FOR 2-04
OT:RR:CTF:ER
H277473 KF
Mark A. Koslowe
Buchman Law Firm, LLP
510 Thornall Street, Suite 200
Edison, NJ 08837
Re: Conducting retail trade within a Foreign Trade Zone (“FTZ”); right to make entry.
Dear Mr. Koslowe:
This is in response to your ruling request, dated June 29, 2016, on behalf of DQ Enterprises (“DQE”), to determine the permissibility of a proposed sales operation for wine stored within a Foreign Trade Zone (“FTZ”) and withdrawn for consumption.
FACTS:
DQE proposes becoming an FTZ warehouse operator for the purpose of conducting the following sales operation:
First, foreign wineries or wine merchants (“suppliers”) will import wine into the United States. The imported wine is subsequently admitted into an FTZ for storage by DQE. Suppliers will assume the cost of shipment to the United States, and will hold title to the wine at the time of its importation and admission into the FTZ.
Second, DQE will advertise and market the suppliers’ wine to customers within the United States, incentivizing them to visit the suppliers when traveling abroad. Customers who visit the suppliers may complete a purchase abroad of the wine that is stored at the FTZ. The wine will be delivered to them upon returning from their travels. During a telephone conference with U.S. Customs and Border Protection (“CBP”), DQE indicated that at the moment customers complete a purchase abroad, they acquire title to the wine held within the FTZ. DQE will not hold title to the wine at any point in the proposed sales operation.
Third, once a purchase abroad is completed, suppliers will transmit customers’ purchase orders to DQE. DQE will fulfill the orders paying for a commercial carrier to ship the wine from the FTZ to customers within the customs territory of the United States. DQE has not indicated that it will assume the risk of loss in the event the wine is not delivered to a customer.
Fourth, DQE suggests using informal entry procedures for unaccompanied shipments of articles subject to personal exemptions to enter wine shipped from the FTZ, specifically by filing CBP Form 3299. DQE contends that customers could declare the value of the wine they purchased upon returning to the United States, and their completed CBP Form 3299 would be used to withdraw the wine from the FTZ into customs territory.
Fifth, any taxes, duties, or fees owed on the wine would be paid by DQE. DQE intends to make payment either when the wine is first imported and admitted into an FTZ, or when the wine is later withdrawn from the FTZ. DQE will either assume the cost of this payment itself, or transmit the payment it receives from customer.
DQE asks CBP to determine the permissibility of its proposed sales operation. In reviewing the operation, we find that it implicates three discrete issues: the right to make entry, applicability of the personal exemption, and retail trade within an FTZ. We will address each issue in turn.
ISSUES:
Whether DQE has the right to admit merchandise into an FTZ, withdraw it for consumption, and transmit payment for any duties, taxes, or fees owed
Whether wine admitted into an FTZ may be entered into customs territory utilizing a personal exemption.
Whether DQE’s proposed sales operation constitutes permissible retail trade.
LAW AND ANALYSIS:
Whether DQE has the right to admit merchandise into an FTZ, withdraw it for consumption, and transmit payment for any duties, taxes, or fees owed.
DQE proposes becoming an FTZ warehouse operator, which will admit and withdraw wine from an FTZ for its proposed sales operation. DQE will also transmit payment for any duties, taxes, or fees owed to CBP. DQE will either assume the cost of payment itself, or transmit payments received from customers. As discussed below, this proposal concerning admission, withdrawal, and payment implicates the right to make entry. See 19 C.F.R. § 146.32(b)(2); § 146.62; § 141.1(b).
Under CBP regulations, a party seeking to admit goods into an FTZ and withdraw goods for consumption in Customs territory must establish their right to make entry. See 19 C.F.R. § 146.32(b)(2); FTZ Manual, 65 (“[a]pplication for admission may be made only by the person with the right to make entry”); 19 C.F.R. § 146.62; FTZ Manual, at 100 (“[a]ll CBP entries must be made by the party that has the right to make entry”). More generally, a party must qualify as an importer of record to make entry and file documents concerning the dutiability of merchandise. See 19 U.S.C. § 1484(a)(1). An importer of record is alternately referred to as the party capable of evidencing the right to make entry for merchandise. See e.g. HQ H265228 (August 24, 2016); HQ 116024 (August 14, 2003).
