VES-13-18:RR:IT:EC 115654 LLO
John Fisker-Anderson
4025 13th Avenue West
Seattle, Washington 98119-1350
RE: Vessel Modifications; Vessel Repair; 19 U.S.C. §1466;
19 C.F.R. §4.14
Dear Mr. Fisker-Anderson:
This is in response to your letter dated April 2, 2002, on behalf of your employer Coastal Transportation Inc., regarding the M/V COASTAL VENTURE. Pursuant to 19 C.F.R. §177.2(d), you request that we give immediate consideration as to whether the work proposed by your employer to be done in a foreign shipyard on the subject vessel will constitute a non-dutiable modification under the vessel repair statute. Our position on this matter is set forth below.
FACTS:
The record reflects the following. The main focus of the work is the installation of a bow thruster unit that will be permanently installed in the vessel. The bow thruster was purchased in the U.S. will not replace any pre-existing machinery. While in drydock, the vessel’s superstructure, hull and ballast tanks (from the waterline to the dock edge) will be painted. The following repairs and maintenance are scheduled to take place:
-installation of bow thruster unit
-drydocking-the installation is below the waterline, requiring the vessel to be drydocked. Costs associated with the drydocking includes shorepower, crane service, charged fire hoses, tugboats and lineholders
-staging -scaffolding must be erected in order to install the bow thruster in the hull
-paint work in bow thruster area-areas adjacent to the bow thruster will require surface preparation and painting
-hull, superstructure and ballast tank painting, exclusive of the bow thruster
-installation of zinc anodes-these may be owner supplied depending on price overseas
A copy of the shipyard specifications has been submitted for review by Customs.
LAW AND ANALYSIS:
Title 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 U.S. to engage in foreign 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 non-dutiable modification, the following factors have been considered:
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, U.S. v. Admiral Oriental Line, 18 CCPA 137 (1930).
Whether in all likelihood on item would remain aboard a vessel during an extended lay-up.
Whether an item constitutes a new design feature and does not merely replace a part, fitting or structure that is performing a similar function.
Whether an item provided an improvement or enhancement in operation or efficiency of the vessel.
The first item, the bow thruster unit, is to be permanently installed on the vessel according to the facts presented. Assuming the bow thruster is permanently installed into the hull and cannot be removed during an extended lay-up, is not replacing a dysfunctional part, fitting or structure that is performing a similar function and improves or enhances the operation and efficiency of the vessel, this item will be classified as a modification and will therefore be deemed duty free.
The facts indicate that in order to install the bow thruster unit, the M/V COASTAL VENTURE will have to be drydocked and staging will have to occur because the installation is below the waterline and scaffolding must be erected to install the bow thruster in the hull. Since the drydocking and staging will not occur as a result of, or in conjunction with dutiable repairs, but to allow for the installation of a non-dutiable first time installation, its costs will be non-dutiable as well.
Additionally, paint work in the bow thruster area is planned. Areas adjacent to the bow thruster will require surface preparation and painting. Since this touch up paint work will occur as a result of a non-dutiable first time installation, its costs are also duty free.
Painting of the hull, superstructure and ballast tank exclusive of the bow thruster is scheduled, in addition to the replacement of zinc anodes. The facts provided indicate that the paint will be owner supplied. On March 3, 1995, the Assistant Commissioner, Office of Regulations and Rulings, issued a memorandum that was published in the Customs Bulletin on April 5, 1995 (Customs Bulletin and Decisions vol. 29, no. 14 at page 24). It provided that all vessel repair entries filed with Customs on or after the date of that decision were to be liquidated in accordance with the full weight and effect of the court decision. See, Texaco Marine Services, Inc. v. U.S., 44 F.3d 1539 (1994). That decision states that costs of post repair cleaning and protective covering incurred pursuant to dutiable repairs are dutiable.
Since the paint work and zinc anode replacements are being done for maintenance reasons, the costs for them are dutiable, unless the paint and anodes are purchased in the U.S. and the maintenance tasks are performed by U.S. residents or the crew of the M/V/ COASTAL VENTURE.
HOLDING:
The proposed installation of a bow thruster constitutes a modification to the subject vessel and is therefore non-dutiable under 19 U.S.C. §1466. It is noted, however, that this ruling is merely advisory in nature and does not eliminate the requirement to declare work done abroad at the subject vessel’s first U.S. port of arrival, nor does it eliminate the requirement of the filing of an entry showing this work (see 19 C.F.R. §4.14 (d) and (e)). Furthermore, any final ruling on this matter is contingent on Customs review of the evidence submitted pursuant to 19 C.F.R. §4.14(i).
Sincerely,
Jeremy Baskin
Acting Chief
Entry Procedures and Carriers Branch