WAR-5 RR:CR:DR 227385 CB/WGR
David Serko, Esq.
Serko & Simon
One World Trade Center
Suite 3371
New York, NY 10048
RE: Request for Reconsideration of HQ 225287; Duty-Free Stores;
Sale of Gasoline and
Diesel Fuel; 19 U.S.C. 1555(b); 19 CFR 19.35 - 19.39; Pub.
L. 104-295;
29 Miscellaneous Trade and Technical Corrections Act of
1996
Dear Mr. Serko:
This is in response to your letters of September 8, 1995, April
19, 1996, and July 22, 1997, wherein you requested our
reconsideration of HQ 225287, issued June 27, 1994. This
internal advice concerned a proposal to sell "duty-free" gasoline
and diesel fuel at a duty-free store in Detroit, Michigan. We
concluded that such an operation did not fall within the scope of
19 U.S.C. 1555(b). We have considered the additional arguments
you have raised and our decision follows.
FACTS:
You state that your client in this matter has been granted
approval by Customs to operate a "sterile" duty-free store at the
Ambassador Bridge in Detroit, Michigan. In HQ 225287, the duty-free store was described as having been modified by "adding
fencing, electronic gates, and constructing a private road
leading directly from their sterile compound to the toll booths
on the bridge plaza." According to the FACTS in HQ 225287, when
the District Director of Customs physically inspected the
facility, he noted a gasoline/diesel station within the sterile
area. The District Director, in a letter of December 23, 1994,
tentatively approved the request for permission to operate the
facility as a sterile shop with "live" products, but excluded any
bonded fuel operations. In response to a request by your client
that the District Director reconsider his position on the bonded
petroleum operation and a follow-up letter dated January 24,
1994, formally requesting approval of a bonded petroleum product
operation at its duty-free store, the District Director requested
internal advice from this office.
This office issued a ruling on the matter on June 27, 1994 (HQ
225287). In that ruling we reviewed the applicable law and
regulations, noting that neither directly addressed the issue
under consideration. We noted that before passage of the
legislation involved (section 1908, title I, Omnibus Trade and
Competitiveness Act of 1988 (Pub. L. No. 100-418; 102 Stat.
1315; codified as 19 U.S.C. 1555(b)), Customs had issued a
ruling in regard to the proposed handling of gasoline and diesel
products in duty-free stores. We quoted from that ruling (ruling
letter 200396, October 30, 1972) as follows:
We do not believe that the activities of "duty-free stores"
can be extended to unidentifiable fungibles sold on a retail
basis without seriously impairing our control over the
operations of these stores and the merchandise sold by them.
In this respect it should be noted that merchandise
purchased from a duty-free store when returned to the United
States, must be declared for the purpose of collecting the
duty and internal-revenue taxes. Customs would have no
practical means of enforcing this requirement against any of
the automobiles returning to the United States from Canada
with "unidentifiable" gasoline in their tanks.
On the basis of ruling 200396 and the provision in 19 U.S.C.
1555(b)(3)(D) (under which a duty-free enterprise is not
required to "mark or otherwise place a distinguishing identifier
on individual items of merchandise" to indicate that the items
were sold by a duty-free sales enterprise unless the Secretary
finds a pattern in which such items are being brought back into
the Customs territory without declaration), we concluded that
"the gasoline and diesel fuel could not be controlled like other
bonded merchandise sold at duty-free stores (i.e., because
gasoline and diesel fuel are unidentifiable fungibles' not
subject to marking or other identification as provided for in the
statute and regulations)." We ruled, in HQ 225287, that:
Duty-free gasoline and diesel fuel for automobiles may not
be sold, as described in the FACTS portion of [the] ruling,
at a duty-free store provided for in 19 U.S.C.
1555(b).
In your letter of September 8, 1995, you requested that Customs
reconsider HQ 225287, arguing that Customs was not "fully versed
in the facts and briefed on the law and its legislative history"
when the ruling was issued. At your request, you and other
representatives of your client met with representatives of this
office about this matter. In addition, you and other
representatives have submitted additional materials in this
regard.
