VES 3-13-CO:R:IT:C 111731 BEW
Mr. Alan Lawrence
Marina Sailing
600 East Bay Avenue
Newport Beach, California 92661
RE: Use of a Canadian-registered pleasure boat owned jointly by
a Canadian and U.S. citizen for bareboat charters in the
waters of the United States
Dear Mr. Lawrence:
This is in reference to your letter of May 30, 1991, in
which you request a ruling on whether using a Canadian registered
pleasure boat for bareboat chartering in the United States will
require changes in the boat's registration.
FACTS:
You state that the boat is a 35 foot sailboat built and
registered in Ontario, Canada. You state that the boat is
jointly owned by a Canadian and a US citizen, and that it is
located in the waters in California indefinitely. You also state
that the vessel is over 5 net tons. You state that the vessel is
registered as a pleasure craft in Canada. You state that you
would like to bareboat charter the boat to members of the sailing
club or to non-members qualified to operate the boat. You state
that none of the employees, owners, or representatives of Marine
Sailing will be on board the boat during the charter, and that no
paid skipper or deckhand will be used at any time during the
charter.
ISSUE:
When a foreign-flag vessel is chartered to a U.S. resident
in the United States, is it subject to duty under the provisions
of the Harmonized Tariff Schedules.
May a foreign-flag yacht or pleasure vessel be bareboat
chartered to U.S. residents without violating the coastwise
statutes.
LAW AND ANALYSIS:
Under the Harmonized Tariff Schedules of the United States
(HTSUS), Heading 8903.00.00, Yachts and other vessels for
pleasure or sport, rowboats and canoes, Subheading 8903.91.00,
Sailboats with or without auxiliary motor are dutiable at the
rate of 1.5 percent ad valorem. A sailboat owned by a resident
of the United States or brought into the United States for sale
or charter to a resident thereof, would be subject to this duty
provision of the HTSUS.
Duty on the vessel is collectable 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 items 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).
Since your vessel has already entered the United States and
is currently docked in the waters of California, chartering the
vessel to a U.S. resident would subject the vessel to Customs
consumption entry procedures and the duty provisions of
subheading 8903.91.00 of the HTSUS.
You should be aware that foreign-flag or foreign-built
vessels are prohibited from engaging in the coastwise trade.
Generally, the coastwise laws (e.g., 46 U.S.C. App. 289 and 883,
46 U.S.C. 12106 and 12110) prohibit the transportation of
merchandise or passengers between points in the United States
embraced within the coastwise laws 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. The penalty for violating this section of the law is
$200 for each passenger so transported and landed.
A "passenger" is defined in section 4.50(b) of the Customs
Regulations (19 CFR 4.50(b)), as "any person carried on a vessel
who is not connected with the operation of such vessel, her
navigation, ownership, or business". The family and legitimate
guests of the owner or bareboat charterer of a vessel used for
pleasure purposes are not considered passengers.
Customs has consistently ruled that a yacht chartered under
a bona fide bareboat charter and used only for pleasure purposes
is not considered to be used in the coastwise trade. However, a
yacht chartered under a charter agreement other than a bareboat
charter (e.g., a time or voyage charter) and used in the U.S.
waters is considered to be used in trade.
In review of charter arrangements to determine whether or
not they are bareboat charters, we have generally held that:
The nature of a particular charter arrangement is a
question of fact to be determined from the
circumstances of each case. Under a bareboat charter
or a demise charter the owner relinquishes complete
management and control of the vessel to the charterer.
On the other hand, if the owner retains a degree of
management and control, however slight, the charter is
a time or voyage charter and the vessel is deemed to be
engaged in trade. The crux of the matter is whether
complete management and control have been wholly
surrendered by the owner to the charterer so that for
the period of time of the charter the charterer is in
effect the owner. Although a charter agreement on its
face may appear to be a bareboat or demise charter, the
manner in which its covenants are carried out and the
intention of the respective parties to relinquish or to
assume complete management and control are also factors
to be considered.
The Customs Service has also ruled, for purposes of the
coastwise law, that a charter agreement which permits the owner
to act as master or as a member of the crew, or which permits the
owner to accompany the vessel during its charter period, would
not be considered a bona fide bareboat charter.
When a vessel is chartered under a charter arrangement other
than a bareboat charter (e.g., a time or voyage charter) and is
used in coastwise transportation, the owner of the vessel is
subject to penalties under the coastwise laws. The charterer of
a vessel chartered under a bareboat charter would also be subject
to penalties if the vessel is used for other than pleasure purposes or if the actions of the parties negated the terms of
the bareboat charter agreement (e.g. if his "guests" paid for or
contributed to the expenses of the trip).
The Customs Service has consistently held that when a vessel
is chartered under a bona fide bareboat charter, the charterer is
treated as the owner of the vessel for the period of the charter
and, because owners are not considered "passengers," for purposes
of the coastwise laws, the charterer is not prohibited by the
coastwise laws from using the vessel during the charter for
pleasure purposes only, including the transportation of family
and guests. A bareboat charterer may transport family and guests
from one port in the United States to a another port without
violating the coastwise laws.
Title 19, United States Code, section 1433, provides 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. The report of arrival shall be in accordance with the
procedures in section 4.2, Customs Regulations, as amended by
T.D.87-150.
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. 1453), 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. As recognized in
section 4.94(e), Customs Regulations (19 CFR 4.94(e)), if a
foreign-flag pleasure vessel does not have a cruising license it
is required to comply with the laws applicable to foreign vessels
arriving at, departing from and proceeding between United States
ports.
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. Canada is such a country.
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.
The bareboat charterer of a Canadian-flag pleasure vessel,
whether to a United States resident or not, could obtain a
cruising license to cruise in the waters of the United States,
including California waters. A time or voyage charterer may not
be issued a cruising license, however, because in our view the
vessel is engaged in trade and is no longer a pleasure vessel as
required by 46 U.S.C. App. 104.
The master, however, of a foreign pleasure vessel with a
cruising license is required to report the vessel's arrival at
each United States port as provided in 19 U.S.C. 1433.
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.
We apologize for the delay in responding to your inquiry.
This ruling addresses only those federal requirements which are
administered by the Customs Service. Questions relating to the
vessel's registration and documentation, and vessel safety
requirements should be directed to the United States Coast Guard
at the following address:
Mr. Thomas Willis
Chief, Vessel Documentation
U.S. Coast Guard (GMVI-6/13)
2100 Second Street., SW (Room 1312)
Washington, D.C. 20593-0001
HOLDING:
A foreign-flag yacht, or other pleasure vessel brought into
the United States for sale or charter to U.S. residents is
subject to duty under subheading 8903.91.00 or 8903.92.00 of the
HTSUS.
A foreign-flag yacht or other pleasure vessel may be
bareboat chartered to U.S. residents for pleasure use without
violating the coastwise statutes provided under the charter
agreement the owner relinquishes complete management and control
of the vessel to the charterer.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch