation and was exported
constituted a violation of the Export Clause. The Court
disagreed, and stated (at page 426), its understanding of the
scope of the Export Clause: "this means that no burden shall be
placed on exportation and does not require that any bounty be
given therefor." The Court further stated (at page 427):
The true construction of the Constitutional
provision is that no burden by way of tax or
duty can be cast upon the exportation of
articles, and does not mean that articles
exported are relieved from the prior ordinary
burdens of taxation which rest upon all
property similarly situated. The exemption
attaches to the export, and not to the article
before its exportation . . . .
In Dooley v. United States, 183 U.S. 151, 156 (1901), the
Supreme Court noted the difference between duties on imports and
duties on exports. A duty due as a consequence of importation
need not be refunded on exportation to avoid violating the Export
Clause. See also Turpin v. Burgess, 117 U.S. 504 (1886); A.G.
Spaulding & Bros. v. Edwards, 262 U.S. 66 (1923); William E. Peck
& Co. v. Lowe, 247 U.S. 165 (1918); Liggett & Myers Tobacco Co.
v. United States, 77 F.2d 65 (3rd Cir. 1935); Moon v. Freeman,
379 F.2d 382, 388, 390 (9th Cir. 1967); International Business
Machines Corp. v. United States, 59 F.3d 1234, 1236, 1238-1239
(CAFC 1995); United States v. Hvoslef, 237 U.S. 1 (1915).
The duty applicable to the diesel fuel when withdrawn from
the zone is not laid on the fuel because it is exported from a
state, but because it is not. Thus, in accordance with Dooley v.
United States, requiring duty on such an action, as a consequence
of importation, is not violative of the Constitution's Export
Clause.
It is our opinion that the definition for "exportation"
found in 19 CFR 101.1, as derived from Swan & Finch, is
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controlling in the context of 19 U.S.C. 81c(a). As stated above,
the diesel fuel will be placed in a fuel tank of a truck to be
consumed by the truck in its operation, rather than to be
transported for delivery or resale. Like the oils in Swan &
Finch, there is no intent to join the shipped article to the
commerce of the country of shipment.
You contend that, even if Swan & Finch applies, (1) the fuel
joins the commerce of Canada as evidenced by the fact that the
fuel consumed in Canada is taxed in accordance with the IFTA,
(2) the fuel is "deemed" exported because of its status in the
zone, and/or (3) that the exportation requirement is moot.
First, you argue that.
Pursuant to 49 U.S.C. 31701(3), the IFTA is "the interstate
agreement on collecting and distributing fuel use taxes paid by
motor carriers, developed under the auspices of the National
Governors' Association." A "fuel use tax" is "a tax imposed on
or measured by the consumption of fuel in a motor vehicle." 49
U.S.C. 31701(2).
According to Section I of IFTA's Articles of Agreement, the
purpose of the IFTA is:
B. [T]o promote and encourage the fullest and
most efficient possible use of the highway
system by making uniform the administration of
motor fuels use taxation laws with respect to
motor vehicles operated in multiple member
jurisdictions.
C. [T]o enable participating jurisdictions to act
cooperatively and provide mutual assistance in
the administration and collection of motor
fuels use taxes.
D. [T]o establish and maintain the concept of one
licence and administering base jurisdiction
for each licence, and to provide that a
licensee's base jurisdiction will be the
administrator of this Agreement and execute all
its provisions with respect to such licensee.
"Jurisdiction," as used in the IFTA, means "a State of the
United States, the District of Columbia or a Province or
Territory of Canada." IFTA, Articles of Agreement, Section
II(I). However, no State, Province or territory is required to
become a part of the IFTA. Recently, Vermont, New Hampshire and
Maine (leaving only Hawaii and Alaska as non-members, in the
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United States), and Ontario (leaving only the territories as non-members, in Canada), became members of the IFTA (January 1997).
Under the IFTA, a carrier no longer has to apply for a fuel
use permit, file individual reports and remit tax payments to
every state (or province) in which it operates. Now, the carrier
may make a single filing and payment (or application for refund)
to the appropriate agency of its home state (or province). The
carrier receives a fuel tax license from its home state, as well
as, decals for each of the carrier's vehicles. These credentials
are then honored by the others within the IFTA jurisdiction. The
state (or province) processes the carrier's quarterly tax return
and apportions the payment to other states (or provinces)
according to the carrier's reported miles. See, generally,
Transport Topics, Thomas M. Strah, "IFTA Turns Into the
Homestretch."
The taxable event, according to Section III(A) of IFTA's
Articles of Agreement, "is the consumption of motor fuels used in
the propulsion of qualified motor vehicles . . . ." However, as
stated in Roehl Transport Inc., the IFTA does not exist to impose
taxes (citing Section I(B) of IFTA's of Agreement). Id. at 13.
Rather, "[t]he IFTA is an agreement among states and provinces to
simplify the reporting of fuel use taxes by interstate motor
carriers. The IFTA reduces the paperwork and compliance burdens
for fuel tax reporting. The IFTA does not impose taxes but
allows interstate motor carriers to report their fuel use taxes
to a base state on a uniform basis." Id. at 14. Finally, the
court stated that the "manifest purpose of the tax . . . is to
charge interstate motor carriers for operating commercial
vehicles on highways built, paid for and maintained by the people
of [in this case] Wisconsin." Id. at 16. Like the payment of
fees charged by customs for the arrival of commercial vessels and
trucks under 19 U.S.C. 58c(a), which does not lead to the
conclusion that these vessels and trucks have been exported to
the United States, the payment of the IFTA use tax to Canada does
not evidence an intent to unite the fuel with the commerce of
Canada. See also 19 CFR 24.24(a)(regarding the Harbor
Maintenance Fee charged on a percentage of the value of cargo
unloaded at a port from commercial vessels).
