BAG-5-04-CO:C:R:E 222024 JR
Area Director of Customs
New York Seaport
ATTENTION: Chief, National Import Specialist Branch 1
6 World Trade Center, Room 432
New York, New York 10048
RE: Personal Exemptions Extended for Returning U.S. Government
Personnel; Lease With an Option to Purchase versus a Conditional
Sales Contract; 19 U.S.C. 1484; 19 CFR 148.74(b)
Dear Sir:
This is in response to your memorandum dated December 22,
1989 (FILE CLA-2-98:S:N:N1:233, 847913) concerning the ruling
request of Donohue and Donohue on behalf of their client, Volvo
North America Corporation and Volvo Finance North America, Inc.
The question is whether Volvo automobiles, which are leased for a
period of 24 months by U.S. military personnel immediately prior
to their return to the United States, qualify under subheading
9805.00.50, Harmonized Tariff Schedule of the United States
(HTSUS), (formerly item 817.00, TSUS), as personal or household
effects for duty-free treatment.
We note initially that the inquirer is confused between the
right to make entry and the right to enter merchandise free of
duty because of the applicability of a personal exemption.
These are separate concepts. For example, only an owner,
purchaser, or licensed customhouse broker has the right to enter
goods as the "importer of record." See 19 U.S.C. 1484 and
Customs Directive 3530-02, Right to Make Entry, dated November 6,
1984. An "owner" for this purpose includes one who imports under
loan or lease since such a person has a financial interest in the
transaction. Although this "importer of record" has the right to
enter the automobile in his name, he may or may not be entitled
to enter the automobile free of duty depending upon his status
and the applicability of a personal exemption. The ownership
concept granted in the right to make entry is broader than the
ownership needed to satisfy a personal exemption. While a
serviceman is considered the "owner" for the limited purpose of
making entry under 19 U.S.C. 1484, he may not be considered the
owner of the merchandise for purposes of subheading 9805.00.50,
HTSUS.
In order for a U.S. serviceman to qualify for duty-free
treatment under subheading 9805.00.50, HTSUS, the personal
effects must be in the direct personal possession of the
serviceman or member of his household prior to importation, and
cannot be imported for sale or for the account of an ineligible
person. See 19 CFR 148.74(b). It is our view that if a
serviceman were permitted to enter an automobile which he did not
own, that is, having both legal and equitable title, the intent
of Section 148.74 would be circumvented since the true owner,
Volvo North America Corporation, would obtain the benefit of
duty-free treatment which it would not otherwise be entitled to
had it entered the automobile. See FILE ENT-6-02-CO:C:R:E,
220113 GG, February 28, 1989. Copy attached.
A lease does not transfer both title and right to possession
as does a sale, but rather grants only use and enjoyment of the
article leased. See Scott v. Town of Bloomfield, 229 A.2d 667,
673 (1967). Both conditional sales contracts and mortgages are
financial encumbrances that affect the title of an item while
bailments and leases only involve the use of an item and do not
affect ownership. See Royal Insurance Company (U.K.) Ltd. v.
Ideal Mutual Insurance Company, 649 F. Supp. 130, 135 (E.D. Pa.
1986); In the Matter of the Tax Appeal of Dobbs Houses, Inc., 490
P.2d 902, 905 (Haw. 1971). Since a lessee is not the owner, he
cannot dispose of the leased item during the term of the lease.
After reviewing the sample standard lease agreement of Volvo
Finance North America (VFNA), the financial counterpart of Volvo
North America Corporation, we are satisfied that this is a true
lease where legal title to the automobile remains in the lessor,
VFNA, until such time, if, at the expiration of the lease period
the lessee exercises his option to purchase. Only at this time
will all ownership rights in the automobile, including title,
vest in the serviceman. The acquisition of legal title is
entirely at the option of the serviceman in this lease. Under
such an arrangement, a lessee serviceman would not acquire title
to or equity in the car until he exercises the option to purchase
the automobile for its fair wholesale market value (average
trade-in value) plus any excess mileage. See Paragraph 16 of the
VFNA lease.
As set out in Paragraph 26 of the lease agreement, VFNA is
the owner of the vehicle and when the vehicle arrives in the
United States, the lessee is required to obtain a U.S. State
title in VFNA's name. By the very terms of VFNA's lease, the
serviceman has no equity or other ownership rights in the
automobile other than the right to exercise the purchase option
if he decides to purchase the automobile upon the expiration of
the lease. See Paragraph 26 of the VFNA lease. The lease
contract specifically negates any title to or equity in the
automobile on part of the lessee.
In view of the foregoing, we think that a leased automobile
does not fall within the category of personal effects accorded
duty-free treatment under subheading 9805.00.50, HTSUS. At the
time of entry, the serviceman does not own the automobile. Volvo
remains the owner of the automobile until the option to purchase
the automobile is exercised at the expiration of the lease
period. If the serviceman decides not to purchase the automobile
at the end of the 24-month period, Volvo will have, in effect,
imported an automobile without having paid duty which is contrary
to law. On the other hand, if the serviceman does in fact buy
the automobile after the lease expires, the serviceman will have
lost the benefit of his personal exemption available to him on
his return to the United States from his tour of duty.
We agree with your office's assessment of the treatment to
be accorded a leased automobile under subheading 9805.00.50,
HTSUS. You may provide a copy of this memorandum and its
attachment to the inquirer for his information.
Sincerely,
John Durant, Director
Commercial Rulings Division
Office of Regulations and Rulings
Attachment