In your April 19, 1996, letter, you noted that the District
Director's December 23, 1993, letter, in which he found that the
facility "has fulfilled the requirements necessary to qualify as
an exit point as defined in 19 CFR 19.35(d)." You provide a map
of the bridge, duty-free store, and connecting roadways and state
that "[i]n fact, patrons of the store have no practical
alternative except to cross the bridge into Canada." You refer
to security measures (i.e., the addition of manned toll booths at
the entrances leading to the duty-free store) of which this
office was not aware at the time of, and could not consider, in
HQ 225287.
In that letter, you also described measures which would help
ensure that gasoline or diesel fuel sold by the duty-free store
for automobiles would be exported and practical means by which
Customs could enforce the provisions for the dutiability of such
gasoline or diesel fuel which is brought back into the Customs
territory. You state that, among other things, cash register
receipts signed by customers acknowledge that the sales are "For
Export Only." Additionally, you client ". . . has a computer
system which can be used in cooperation with Customs for the
tracking of fuel sales." You state that ". . . a single Customs
license plate query can automatically determine if the vehicle
received gasoline at the . . . facility prior to entering Canada,
in addition to Customs' other purposes for the query."
ISSUES:
1. May duty-free gasoline and diesel fuel for automobiles be
sold, as described in the FACTS portion of this ruling, at a
duty-free store provided for in 19 U.S.C. 1555(b)?
2. Does the amendment of the personal exemption provision of the
tariff laws demonstrate a Congressional intent to overturn ruling
letter HR 225287 with respect to duty-free shops?
LAW AND ANALYSIS:
Issue 1:
Duty-free sales enterprises are provided for in 19 U.S.C.
1555(b). This provision was enacted by section 1908, title I,
Omnibus Trade and Competitiveness Act of 1988 (Pub. L. No.
100-418; 102 Stat. 1315). Under this provision:
(1) Duty-free sales enterprises may sell and deliver for
export from the customs territory duty-free merchandise in
accordance with this subsection and such regulations as the
Secretary may prescribe to carry out this subsection.
...
(3) Each duty-free sales enterprise--
(A) shall establish procedures to provide reasonable
assurance that duty-free merchandise sold by the
enterprise will be exported from the customs territory;
. . .
(D) shall not be required to mark or otherwise place a
distinguishing identifier on individual items of
merchandise to indicate that the items were sold by a
duty-free sales enterprise, unless the Secretary finds
a pattern in which such items are being brought back
into the customs territory without declaration;
(7) The Secretary shall be regulation establish a separate
class of bonded warehouses for duty-free sales enterprises.
Regulations issued to carry out this paragraph shall take
into account the unique characteristics of the different
types of duty-free sales enterprises.
Before enactment of this provision in 1988, duty-free stores were
administered by Customs directives, rather than through any
specific legislation or regulations (see Treasury Decision 92-81,
published in the Federal Register on August 20, 1992 (57 F.R.
37692), and Duty Free International, Inc., Ammex Warehouse Co.,
Inc. , and Ammex Tax & Duty Free Shops, Inc. v. United States,
17 CIT 1425 (1993)).
It is your position that when Congress enacted the Omnibus Trade
and Competitiveness Act, supra, it intended to substantially
change the manner in which duty-free shops could be operated.
Consequently, ruling letter 200396, relied upon in HQ 225287, was
overridden by Congress in 1988. You argue that the 1972 ruling
and the positions taken therein were never mentioned in any of
the legislative history which led up to the passage of the 1988
law which is the basis for the current statutory framework.
Moreover, there is no evidence that Congress was aware of this
ruling. Thus, you conclude that Congress intended to abandon any
practice it did not specifically adopt. It is also your position
that the legislative history relied upon in HQ 225287 was taken
out of context.
As stated in HQ 225287, the 1988 legislation does not directly
address the issue under consideration. Although we agree with
you that Congressional intent, in enacting 19 U.S.C. 1555(b),
was to legislatively direct Customs in its administration of
duty-free shops, it is also true that Congress left it up to the
Secretary of the Treasury (which in turn has delegated this
authority to Customs) to issue regulations implementing the
statutory provision. More importantly, it is provided that the
regulations shall take into account the unique characteristics of
the different types of duty-free stores. Thus, although Congress
provided the broad statutory framework, it was left up to the
administering agency to fill-in the details to carry out
Congressional intent.
