RR:IT:VA 547313 MMC
Mr. Thomas E. Johnson
Baker & McKenzie
One Prudential Plaza
130 East Randolph Drive
Chicago, IL 60601
RE: Workstations; Trim Units; Valuation of split shipments
Dear Mr. Johnson:
This is in response to your February 19, 1999, letter on behalf of Steelcase Inc. requesting a ruling concerning the classification and valuation of various workstations transported in split shipments. On March 5, 1999, a ruling concerning the classification of the articles was issued to you by the National Commodity Specialists Division. As such, this ruling will address only the valuation portion of your request.
FACTS:
Steelcase U.S. purchases a variety of different furnishings which are produced in foreign countries (primarily Canada) by Steelcase-affiliated companies (vendor(s)). Some of the furnishings are stand-alone, finished articles such as filing cabinets, desks, etc. Others are modularly designed, and consist of “trim pieces”, such as work surfaces, partition panels, and shelving which integrate to create a finished product referred to as a “workstation.”
The majority of Steelcase U.S.’s orders are for complete workstations, however it is possible for a customer to order replacement components. Such replacement orders are referred to as “customer service orders.” Orders are placed by the Steelcase dealer (U.S. customer) with Steelcase U.S. Steelcase U.S. then places an order with its vendor(s) where the trim units for the ordered workstation are manufactured and/or kept in inventory. The trim units necessary to create each type of imported workstation are manufactured and/or kept in inventory by a single vendor, although that vendor may not manufacture or keep all of these trim units at one central location. Workstations containing trim unit products sold to Steelcase U.S. are specifically intended for resale to the customer who has ordered them. Trim units are imported solely to satisfy specific orders. Orders are not made to stock inventory in the U.S..
Most trim units needed to create a complete workstation will be imported into the United States in a single shipment and processed as a single Customs entry. However, there will be instances where trim units for a particular workstation may be divided into what is referred to as a “split shipment.” A split shipment occurs when components of a whole are shipped in 2 or more shipments and processed as separate Customs entries.
Steelcase U.S.’s computer invoicing system documents split shipments as follows: the documentation for the first shipment will list the product numbers and descriptions for the workstation and for the trim units included in that shipment. Subsequent shipments of trim units for that particular workstation will not list the workstation product number, and will only list the trim units in these particular shipments. Split shipment entries may contain any combination of trim units for either workstations and/or customer service orders. Part numbers and a description of each workstation trim unit are indicated separately on the packing list, but only the total price of the workstation is stated. A part number, description, and price for each customer service order trim unit are separately indicated on the packing list. The part descriptions for the customer service trim units are identical to the workstation trim units, however, the part numbers for workstation trim units are different than those for customer service articles. This makes it is possible to identify, even if the unit is identical, which trim units are parts of a workstation.
You have created a pro rata formula which you believe should be used to allocate the contract price paid for the workstation(s) amongst the split shipments of workstation trim units. It is:
production cost workstation trim unit
?
total production cost of workstation
x
total transaction value of workstation
=
transaction value of workstation trim unit
For example if the production cost for the trim unit is xxx, the total production cost of the workstation is $300 and the total transaction value for the workstation is xxx, then the transaction value of the individual workstation trim unit would be xxx. ($xx?$xxx x $xxx= $xx). You propose that this formula, which ascertains a value for an individual workstation trim unit, will, when all individual workstation values are combined, account for the total contract price paid from the buyer to the seller for the workstations.
ISSUES:
1) Is transaction value an acceptable basis of appraisement for the imported merchandise?
2) Is the presented formula acceptable for allocating the payment amongst the split shipments?
LAW AND ANALYSIS:
The preferred method of appraising merchandise imported into the United States is transaction value pursuant to §402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. §1401a. §402(b)(1) of the TAA provides, in pertinent part, that the transaction value of imported merchandise is the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus amounts for certain enumerated additions specified in §402(b)(1) of the TAA.
The price actually paid or payable is defined a “the total payment (whether direct or indirect...) made or to be made, for imported merchandise by the buyer, to or for the benefit of the seller.” 19. U.S.C.§1401a(b)(4). You contend that transaction value is the proper method of appraisement for the imported merchandise.
You indicate that Steelcase U.S. and the vendors are related. As such the imported merchandise can be appraised under transaction value only if the transaction value is deemed to be acceptable. § 402(b)(2)(B) of the TAA provides that transaction value between related parties is acceptable only if an examination of the circumstances of the sale indicates that the relationship between the parties does not influence the price actually paid or payable or, if the transaction value of imported merchandise closely approximates the transaction value of identical or similar merchandise in sales to unrelated buyers in the U.S. or the deductive or computed value for identical or similar merchandise. You assert that transfer prices for each type of workstation and for each trim unit sold separately have been established. The correctness of the transfer prices is not being submitted for review in this ruling request. Therefore, for purposes of this ruling request, we assume that transaction value is a method of appraisement which may be used.
As indicated above, §402(b)(1) of the TAA provides, in pertinent part, that the transaction value of imported merchandise is the price actually paid or payable for the merchandise when sold for exportation to the United States. For Customs purposes, the word "sale" generally is defined as a transfer of ownership in property from one party to another for a consideration. J.L. Wood v. United States, 62 CCPA 25, 33; C.A.D. 1139 (1974) (hereinafter J.L. Wood) . While J.L. Wood was decided under the prior appraisement statute, Customs adheres to this definition under the TAA. The primary factors to consider in determining whether there has been a transfer of property or ownership are whether the alleged buyer has assumed the risk of loss, and whether the buyer has acquired title to the imported merchandise. See, HRL 544775 dated April 3, 1992; HRL 543633 dated July 7, 1987. Also relevant is whether, in general, the roles of the parties and circumstance of the transaction indicate that the parties are functioning as buyer and seller. See, HRL 545474 dated August 25, 1995. No evidence has been presented to establish that a sale for export has occurred and the issue is not one submitted for review in this ruling request. Therefore, for purposes of this ruling request, we will assume that a sale for export has occurred between the importer, Steelcase U.S. and the related vendors.
It appears, subject to the assumptions made, that all of the requirements for transaction value have been met. Its been assumed that the fact that the parties are related will not prevent the use of transaction value. Additionally, its been assumed that a sale of the imported merchandise for exporation to the United States has occured. Finally, you have suggested that there is an ascertainable price for the imported merchandise. That is, the contract price paid by Steelcase U.S. to its vendors for the workstations. However, as previously discussed, the workstation trim units are not all imported at the same time or in the same entry. In fact, various entries will combine trim units not only for various workstations but also some customer service orders. Such importations are referred to as split shipments. You suggest a pro rata formula allocating the contract price paid for the workstation(s) amongst the split shipments of workstation trim units. It is:
production cost workstation trim unit
?
total production cost of workstation
x
total transaction value of workstation
=
transaction value of workstation trim unit
You state that this formula which ascertains a value for an individual workstation trim unit, will, when all individual workstation values are combined, account for the total contract price paid from the buyer to the seller for the workstations. Such a formula will be considered an acceptable apportionment method for the split shipments assuming its results are reasonable, verifiable and in accordance with generally accepted accounting principles.
HOLDING:
Based on the facts presented, and the assumptions set forth above, transaction value is an acceptable method of appraisement. The value of shipments of individual workstation trim units may be apportioned using the submitted pro rata formula.
Sincerely,
Thomas L. Lobred
Chief, Valuation Branch