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 The merchandise is withdrawn from the foreign-trade zone and either entered for consumption or exported, as it is needed by stores in the United States and abroad.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purpose of this prohibition is to prevent the sale at retail of merchandise within the zone, which will then have to be withdrawn by the purchaser and entered.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