Regarding the legislative history relied upon in HQ 225287, we
disagree with your interpretation.
It is your position that Senator Bentsen's comments is not
supportive of Customs position. In your letter you quote certain
remarks made by Senator Bentsen (however a cite was not provided)
and conclude that the Senator did not see the then proposed
legislation as the means of restraining the activity of duty-free
shops. However, the quote you have used is not the one referred
to in HQ 225287. The statement made by Senator Bentsen and
relied upon by Customs reads as follows:
. . . Mr. President, section 921 of the bill would
introduce for the first time a comprehensive framework
for the regulation and operation of duty-free sales
stores. . . .
Section 921 is not intended to change the way duty-free
stores currently operate, but rather to codify current
practice by providing a regulatory framework for
continued operation of duty-free stores in the future.
. . .
Congressional Record, (July 15, 1987, p. S 9952, remarks of
Senator Bentsen). Thus, it is clear that, contrary to your
assertion that Senator Bentsen was only referring to border
stores in the State of Texas, the quoted text provides clear
Congressional intent to codify procedures which had been
implemented through Customs directives and circulars. Senator
Bentsen's remark is the only indication contained in the
legislative history which addresses the point raised; that is,
whether the purpose of the legislation was to codify or change
the existing Customs practice. The statement is consistent with
the purpose of providing a statutory basis for a procedure that
was created by Customs administrative practice.
It is your position that with respect to the applicability of
ruling letter 200396 after passage of the 1988 act, that Congress
intended to abandon this practice because it was not specifically
adopted. We reach the opposite conclusion, i.e., the fact that
Congress did not specifically reject Customs policy regarding the
sale of gasoline by duty-free stores means that Congress did not
object to such practice. Thus, in holding that gasoline and
diesel fuel may not be sold by duty-free stores, it was proper to
follow the precedent established by ruling letter 200396.
Issue 2:
It is also your position that the 1996 amendment rendered ruling
letter 200396, and HQ 225287, obsolete by removing the underlying
reasoning because, under 1555(b)(6)(B), any gasoline purchased
in a duty-free sales enterprise remaining in a vehicle upon its
return to the United States can be covered by the personal
allowance or under the de minimis provisions of the Tariff Act.
We disagree.
Congress amended the personal allowance for duty exemptions by
Section 29 of the Act of October 17, 1996 (Pub. L. 104-295, 110
Stat. 3535) (Miscellaneous Trade and Technical Corrections Act of
1996). That law amended 19 U.S.C. 1555(b)(c) to provide:
(6)(A) Except as provided in subparagraph(B),
merchandise that is purchased in a duty-free sales
enterprise is not eligible for exemption from duty
under subchapter IV of chapter 98 of the Harmonized
Tariff Schedule of the United States if such
merchandise is brought bact to the customs territory.
(B)Except in the case of travel involving transit to,
from, or through an insular possession of the United
States, merchandise described in subparagraph (A) that
is purchased by a United States resident shall be
eligible for exemption from duty under subheadings
9804.00.65, 9804.00.70, and 9804.00.72 of the
Harmonized Tariff Schedule of the United States upon
the United States resident's return to the customs
territory of the United States, if the resident meets
the eligibility requirements for the exemption
claimed. Notwithstanding any other provision of law,
such merchandise shall be considered to be an article
acquired abroad as an incident of the journey from
which the resident is returning for purposes of
determining eligibility for any such exemption.
The stated purpose of the change in Senate Report 104-393,
17(October 1, 1996) is as follows:
Personal Allowance Duty Exemption for Merchandise Purchased
in a Duty-Free Sales Enterprise
(Section 29)
Current law
Subchapter IV of HTS Chapter 98 provides that U.S.
residents who travel outside the country for more than 48
hours may bring back up to $400 of merchandise purchased
on their trip without paying duties or taxes when they
return to the U.S. (Higher limits apply to residents
returning from the U.S. insular possessions or from
beneficiary countries under either the Caribbean Basin
Economic Recovery Act or the Andean Trade Preference
Act.) However, section 555(b)(6) of the Tariff Act of
1930 (19 U.S.C. 1555(b)(6)) provides that merchandise
purchased in a duty-free sales enterprise in the United
States is not eligible for exemption from duty upon the
traveler's return to the United States.
