VES-12-02:CO:R:P:C 110970 BEW
John W. McConnell, Jr.
Haight, Gardner, Poor & Havens
44 Montgomery Street, Suite 2765
San Francisco, California 94104
RE: Dutiability of a pleasure yacht; foreign corporate
ownership; returning resident; "short visit"; not
"permanently" imported; primary asset of corporation;
cruising license; entry requirements.
Dear Mr. McConnell:
This is in reference to your letter date April 5, 1989, in
which you request a ruling on behalf of Mrs. John B. Rogers
concerning the arrival of the British-flag yacht MIKADO in the
U. S. waters.
FACTS:
You state that Mrs. Rogers is a U.S. citizen who makes her
home aboard the MIKADO. You state that in 1987, Mrs. Rogers sold
her home in Florida and used the proceeds to fund the purchase of
the subject yacht. You state that the MIKADO was built in Japan
in 1987, and is British-registered. You state that the vessel is
legally owned by a corporation organized under the laws of the
Island of Jersey, Channel Islands, United Kingdom, that the sole
owner of that corporation is a trust organized and existing under
the laws of Maine, that the sole beneficiary of the trust is
Mrs. Rogers, and that Mrs. Rogers is the Trustee of the trust.
You state that Mrs. Rogers has sailed in waters, and called
at the ports of various countries in the Pacific, Canada and
Mexico, that the MIKADO has transited the Panama Canal, and that
it is presently in the Caribbean. You state that Mrs. Rogers
intends to continue cruising throughout the world, and does not
intend to bring the MIKADO to any fixed base of operations. You
state that Mrs. Rogers would like to call at U.S. ports under a
cruising permit before moving on to other ports outside the
United States. You state that Mrs. Rogers' plans are to sail the
waters of the United States for approximately six (6) to (8)
weeks, then sail to the Mediterranean after departing North
American waters, and that she does not intend to put the MIKADO
up for sale or charter in U.S. waters or to bring it permanently
into the United States.
ISSUES:
1. Is a foreign-flag, foreign-built pleasure vessel owned
by a foreign corporation dutiable when brought into the United
States by a returning resident for her own personal use?
2. In ISSUE 1, does the length of time the returning
resident plans to use the vessel have any effect on its
dutiability?
3. In ISSUE 1, does the fact that the vessel will be
exported from the United States after a short stay have any
effect on its dutiability?
4. Is a foreign-flag pleasure vessel which is the primary
asset of a foreign corporation, the sole owner of which
corporation is a trust organized and existing under the laws of
U.S., and the sole beneficiary and trustee of the trust is a
U.S. resident, dutiable, in whole or in part, when the vessel is
brought into the United States by the resident/citizen for her
own personal use?
5. Whether a cruising license may be issued to a
foreign-flag pleasure boat, owned by a United States resident or
foreign corporation stated in ISSUE No. 4, when the vessel
enters the United States for a temporary visit.
LAW AND ANALYSIS:
Generally, a yacht or pleasure boat, regardless of length or
tonnage, whether motor, sail or steam propelled, owned by a
resident of the United States or brought into the United States
for sale or charter to a resident thereof, is dutiable under
Chapter 89, subheadings 8903.91.00 or 8903.92.00 of the
Harmonized Tariff Schedules of the United States (HTSUS), at a
rate of 1.5 percent ad valorem.
Generally, the value of all merchandise, exported to the
United States on or after July 1, 1980, will be the transaction
value of goods. The transaction value of imported merchandise is
the price actually paid or payable for the merchandise when sold
for exportation to the United States, plus expenses for packing
costs, selling commission, assists, royalty or license fees,
proceeds accruing to the seller, or any subsequent resale,
disposal or use of the imported merchandise.