Pursuant to 19 U.S.C. § 1484(a)(2)(B), a party qualifies as importer of record if it is an “owner or purchaser of the merchandise or, when appropriately designated by the owner, purchaser, or consignee of the merchandise, a” licensed Customs broker. The term “owner or purchaser” encompasses “any party with a financial interest in a transaction, including, but not limited to, the actual owner of the goods, the actual purchaser of the goods, a buying or selling agent, a person or firm who imports on consignment, [or] a person or firm who imports under loan or lease.” See Customs Directive No. 3530-002A, 5.3.1 (June 27, 2001). However, the term “owner or purchaser” excludes a nominal consignee “who effectively possesses no other right, title, or interest in the goods except as… possessed under a bill of lading, air waybill, or other shipping document.” Id. A nominal consignee must therefore obtain the services of a licensed customs broker to act as the importer of record and enter merchandise. Id. at 5.5.1.
FTZ warehouse operators cannot make entry as the importer of record if their financial interest in merchandise is limited to that of a nominal consignee. See HQ 115805 (January 7, 2003) (defining a nominal consignee as a “freight forwarder, consolidator, or warehouse operator”). To qualify as an importer of record, a party must have a financial interest in the goods that establishes a reciprocal nexus between their financial welfare and the goods being imported. See HQ H007168 (August 2, 2007); HQ 231255 (March 28, 2006) (“the focus of the inquiry is the reciprocal relationship between the entity and the goods”). A reciprocal nexus may be established by a party “in some significant way expecting or relying on a financial benefit from the imported goods,” which is received in exchange for assuming certain responsibilities or liabilities towards the goods. See, e.g., HQ 231255; HQ H265228 (August 24, 2016).
To illustrate, in HQ 231255 (March 28, 2006), CBP addressed whether FTZ and warehouse operator Kwikset could admit merchandise by direct delivery. Without receiving compensation, Kwikset was responsible for zone security, maintaining an FTZ operator’s bond, inventory and recordkeeping, insuring warehoused merchandise, and receiving, handling, storing, and shipping all the merchandise. Kwikset asserted that its “specialized” responsibilities generated a financial interest in the merchandise by ensuring the viability of the warehouse facility. CBP found, to the contrary, that Kwikset’s responsibilities were not specialized but were those generally required of an FTZ operator, such that Kwikset’s financial interest was derived from responsibilities due to FTZ users instead of responsibilities assumed towards the merchandise. CBP further found that although Kwikset assumed the cost of insuring warehoused merchandise, Kwikset was not investing in safeguarding the merchandise but in protection against users’ claims in the event of loss. CBP concluded that Kwikset’s interest in the merchandise was, therefore, merely custodial and could not confer the right to make entry because it lacked a sufficient financial nexus to the imported goods.
Akin to Kwikset, DQE’s responsibility towards the imported wine arises from its general role as an FTZ warehouse operator. DQE will receive wine from suppliers abroad, handle and store the wine in a warehouse, and arrange for delivery to customers within the United States. We find that these responsibilities are for services performed for the wine’s suppliers, and are not assumed towards the imported wine. Further, although DQE assumes the cost of shipping the wine by commercial carrier, we find that like Kwikset, DQE is not investing in the imported wine itself, but in fulfilling logistics obligations owed to suppliers. DQE’s interest in the wine, therefore, resembles that of a custodian or bailee who is a mere nominal consignee. See H242609 (February 6, 2014) (“parties who arrange for the transportation, storage, and delivery of imported merchandise … are mere nominal consignees”). Although, unlike Kwikset, DQE receives compensation for fulfilling its responsibilities as an FTZ warehouse operator, this compensation fails to create a financial interest in the wine outside of DQE’s role as a nominal consignee who “effectively possesses no other right, title, or interest in the goods beyond … arrang[ing] for the transportation, storage, and delivery of the merchandise.” HQ H242069.
The remaining question is whether the sales commission DQE receives for advertising and marketing the wine can establish the necessary nexus between its financial welfare and the imported wine. CBP addressed whether compensation for advertising and marketing services could confer the right to make entry in HQ H100056 (November 15, 2010). In that case a subsidiary company sought to be the importer of record for an active pharmaceutical ingredient. Although the subsidiary did not hold title to the ingredient at any point, the subsidiary was contractually obligated to fulfill a wide array of responsibilities that were essential to importing the ingredient, such as: product research and development, preparing regulatory filings, marketing the ingredient, distributing samples to prospective buyers, and disposing of the environmental hazardous waste resulting from the ingredient’s manufacture. CBP found that the subsidiary’s compensation for fulfilling all these responsibilities, including advertising and marketing services, generated a financial interest in the ingredient itself that “extend[ed even] beyond the time of importation and storage, all the way to the subsequent… distribution.” Stated another way, the subsidiary’s compensation was contingent upon the successful development, marketing, and importation of the ingredient, such that the subsidiary’s financial welfare bore a reciprocal nexus to the ingredient.
In contrast to the subsidiary in HQ H100056, DQE’s marketing and advertising services are the sole responsibility it assumes outside of its role as an FTZ warehouse operator in the proposed sales transaction. More significantly, the marketing and advertising services are designed to promote the opportunity for persons traveling abroad to receive domestic delivery of wine they could purchase while traveling abroad. Instead of advertising a specific importation of wine, DQE is effectively advertising a delivery service. We thus find that because DQE’s marketing and advertising services are not directly tied to the wine, DQE’s financial interest in the compensation it receives for these services cannot generate a reciprocal nexus between its financial welfare and the imported wine. Consequently, we find that DQE does not qualify as an importer of record for the wine.
Finally, we note that payment to CBP of any duties, taxes, and fees owed on the wine constitutes customs business. See 19 U.S.C. §1641(a)(2). Accordingly, we find that the payment may only be transmitted to CBP by the importer of record or a licensed customs broker. See e.g. HQ 115248 (August 28, 2001).
Whether wine admitted into an FTZ may be entered into customs territory using a personal exemption.
DQE suggests that it may withdraw wine from an FTZ and enter it into customs territory by having customers file a declaration for the wine they purchased abroad, either on CBP Form 3299 or some other form. We note that DQE asserts in its ruling request that a declaration is appropriate because these entries are not commercial in nature, and concludes that Alcohol and Tobacco Tax and Trade Bureau (“TTB”) labeling requirements would accordingly not apply. The scheme articulated by DQE in effect seeks to apply the informal entry procedures available to persons entering the United States claiming a personal exemption from duty for the purpose of withdrawing wine for consumption from an FTZ.
Alcohol subject to personal exemptions from duty for returning residents, and for nonresidents, is classified under subheadings 9804.00.25, 9804.00.65, 9804.00.70, and 9804.00.72, Harmonized Tariff Schedule of the United States (“HTSUS”). See also 19 C.F.R. § 148.6, § 148.33, § 148.43. The applicable HTSUS heading text specifies that alcohol qualifying for classification under these subheadings must be “imported by or for the account of any person arriving in the United States.” Merchandise is imported on the date it arrives within customs territory, if arriving by means other than a vessel. See 19 C.F.R. § 101.1. If arriving by vessel, merchandise is imported on the date it arrives within the limits of a port with intent to then and there unlade. Id.
For a personal exemption to apply, the alcohol must be imported for personal use. See 19 C.F.R. § 148.33, § 148.43. Merchandise that is imported for purposes of sale, or another commercial purpose, is not subject to a personal exemption. See 19 C.F.R. § 148.33 (“[t]he exemption does not apply to articles intended for sale or acquired on commission”); 19 C.F.R. § 148.43 (specifying that alcohol cannot be imported “for commercial use or to be given to another person”); HQ 113994 (February 10, 1998) (finding that property acquired abroad and entered for a commercial purpose was not purchased for personal use). If alcohol for personal use is not imported by a resident or nonresident themselves, the alcohol must be imported for their account by an authorized agent who is ordinarily a licensed customs broker. See HQ H286759 (June 1, 2017). As a personal exemption may only be claimed by natural persons, neither DQE nor any other legal entity can claim entitlement to a personal exemption. Id.; see also HQ 226334 (March 4, 1996) (finding that a corporate entity “is not a ‘person’ for the purpose” of claiming a Chapter 98 personal exemption). Based on the above, we find that DQE’s proposed sales operation does not qualify for personal exemptions because merchandise admitted by wine suppliers into an FTZ for purposes of retail sale is imported before a customer returns to the United States, by a legal entity, for a commercial purpose.
First, merchandise is imported into customs territory of the United States before it is admitted into an FTZ, even though it is generally not subject to customs law until entered into customs territory. See 19 C.F.R. § 146.1 (defining foreign merchandise as “imported merchandise which has not been properly released from C[BP] custody”); HQ 223828 (July 1, 1992) (“[m]erchandise admitted into a foreign trade zone has been imported”); HQ 230090 (December 31, 2003) (finding that merchandise arriving in the United States for purposes of admission into an FTZ is imported “even prior to [the time of] admission [] into the FTZ”). Accordingly, the wine admitted into an FTZ is imported by its suppliers, and is not imported by a customer upon their return to the United States. Customers may therefore not claim a personal exemption at the time wine is withdrawn from an FTZ because the wine is not “imported by or for the account of any person arriving in the United States.”
Second, the suppliers importing the wine are legal entities who may not claim a personal exemption available only to natural persons. Nor may suppliers, as legal entities, claim a personal exemption on behalf of a customer because it is the suppliers, not customers, who own the wine at the time of its importation. See HQ 224027 (August 17, 1992) (finding that articles “owned by…a corporation do not qualify for [a personal] exemption”).
Third, the wine is imported in anticipation of a sale to potential customers. The wine is therefore not imported for the personal use of an actual customer, but for a commercial purpose. Consequently, we find that wine sold to customers from an FTZ may not be withdrawn pursuant to a personal exemption.
Finally, we note that CBP Form 3299 is used to declare the entry of articles imported by, or in the physical possession of, a person arriving in the United States. See 19 C.F.R. § 148.6 (“a declaration of the importer on Customs Form 3299”); 19 C.F.R. § 148.12 (“accompanying articles acquired abroad”); 19 C.F.R. § 148.13 (“articles acquired abroad which are in his possession at the time of arrival”). We find that CBP Form 3299 is inapplicable to withdrawing merchandise from an FTZ for the reasons discussed above. With respect to the claim that TTB labeling requirements do not apply to the circumstances outlined, we recommend that DQE clarify this issue by directing an inquiry to: Alcohol and Tobacco Tax and Trade Bureau, Director, Regulations and Rulings Division, 1310 G Street, NW, Box 12, Washington, DC 20005.
Whether DQE’s proposed sales operation constitutes permissible retail trade.
As an initial matter, wine may be admitted to an FTZ. Pursuant to 19 U.S.C. § 81c, “[f]oreign and domestic merchandise of every description, except such as is prohibited by law, may, without being subject to the customs laws of the United States… be brought into a zone and may be stored [or] sold.” Prohibited merchandise is defined as “merchandise the importation of which is prohibited by law on grounds of public policy or morals, or any merchandise which is excluded from a zone by order of the Foreign Trade Zones Board.” See 19 C.F.R. § 146.1(b). Wine does not fall within the definition of prohibited merchandise, and may be admitted.
However, pursuant to 19 U.S.C. § 81o(d), “no retail trade shall be conducted within a 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.” Accordingly, although retail trade may be permitted by permit for domestically produced, imported and duty-paid, or imported and duty-free goods, there is no exception to the retail trade prohibition for imported goods subject to duties for which duty payment has been deferred. Id.; 15 C.F.R. § 400.47.
The term “retail trade” is not defined within the Foreign Trade Zones Act of 1934, as amended by 19 U.S.C. § 81a-81u, and is ascribed the ordinary meaning of the term “retail.” See HQ 114229 (February 2, 1998) (quoting Witco Chemical Corp. v. United States, 742 F.2d 615 (C.A.F.C. 1984), which found that absent evidence of legislative intent to ascribe a special meaning to the term “retail,” a presumption arose that Congress intended the term to have its ordinary meaning of “sales made in small quantities to ultimate customers to meet personal needs, rather than for commercial or industrial” purposes). “Retail trade” is thus defined as “sales or offers to sell goods or services in small quantities directly to customers or to individuals for personal use[, including]…[s]ales or offers to sell goods at retail in a zone.” FTZ Manual at 167. The term “retail trade” also encompasses “[s]ales or offers to sell services at retail [which are made] outside a zone [for] goods held in or services rendered in a zone.” Id.
Pursuant to the regulations promulgated by the FTZ Board in 2012, the authority to issue a determination as to whether a particular activity constitutes retail trade is vested with the Executive Director of the FTZ Board. See 15 C.F.R. § 400.47(a). Accordingly, DQE may address its request for such a determination to: Executive Director, Foreign Trade Zones Board, U.S. Department of Commerce, 1401 Constitution Ave., N.W. Room 21013, Washington, D.C. 20230.
HOLDING:
Based on the above, we find that DQE may not admit the wine into an FTZ or withdraw the wine for consumption because it does not have the right to make entry for the wine. Moreover, no personal exemption may be claimed to withdraw the wine for consumption from an FTZ.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruing letter, either directly, by reference, or by implication, is accurate and complete in every material respect.” If any fact in the transaction varies from the facts stipulated to herein, this decision shall not be binding on CBP, as provided for in 19 C.F.R. § 177.9(b).
Sincerely,
Gail G. Kan
Branch Chief
Entry Process & Duty Refunds Branch