Explanation of provision
This section amends section 555(b)(6) of the Tariff
Act of 1930 to permit U.S. residents who have been
outside the United States for at least 48 hours to apply
merchandise purchased from a U.S. duty-free store against
their personal duty-free allowance. The provision does
not apply to residents returning from travel that
involves transit to, from, or through a U.S. insular
possession (American Samoa, Guam, or the Virgin Islands
of the United States).
Reason for change
The Committee believes that current law
disadvantages U.S. duty-free stores and is inconsistent
with the practices of other countries, which allow
purchases made in their duty-free shops to be reimported
under returning-resident allowances. As under current
law, purchases made in U.S. duty-free shops must be made
at the beginning of a resident's outbound journey.
The report is silent with respect to HQ 225287 or any other
Customs ruling. When Congress intends to overturn or modify a
Customs or judicial interpretation, it announces that intention
in clear language. For example, section 484A of the Customs and
Trade act of 1990 (Act of August 20, 1990, Pub. L. 101-382, 104
Stat. 699) amended 19 U.S.C. 1313 to modify the effect of the
ruling issued as C.S.D. 88-1. To make that intention clear,
Congress expressly noted that ruling in the Conference Report (H.
Rpt. 101-650, 242 (July 30, 1990)). See also S. Rpt. 101-252, 39
(March 22, 1990). Likewise, with respect to the amendment of 19
U.S.C. 1504 in the North American Free Trade Agreement
Implementation Act (Act of December 8, 1993, Pub. L. 103-182, 107
Stat. 2057), Congress expressly made clear its intention to
overturn the case of Nunn Bush Shoe v. U.S., 784 F. Supp. 892
(CIT 1992) by so stating in H. Rpt. 103-361, Part 1, 139
(November 15, 1993).
In HR 225287, Customs ruled that duty-free gasoline and
diesel fuel may not be sold from a duty-free store under 19
U.S.C. 1555(b). The ruling cited Customs determination (as set
forth in HQ 200396) and the remarks of Senator Bentsen that the
purpose of enacting the legislation was to codify current
administrative practice in reaching that decision. A primary
administrative concern is the lack of feasible control over bulk
materials such as gasoline and diesel fuel for automobiles. As
noted in HQ 225287 paragraphs (2)(D) and (8)(G) of 19 U.S.C.
1555(b) contemplate that merchandise sold in a duty-free store
be capable of relatively simple, effective controls.
The change with respect to making certain merchandise sold
in duty-free store eligible to be included in a returning
resident's personal exemption under subheadings 9804.00.65,
9804.00.70 and 9804.00.72, HTSUS (19 U.S.C. 1202) does not
eliminate the need for simple, effective administrative controls
over such merchandise. The authority to waive the collection of
duty under 19 U.S.C. 1321(a) also does not eliminate the need
for administrative oversight over such merchandise. Customs
remains responsible for determining the eligibility for exemption
from duty and for the correct recordation of the entry in import
statistics pursuant to 19 U.S.C. 1484.
Moreover, the eligibility for a duty exemption does not exempt
the imported merchandise from being subject to other customs
laws. The exemption from duty depends on the status of the
individual and the circumstances regarding the exportation of the
goods, the time spent out of the United States, and the frequency
of the claims for eligibility. In order to administer those
requirements, the need for simple effective controls has not been
lessened by the 1996 statutory change. In any event, neither the
statutory change itself nor the relevant legislative history
shows an intent to modify the existing Customs position.
Finally, the other points raised in your letters were
covered by HQ 225287. Your letters do not add any additional
points or information so as to require us to reconsider those
aspects. We believe that the Customs position on those points is
clear.
HOLDING:
Having reviewed our previous decision in light of your
written submissions, we do not
find the arguments presented as compelling a reversal of HQ
225287. Thus, HQ 225287 is hereby affirmed.
Sincerely,
John A. Durant
Director
Commercial Rulings Division