Any duty due on the vessel is collectible when it is first
imported. The determination of whether or not a yacht is
dutiable when it has previously been subject to Customs entry and
payment of duty is dependent on whether it has been exported
from the United States after its first importation. If it has
been exported, it is again dutiable as an importation under
Chapter 89, subheadings 8903.91.00 or 8903.92.00, HTSUS.
Exportation, in this context, is defined as occurring when the
yacht is severed from the mass of things belonging to this
country with the intention of being united with the mass of
things belonging to some foreign country (see section 101.1(k),
Customs Regulations (19 CFR 101.1(k)). Merely removing a yacht
from U.S. territorial waters on a temporary foreign pleasure
cruise with the intent to return it to the United States
thereafter would not constitute an exportation.
In addition, it should be noted that any past or future
transfers of ownership of a vessel that take place while it
remains within the United States do not affect its duty-paid
status provided the circumstances surrounding the transfers of
ownership do not indicate that an exportation has occurred within
the meaning of section 101.1(k).
In applying the said HTSUS subheadings to corporate owners
of pleasure vessels, we have ruled that a pleasure vessel owned
by a foreign corporation, the stock of which is wholly owned by
one or more residents of the United States is "owned by a
resident of the United States," for purposes of paragraph 370,
Tariff Act of 1930, as amended (the predecessor of items 696.05
and 696.10, TSUS, the predecessor of HTSUS 8903.91.00 or
8903.92.00) (see Treasury Decision 54680(14)).
Treasury Decision 54680(14) was modified in ruling letter
MS 433.51 R, March 2, 1965, so that a pleasure vessel owned by a
foreign corporation owned by another foreign corporation which
was wholly owned by a United States citizen and resident was not
dutiable when it arrived in the United States because the foreign
corporate owner was not created for the purpose of owning the
pleasure vessel. In this ruling, ownership of the pleasure
vessel appeared to be incidental to the business of the
corporation. There was no evidence indicating the title to the
pleasure vessel was taken by or placed in the corporation to
avoid duty.
On the basis of the foregoing, a foreign-flag, foreign-built
pleasure vessel owned by a foreign corporation is not dutiable
when brought into the United States by a returning resident for
his own personal use unless a substantial portion of the capital
stock of the foreign corporate owner of the vessel is owned by
one or more residents of the United States and the vessel is the
primary asset of the corporation or the primary business of the
corporation relates to the vessel. Of course, if the vessel is
brought into the United States for sale or charter to a resident
of the United States, it is dutiable in any case.
In the subject case, the evidence reveals that the vessel is
the primary asset of the foreign corporation. Thus, it is the
position of the Customs Service that a pleasure vessel owned by a
foreign corporation, the primary asset of which is the vessel or
the primary business of which relates to the use of the vessel,
is considered owned by a resident of the United States if a
substantial portion of the capital stock is owned by one or more
residents of the United States (see p. 3, Pleasure Boats pamphlet
(1984)). "Substantial portion," as used in the above statement,
means more than half.
The dutiability of a foreign-flag vessel belonging to a
foreign corporation, the majority of the capital shares of which
are owned by United States residents/citizens, is not affected by
the use of the vessel in United States waters by one or all of
the shareholders of the corporation. Nor is the dutiability of
such a vessel affected when the shareholders are permitted to
"accompany" the vessel in United States waters. Under T.D.
54680(14), the vessel is dutiable on arrival in the United
States, unless the vessel is not the primary asset of the foreign
corporate owner and the primary business of the corporation does
not relate to the vessel.
For your information, 19 CFR 148.2(b) provides that
citizens of the United States ... shall be deemed residents of
the U.S. returning from abroad within the meaning of "residents"
as used in Chapter 98, subchapter IV, HTSUS (19 U.S.C. 1202), in
the absence of satisfactory evidence that they have established a
home elsewhere.
