VES-3/4-03-CO:R:P:C 111011 GV
Ms. Ann Bush
Revenue Agent
Internal Revenue Service
Department of the Treasury
515 North Belt
Stop: 4704H-NW
Houston, Texas 77060
RE: English-built Yacht; Coastwise Trade
Dear Ms. Bush:
This is in response to your facsimile transmission, dated
April 27, 1990, requesting information as to Customs current
position regarding the use in the coastwise trade of a yacht
constructed in England.
FACTS:
A yacht has been constructed in England to the order of a
U.S. citizen for business purposes. Specifically, the yacht is
to be used in the territorial waters of the United States, the
Gulf of Mexico and the Caribbean Sea as a design prototype (i.e.,
the U.S. citizen wishes to sell the design packages of the
yacht).
ISSUE:
Whether the use of an English-built yacht as a design
prototype in U.S. territorial waters, the Gulf of Mexico and the
Caribbean Sea constitutes a violation of 46 U.S.C. App. 289 and
883.
LAW AND ANALYSIS:
Title 46, United States Code Appendix, section 883 (46
U.S.C. App. 883, the coastwise merchandise statute often called
the "Jones Act"), provides in part, that no merchandise shall be
transported between points in the United States embraced within
the coastwise laws, either directly or via a foreign port, or for
any part of the transportation, in any vessel other than a vessel
built in and documented under the laws of the United States and
- 2 -
owned by persons who are citizens of the United States (i.e., a
coastwise-qualified vessel). This statute has been found to
apply even to the transportation of merchandise from point to
point within a harbor. Pursuant to 19 U.S.C. 1401(c), the word
"merchandise" means goods, wares and chattels of every
description and includes merchandise the importation of which is
prohibited. Furthermore, Public Law 100-329 (102 Stat. 588)
amended section 883 to apply to the transportation of "valueless
material..."
Title 46, United States Code Appendix, section 289 (46
U.S.C. App. 289, the passenger coastwise statute), prohibits the
transportation of passengers between points embraced within the
coastwise laws of the United States, either directly or by way of
a foreign port, in a non-coastwise-qualified vessel. Pursuant to
section 4.50(b), Customs Regulations (19 CFR 4.50(b)) a
"passenger" for purposes of section 289 is defined as "any person
carried on a vessel who is not connected with the operation of
such vessel, her navigation, ownership or business."
Points embraced within the coastwise laws include all points
within the territorial waters of the United States, including
points within a harbor, as well as artificial islands,
installations, and devices permanently or temporarily attached to
the seabed of the outer continental shelf for the purpose of
exploring for, developing or producing resources therefrom. The
territorial waters of the United States consist of the
territorial sea, defined as the belt, 3 nautical miles wide,
adjacent to the coast of the United States and seaward of the
territorial sea baseline.
Customs has previously ruled that the use of a vessel solely
for the purpose of demonstration in which persons who are
transported on demonstration rides embark and disembark at the
same point is not coastwise trade even if the ride is entirely
within U.S. territorial waters. Such persons are not considered
to be passengers for purposes of section 289. However, those
rulings have been limited to demonstration rides originating and
terminating at the same point because the transportation of
persons between different points is itself evidence of a purpose
other than the demonstration of a vessel.
In regard to the English-built yacht under consideration, if
prospective buyers of the vessel's design are given rides on it
for the purpose of selling the design, such persons are not
considered "passengers" for purposes of section 289, even if the
ride is entirely within U.S. territorial waters, provided they
embark and disembark at the same point. In addition, the
transportation of merchandise by the subject vessel between two
coastwise points would be evidence of a purpose other the selling
of the yacht's design and would be considered a movement in the
coastwise trade prohibited by section 883.
- 3 -
In addition to the issue of coastwise trade, you should also
know that under the Harmonized Tariff Schedules of the United
States (HTSUS), a yacht or pleasure boat, regardless of length or
tonnage, whether motor, sail or steam propelled, owned by a
resident of the United States or brought into the United States
for sale or charter to a resident thereof, is dutiable under
HTSUS items 8903.91.00 or 8903.92.00, at a rate of 1.5 percent ad
valorem.
HOLDING:
The use of an English-built yacht as a design prototype in
U.S. territorial waters, the Gulf of Mexico and the Caribbean Sea
does not constitute a violation of 46 U.S.C. App. 289 and 883
provided no passengers or merchandise are transported between two
coastwise points.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch