VES-13-18-RR:IT:EC 114093 GOB
Port Director of Customs
Attn: Vessel Repair Liquidation Unit
423 Canal Street, Room 303
New Orleans, LA 70130-2341
RE: Vessel Repair Entry No. 86-649331-4; S.S. MORMACSTAR, V-109A; 19 U.S.C. 1466; Memorandum 109936 modified; Satellite
communications system dutiable as vessel equipment
Dear Sir:
FACTS:
The purpose of this ruling is to modify Memorandum 109936
dated April 28, 1989 with respect to the above-referenced vessel
repair entry.
In Memorandum 109936 we ruled on numerous items with respect
to dutiability under 19 U.S.C. 1466. With respect to a satellite
communications system, we granted relief to Mormac Marine
Transport, Inc. with respect to the dutiability under 19 U.S.C.
1466 of a satellite communications system, i.e., we determined
that the expenses of the satellite communications system were
nondutiable.
ISSUE:
Whether the cost of the satellite communications system is
dutiable pursuant to 19 U.S.C. 1466.
LAW AND ANALYSIS:
19 U.S.C. 1466 provides for the payment of duty at a rate of
fifty percent ad valorem on the cost of foreign repairs to
vessels documented under the laws of the United States to engage
in foreign or coastwise trade, or vessels intended to be employed
in such trade.
In its application of the vessel repair statute, the Customs
Service has held that modifications, alterations, or additions to
the hull and fittings of a vessel are not subject to vessel
repair duties. The identification of work constituting
modifications vis-a-vis work constituting repairs has evolved
from judicial and administrative precedent. In considering
whether an operation has resulted in a nondutiable modification,
the following factors have been considered. These factors are
not by themselves necessarily determinative, nor are they the
only factors which may be relevant in a given case. However, in
a given case, these factors may be illustrative, illuminating, or
relevant with respect to the issue of whether certain work may be
a modification of a vessel which is nondutiable under 19 U.S.C.
1466:
1. Whether there is a permanent incorporation into the hull
or superstructure of a vessel, either in a structural sense or as
demonstrated by means of attachment so as to be indicative of a
permanent incorporation. See United States v. Admiral Oriental
Line, 18 C.C.P.A. 137 (1930). However, we note that a permanent
incorporation or attachment does not necessarily involve a
modification; it may involve a dutiable repair or dutiable
equipment.
2. Whether in all likelihood an item would remain aboard a
vessel during an extended lay-up.
3. Whether an item constitutes a new design feature and
does not merely replace a part, fitting, or structure that is
performing a similar function.
4. Whether an item provides an improvement or enhancement
in operation or efficiency of the vessel.
In Ruling 113798 dated January 9, 1997, we ruled on, and
thoroughly discussed, the dutiability under 19 U.S.C. 1466 of a
radar system. We stated:
Item 908. Radar Installation. The invoice states:
"remove existing radar system and install new upgraded
system." The applicant states: "The purpose of the new
radar installation is to upgrade the navigation
equipment on the bridge. The new radar system has the
ability to provide electronic charting in addition to
enhanced collision avoidance technology. The older
radars although still operating could not be modified
or upgraded to provide the same level of technology as
the new system."
We find that this item is dutiable under 19 U.S.C. 1466
as vessel equipment. This finding is based on the
following authorities.
In Otte v. United States, 7 Ct. Cust. Appls. 166, T.D.
36489 (1916), the court stated:
That the Congress intended to distinguish between
equipment and the vessel itself is apparent from a
reading of the two subsections above quoted. The
line of distinction between equipment and the
vessel is somewhat difficult to mark.
The question was considered by the Board of Naval
Construction, and their report in part reads as
follows:
Equipment, used in a general sense, may be defined
as any portable thing that is used for, or
provided in, preparing a vessel whose hull is
already finished for service. It is the furniture
of whatsoever nature which is put into a finished
ship in equipping her. The Queen's Regulations
and Admiralty Instructions give the following
definition: "Equipment, in relation to a ship,
includes the furnishing a ship with any tackle,
apparel, furniture, provisions, arms, munitions,
or stores, or any other thing that is used in or
about a ship for the purpose of fitting or
adapting her for the sea or for naval service."
In estimating the displacement of a ship naval
constructors use the term "hull and fittings" in
contradistinction to "equipment," the fittings of
the hull being understood to be any permanent
thing attached to the hull which would remain on
board were the vessel to be laid up for a long
period.
Adopting these definitions, the board is of the
opinion that the term "equipment" would not
include donkey engines, pumps, windlasses, steam
steerers, and other machinery but that it would
include anchors, chain cables, boats, life-saving
apparatus, nautical instruments, signal lights,
and similar articles.
In Ruling 105414 dated May 24, 1982, we stated:
It should be noted that the fact that a change or
addition of equipment is made to conform with a
new design scheme, or for the purpose of complying
with the requirements of statute or code, is not a
relevant consideration. Therefore, any change
accomplished solely for these reasons, and which
does not constitute a permanent addition to the
hull and fittings of the vessel, would be dutiable
under section 1466.
Any new areas to the vessel, that is, bulkheads,
permanent ballast, decks, staterooms, bars,
storerooms. etc., are considered to be qualifying
additions to the hull and fittings. Likewise, the
extension of existing services into new areas
would also be free of duty. This would include
piping, air conditioning, ventilation, electrical
service, glazing, etc., as well as final finishing
for the new areas (such as painting).
On the other hand, among the dutiable operations
would be providing furniture for any of the areas
(new and old); providing new electronic navigation
equipment; providing new lifesaving apparatus ...
providing computer apparatus... [Emphasis
supplied.]
In Memorandum 105807 dated December 28, 1982, we
stated:
The characterization of an article as vessel
equipment, as opposed to fittings or
hull/structural parts, is manifestly difficult in
cases where the article has many of the attributes
of both classes cited in the leading cases. For
example, because a vessel pitches and rolls when
at sea all radio gear is securely fastened, yet is
classified as equipment even when such articles
are usually too large to be considered (in
ordinary parlance) "portable". [Emphasis
supplied.]
[End of excerpt from Ruling 113798.]
It is our determination that Ruling 113798 and the rulings
cited therein are applicable to the the satellite communications
system ruled upon in Memorandum 109936.
Accordingly, the satellite communications system ruled upon
in Memorandum 109936 is dutiable as vessel equipment under 19
U.S.C. 1466.
HOLDING:
The satellite communications system is dutiable as vessel
equipment under 19 U.S.C. 1466.
Memorandum 109936 is modified accordingly.
Sincerely,
Jerry Laderberg
Chief,
Entry Procedures and Carriers
Branch