The length of time a returning resident plans to use a
pleasure vessel may have an effect on its dutiability. Under
sections 148.2(d) and 148.8, Customs Regulations, a person
arriving in the United States who would otherwise be considered a
returning resident may claim the status of a nonresident if he
intends to remain in the United States for only a short period of
time before returning abroad. A person claiming this status
could import his pleasure vessel into the United States for the
duration of his short stay under the duty-free provision of
Chapter 98, subheading 9804.00.35, Harmonized Tariff Schedule of
the United States (19 U.S.C. 1202). Customs has held, however,
that a stay in excess of 30 days raises a strong presumption that
the visit does not fall into the category of a "short visit"
within the meaning of section 148.2(d).
With further reference to a yacht owned and brought into the
United States by a resident thereof, the Customs Court, in the
case of Estate of Lev. H. Pritchard v. United States, 43 CCPA 85,
C.A.D. 612 (1956), interpreted items 696.05 and 696.10 (the
predecessor to subheadings 8903.91.00 and 8903.9200) to mean that
such a yacht, in the absence of clear evidence to the contrary,
would be presumed to be brought into the United States for use
here "permanently" so that it would be properly classifiable as
imported merchandise and thus subject to the appropriate Customs
duty.
This presumption can be overcome by satisfactory evidence
that the yacht owner did not intend to bring the yacht into this
country permanently. The Astral case, Astral Corp. v. United
States, 72 Cust. Ct. 245, CD 4546 (1974), to which you referred
in your letter, held that a yacht which came to the United States
during the course of a shakedown cruise and received repairs
while in the United States was not imported, within the meaning
of General Note 1, HTSUS (predecessor to General Headnote 1,
TSUS), because it was not brought "permanently" into the United
States.
The evidence which the court in the Astral case discussed
concerning the issue of whether or not the yacht was brought
"permanently" into the United States consisted, in part, of the
following:
(1) Testimony that the yacht was on a shakedown cruise and
the owner never intended that it be brought into the
United States permanently;
(2) Evidence of the repairs completed on the yacht while it
was in the United States and testimony that those
repairs could only have been completed in the United
States;
(3) Testimony by the owner that he planned to move his
interests to Europe and was buying a home there;
(4) Evidence of features in the yacht's design which were
incorporated for use in the Mediterranean; and
(5) The fact that the yacht's shakedown cruise did
terminate in the Mediterranean where, at the time the
case was tried, the yacht was being readied for
chartering.
After a complete review of the evidence, it appears that
Mrs. Rogers does not intend to bring the yacht into the United
States permanently. Accordingly, we find that the subject vessel
is not being imported within the meaning of General Note 1, HTSUS
because it is not being brought "permanently" into the United
States. It should be noted however, that this determination is
premised on the fact the vessel will not remain in the United
States more than 6 or 8 weeks. If Mrs. Rogers' plans change and
the vessel is to remain in U.S. waters for a longer period of
time, then the yacht will be considered to be imported into the
United States. If in fact the subject yacht is imported, it must
be entered under Customs entry procedures as set forth below.
Title 19, United States Code, sections 1498 and 1499
provide for the entry and examination of imported merchandise.
Under the provisions of title 19, Code of Federal Regulations,
section 142.4, the yacht shall not be released from Customs
custody until the entry documentation or entry summary documents
have been filed as required by title 19, Code of Federal
Regulations, section 142.3, unless a single entry or continuous
bond on Customs Form 301, executed by an approved corporate
surety, or secured by cash deposits or obligations of the U.S. is
filed. The estimated duties and taxes, if any, shall be
deposited at the time the entry is presented and accepted by a
Customs officer. Final duties are determined at the time of
liquidation which can take up to a year. The filing of a bond
permits you to take custody of the vessel prior to liquidation.
Further, under the provisions of the Federal Boat Safety Act
of 1971, a person importing a yacht for his personal use is
required to file a bond when a declaration is made that the yacht
is to be brought into conformity with the safety standards for
boats and associated equipment. Even if the yacht complies with
the U.S. Coast Guard requirements, it must be entered and it
must meet Customs requirements prior to its being released to the
importer for use in the United States.
Lastly, the master of any foreign vessel arriving in a
United States port, whether from a foreign port or another United
States port, is required under the provisions of title 19, United
States Code, section 1433 to immediately report its arrival.
Section 1433, provides in pertinent part, that immediately upon
the arrival at any port or place in the United States or Virgin
Islands of: (1) any vessel from a foreign port or place; (2)
any foreign vessel from a domestic port; or (3) any vessel of the
United States carrying bonded merchandise, or foreign merchandise
for which entry has not been made, the master of the vessel shall
report the arrival at the nearest customs facility or such other
place as the Secretary may prescribe by regulation.
In addition, the master of any foreign vessel arriving in a
United States port, whether from a foreign port or another United
States port is required to make vessel entry under title 19,
United States Code, section 1435 (19 U.S.C. 1435), and section
4.3 of the Customs Regulations (19 CFR 4.3). Such vessels are
also required to clear when bound for a foreign port, and must
have a permit to proceed from one United States port to another.
Title 46, United States Code Appendix, section 104 (46
U.S.C. App. 104), authorizes the issuance of cruising licenses
to pleasure vessels of countries which extend reciprocal
privileges to United States pleasure vessels. Great Britain is
such a country. The determining factor as to whether a vessel is
eligible for a cruising license is the documentation of the
vessel and not the residency of the owner. Section 4.94 of the
Customs Regulations, concerns the issuance of cruising licenses
which exempt foreign yachts from formal entry and clearance
procedures. Subsequent to the receipt of the cruising license,
yachts may arrive and depart from the United States and cruise
in specified waters of the United States without entering and
clearing, without filing manifests and obtaining or delivering
permits to proceed, and without the payment of entrance and
clearance fees, or fees for receiving manifests and granting
permits to proceed, duty on tonnage, tonnage tax, or light
money. The license is granted subject to the condition that the
vessel will not engage in trade or violate the laws of the
United States in any respect. (See 19 CFR 4.94(c), copy
enclosed). A cruising license does not exempt a vessel from the
requirement to report its arrival in the United States to
Customs immediately upon such arrival (see 19 U.S.C. 1433 and 19
CFR 4.2).
We emphasize that although cruising licenses exempt yachts
having them from the above described requirements while cruising
in the United States, they are not required as a
condition precedent to cruising in the United States or its
waters.
Cruising licenses, as their name implies, are intended for
the use of foreign vessels on relatively brief cruises in the
United States and are not to be used as a form of permanent
license to permit a foreign vessel to remain indefinitely in our
waters. A cruising license is not renewable.
Pursuant to 46 U.S.C. App. 104 and 19 CFR 4.94, an
application for a cruising license is to be filed with Customs
by the vessel owner or master. Only yachts which are "used and
employed exclusively as pleasure vessels" (see 46 U.S.C. App.
104) may be granted cruising licenses.
HOLDINGS:
1. A foreign-flag pleasure vessel belonging to a foreign
corporation, the majority of the capital shares of which are
owned by United States residents/citizens, is only dutiable when
the vessel is brought into the United States by a resident for
his own personal use and the vessel is the primary asset of the
corporation or the primary business of the corporation relates to
the vessel. The length of time the returning resident plans to
use the vessel may have an effect on its dutiability (see the so-
called "short visit" rule, sections 148.2(d) and 148.8, Customs
Regulations). The fact that the vessel is not being brought into
the United States "permanently" and will be exported from the
United States after a short stay may also have an effect on its
dutiability.
2. A cruising license may be issued to a British-flag
pleasure boat, owned by a United States resident, when the vessel
enters the United States for a temporary visit. A cruising
license does not exempt a vessel from reporting its arrival
immediately to the Customs. A cruising license issued to a
British-flag pleasure boat, owned by a United States resident,
does not exempt the owner from the payment of duty on the vessel
when it enters at the first port of arrival.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch