WAR-5-CO:R:C:E 225287 PH

District Director
U.S. Customs Service
Detroit, Michigan 48226

RE: Internal Advice; Duty-Free Stores; Sale of Gasoline and Diesel Fuel; 19 U.S.C. 1555(b); 19 CFR 19.35 through 19.39 Dear Sir:

In your memorandum of March 23, 1994 (File: WAR-1-IC:WJR AMMEX5/TXTMONIC), you requested internal advice concerning a proposal to sell "duty-free" gasoline and diesel fuel at a duty- free store in your District. Our ruling follows:

FACTS:

You state that a duty-free store operator (the "operator") in your District has proposed to sell duty-free gasoline and diesel fuel at its duty-free store. You state that the operator has modified the store under consideration by "adding fencing, electronic gates, and constructing a private road leading directly from their sterile compound to the toll booths on the bridge plaza." The operator formally requested permission to operate this facility as a sterile shop with "live" products. During your physical inspection of the facility, you noted a gasoline/diesel station within the sterile area.

You state that in your December 23, 1994, letter tentatively approving the request, you excluded any bonded fuel operations. On the same date, the operator requested that you reconsider your position on the bonded petroleum operation. In a follow-up letter dated January 24, 1994, the operator formally requested that you approve a bonded petroleum product operation at its duty-free store. In this letter, a copy of which you enclosed, it is stated (in part):

The petroleum would be sold for export, and would indeed be exported as all other bonded merchandise from this facility.

The product would be imported ... by bona fide importation procedures including the use of licensed customs brokers, bonded bulk carriers/cartman, and would be subject to inventory control and monitoring verification, just like other bonded merchandise from this facility.

The dispensing of petroleum products from the duty free plaza would be similar to the exi[s]ting programs for air carriers at various international airports.

In your memorandum you request advice on the issues in the ISSUES portion of this ruling.

ISSUES:

(1) Does gasoline and diesel fuel of foreign origin qualify for "duty free" control by Customs under the Warehouse Entry/Withdrawal for Export procedures?

(2) If a facility is considered an "exit" point for bonded merchandise, would it also qualify as an "exit" point for bonded fuel?

3. Since the duty on foreign sourced fuel is only .0125 cents per gallon, the real savings would be the exemption from federal and state excise taxes. Can copies of fuel warehouse entries be given to the U.S. Internal Revenue Service for enforcement purposes? What would be the restrictions if a similar request is made by the State of Michigan?

(4) Are their any legal determinations or directives covering the dispensing of bonded fuel at a border location? Does fuel qualify as "personal use quantities for consumption outside the United States?" Should sales be subject to other restrictions?

LAW AND ANALYSIS:

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 (Public Law 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 by 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, CIT Slip Op. 93-246, printed at 28 Cust. Bull. & Dec. 3, January 19, 1994, p. 36).

In its administration of duty-free stores before enactment of the 1988 legislation, Customs addressed the issue under consideration. In a ruling letter dated October 30, 1972 (File: DB 711.2 LO 200396), the then Assistant Commissioner of Customs, Office of Regulations, held in regard to the proposed handling of gasoline and diesel products in duty-free stores that:

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.

The 1988 legislation does not directly address the issue under consideration. We have researched the legislative history to the legislation. The only such history we have found which may indicate an intent in this regard is found in the Congressional Record (July 15, 1987, p. S 9952, remarks of Senator Bentsen), where it was stated:

Section 921 [of a predecessor to the enacted legislation] 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.

As noted above, at the time this statement was made and at the time of passage of the 1988 legislation, the current practice was not to allow unidentifiable fungibles, such as gasoline and diesel products for use in automobiles, to be sold on a retail basis by duty-free stores. Thus, the only legislative history we have been able to find which may be applicable to this issue in- dicates that there was no intent, at least by the Senator making these remarks, to change the then current practice. Current practice, as shown by the quoted ruling, was not to allow uniden- tifiable fungibles, such as gasoline and diesel products for use in automobiles, to be sold on a retail basis by duty-free stores.

Although the 1988 legislation does not directly address the issue under consideration, the statute does contain a provision indicating that "unidentifiable fungibles" were not intended to be allowed to be sold in duty-free stores. Under 19 U.S.C. 1555(b)(3)(D), a duty-free enterprise 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. This caveat (i.e., permitting the placement of a mark or other distinguishing identifier on individual items of merchandise in the stated circumstance) was added in Conference (see H. Conf. Rep. No. 100- 576, p. 769 (100th Cong., 2d Sess., 1988), printed at 1988 U.S.C.C.A.N. 1547, 1801-1803). Clearly, inclusion of this caveat indicates an intent that the merchandise which could be sold in a duty-free store would be "individual items of merchandise" which could be marked or otherwise identified. "Unidentifiable fungibles", such as gasoline and diesel products for use in automobiles, are not such "individual items".

We have also reviewed the Customs Regulations (see 19 CFR 19.35 et seq.) issued under 19 U.S.C. 1555(b) and the regulatory history for those regulations (see Federal Register of May 17, 1991 (56 F.R. 22833), August 20, 1992 (57 F.R. 37692), October 16, 1992 (57 F.R. 47409), and May 20, 1993 (58 F.R. 29349). Nowhere in these materials is there any indication of an intent to permit the sale by duty-free stores of the merchandise under consideration. We note that the caveat discussed above (i.e., relating to marking or otherwise identifying individual items of merchandise in the described circumstance) is specifically provided for in the Customs Regulations (19 CFR 19.36(d)).

In its January 24, 1994, letter, the operator contends that the gasoline and diesel fuel could be controlled "just like other bonded merchandise from this facility" and that "dispensing of petroleum products from the duty free plaza would be similar to the exi[s]ting programs for air carriers at various international airports." As demonstrated above, 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). Further, the proposal is not similar to existing programs for air carriers. We assume that the program to which the operator refers is that authorized in 19 U.S.C. 1309 and the Customs Regulations issued thereunder (19 CFR 10.59 - 10.65). Note that these regulations specifically provide for fuel to be used as supplies for vessels (and aircraft (19 CFR 10.59(d))) (i.e., see 19 CFR 10.62). Note also that the trade in which these vessels and aircraft may be engaged is carefully circumscribed and that there is a statutory and regulatory structure under which Customs controls the movements of vessels and aircraft departing from, arriving at, and moving between points in the United States (see 19 CFR Parts 4 and 122).

Based on the foregoing, we conclude that duty-free gasoline and diesel fuel for automobiles may not be sold at a duty-free store, as described in your memorandum and the materials forwarded with your memorandum. In light of this conclusion, the other issues which you raised are made moot and need not be addressed.

HOLDING:

Duty-free gasoline and diesel fuel for automobiles may not 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).

EFFECT ON OTHER RULINGS:

Ruling letter dated October 30, 1972 (File: DB 711.2 L 200396), FOLLOWED.

The Office of Regulations and Rulings will take steps to make this decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Lexis, Freedom of Information Act and other public access channels 60 days from the date of this decision.

Sincerely,

John Durant, Director
Commercial Rulings Division