FOR-2-02/03-RR:IT:EC 114229 GOB
Harvey A. Isaacs, Esq.
Siegel, Mandell & Davidson, P.C.
1515 Broadway
43rd Floor
New York, New York 10036-8901
RE: Foreign-trade zones; retail trade; 19 U.S.C. 81o(d)
Dear Mr. Isaacs:
This is in response to your letter of January 22, 1998 on
behalf of Coach Leatherware Company ("Coach").
FACTS:
You describe the essential facts as follows.
Coach maintains a facility within the Jacksonville, Florida
foreign-trade zone, where it stores duty unpaid imported handbags
and similar merchandise. The merchandise is withdrawn from the
foreign-trade zone and either entered for consumption or
exported, as it is needed by stores in the United States and
abroad. In the course of its business, Coach distributes
catalogs by mailing them to retail customers and through
authorized dealers and stores. Each catalog has an order form
whereby a retail customer may mail order merchandise directly
from the Jacksonville facility. Such an order is filled by
Coach's withdrawing the item from the foreign-trade zone, making
entry, and then shipping the item to the customer. You state:
"At the FTZ facility, Coach neither has a retail store, nor
employs [a] salesman. In no sense does it carry on a retail
trade within the FTZ."
ISSUE:
Whether the sale by Coach, as described in this ruling,
constitutes prohibited retail trade within a foreign-trade zone
within the meaning of 19 U.S.C. 81o(d).
LAW AND ANALYSIS:
19 U.S.C. 81o(d) provides:
No 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 customs territory.
The pertinent Customs regulation is in 19 CFR 146.14, which
provides:
146.14 Retail trade within a zone.
Retail trade is prohibited within a zone except as
provided in 19 U.S.C. 81o(d). See also the regulations
of the Board [the Foreign-Trade Zones Board] as
contained in 15 CFR part 400.
In support of your assertion that the subject activity is
not prohibited by 19 U.S.C. 81o(d), you state:
A reading of these regulations clearly indicates that
the purpose of this prohibition is to prevent the sale
at retail of merchandise within the zone, which will
then have to be withdrawn by the purchaser and entered.
That is not the case here. Rather, it is akin to the
facts in HRL 217330, dated October 5, 1984 ... dealing
with the sale of vehicles stored in a zone. This
ruling makes clear the fact that what is prohibited is
"transfer of ownership (title) and delivery" to a
retail customer in the zone. In this situation, Coach
does not pass title and/or make delivery until the
goods are within the Customs territory of the United
States. (Emphasis in original.)
In Ruling 217330, which pertained to the "retail sales of
imported (nonprivileged foreign) automobiles," we stated:
Exhibit "B" and section 2.f. of the purchase agreement
explicitly establish that the transfer of ownership
(title) and delivery of the vehicle to the buyer would
take place when the vehicle is in Customs territory
following its withdrawal from the zone. Under these
circumstances there would be no retail trade conducted
within your zone as such. Please be advised, however,
that this determination is based exclusively upon the
specific representations expressly set forth in section
2.f. of the purchase agreement and its Exhibit "B."
In passing, we additionally note that merely exhibiting
vehicles in a zone to prospective purchasers would not
by itself constitute the carrying on of retail trade
therein. On the other hand, transferring the ownership
of vehicles stored in a zone and, consequently, the
right of withdrawal thereof for consumption to retail
purchasers (who would thereafter be responsible for
paying the applicable Customs duties thereon and
assuring their compliance, as necessary, with EPA and
DOT requirements) would assuredly constitute the
carrying on of retail trade therein.
The above-described activity by Coach clearly constitutes
"retail trade." In Witco Chemical Corp. v. United States, 742
F.2d 615 (CAFC 1984), the court 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). 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. The common meaning for "retail," according to
the court, was: "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.
v. Walling, Wage and Hour Administrator, 326 U.S. 657 (1946),
which defined the term in the context of the Fair Labor Standards
Act).
Thus, the question is whether the activity is retail trade
within a foreign-trade zone. Stated otherwise, the issue is
whether the retail trade is conducted within a foreign-trade
zone.
We find that Ruling 217330 is authority for your position
that the above-described activity is not retail trade within a
foreign-trade zone, i.e., the retail trade is not conducted
within a foreign-trade zone.
Under the situation which you present in your ruling request
(in particular the facts that Coach withdraws the pertinent items
from the foreign trade zone, makes entry of the merchandise, and
then ships the item to its customer, i.e., title does not pass
and delivery is not made to Coach's customer until the
merchandise is within the Customs territory of the United
States), we find that Coach is not conducting retail trade within
a foreign-trade zone within the meaning of the prohibition
contained in 19 U.S.C. 81o(d). The retail trade, i.e., the sale
of the merchandise, occurs outside of the foreign-trade zone.
HOLDING:
The above-described sales by Coach do not constitute retail
trade within a foreign-trade zone within the meaning of the
prohibition contained in 19 U.S.C. 81o(d).
Sincerely,
Jerry Laderberg
Chief,
Entry Procedures and Carriers
Branch