You state that the vehicles under consideration may be
licensed, for IFTA purposes, in the United States. Thus, the
carrier of each particular vehicle will prepare a quarterly tax
return (for its fleet) and will pay the amount due to the state
in which the carrier is licensed. That state will then apportion
the amount paid to the other states or provinces (in this case, a
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province of Canada) according to the amount of fuel consumed by
each carrier in each of those states or provinces.
The fact that the fuel tax is paid by a state to a Canadian
province for the fuel consumed in that province does not persuade
us to believe that the fuel has been exported. This fuel is no
more a part of Canada than Canadian fuel consumed in an IFTA
state charging a state tax for its consumption is a part of the
United States. Moreover, the IFTA tax is equally applicable to a
vehicle going from state to state, yet the payment of the tax
does not indicate that the fuel has been exported from one state
to another. We cannot conclude therefore that the fuel is united
to the mass of things belonging to Canada, particularly where the
IFTA does not bind Canada but simply those provinces or
territories who chose to become members of the agreement.
Second, you argue that "[t]he fact that the fuel will be
exported is reflected in the admission of the fuel on a CF 214
into the [FTZ] in zone restricted status." Under 19 U.S.C.
81c(a), articles which have been taken into an FTZ for "the sole
purpose of exportation, destruction . . . or storage" shall be
considered to be exported for the purpose of drawback and certain
other provisions. See 19 CFR 146.66. Articles taken into a FTZ
under this statute are given what is called "zone-restricted
status."
However, the fact that an article has been, in effect,
"deemed" exported, does not mean that the article has been
actually exported. A "deemed" export is not an export unless it
meets all of the statutory criteria. Merchandise placed in an
FTZ in zone-restricted status that is later shipped to Cleveland
is not considered exported simply because of its status in the
zone. As stated above, the fuel in the proposed activity is not
exported in accordance with Swan & Finch and 19 CFR 101.1. This
determination is not effected by the fuel's zone-restricted
status.
Third, you argue that the fuel can be considered to be an
inseparable part of trucks that are instruments of international
traffic (IITs), pursuant to 19 U.S.C. 1322(a). You contend that
fuel in a truck's tank for consumption by the truck is not
subject to entry and duty under this provision. Accordingly, you
believe that, based upon the designation of the trucks as IITs,
"the question of whether their fuel is 'exported' becomes moot
and the duty free treatment of the fuel is established." We
disagree.
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19 U.S.C. 1322(a) provides that "[v]ehicles and other
instruments of international traffic, of any class specified by
the Secretary of the Treasury, shall be excepted from the
application of the customs laws to such extent and subject to
such terms and conditions as may be prescribed in regulations or
instructions of the Secretary of the Treasury (emphasis added)."
19 CFR 10.41(a) provides that trucks used in international
traffic shall be subject to the treatment provided for in part
123 of this chapter. 19 CFR 123.14(a) provides that trucks
"however owned, which have their principal base of operations in
a foreign country and which are engaged in international traffic,
arriving with merchandise or passengers destined to points in the
United States, or arriving empty or loaded for the purpose of
taking out merchandise or passengers, may be admitted without
formal entry or the payment of duty. Such vehicles shall not
engage in local traffic except as provided in paragraph (c) of
this section (emphasis added)."
In accordance with 19 U.S.C. 1322(a) and 19 CFR 123.14, IITs
are neither imported nor exported. IITs are not, nor are they
intended to be, united to the mass of things belonging to a
foreign country. See The Conqueror, 166 U.S. 110, 115 (1897)
(wherein the Court determined that "[v]essels certainly have not
been treated as dutiable articles, but rather as the vehicles of
such articles, and . . . are never charged duties when entering
our ports . . . ."; see also 19 U.S.C. 1313(g), which provides
that "materials imported and used in the construction and
equipment of vessels built for foreign account and ownership, or
for the government of any foreign country, notwithstanding that
such vessels may not within the strict meaning of the term be
articles exported (emphasis added)"). Accordingly, fuel placed
on IITs, which are not exported when they leave the United
States, does not unite with the mass of things belonging to a
foreign country.
Finally, we note that in the absence of 19 U.S.C. 1309, the
removal of supplies from an FTZ in the manner described in that
section would not only be considered prohibited retail trade (see
above), but would not have been considered an exportation. As
stated above, 19 U.S.C. 1309 does not cover motor vehicles, nor
is there a similar exemption elsewhere for supplies for motor
vehicles.
HOLDING:
The sale for consumption of diesel fuel from a foreign trade
zone constitutes prohibited retail trade under 19 U.S.C. 81o(d).
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Moreover, the placing of diesel fuel in a truck's fuel tank in a
foreign trade zone to be consumed by the truck destined for
Canada does not constitute an "exportation" under 19 U.S.C.
81c(a).
Sincerely,
John Durant, Director
Commercial Rulings Division