VES-4-03/12-02 CO:R:IT:C 112048 MLR
Pascale Montels
Loelia Campanile
PID 9 rue Saint Florentin
75008 Paris
France
RE: French-Flag Sailboat; Charter
Dear Mme. Montels:
This is in reference to your letter dated December 12, 1991,
concerning the charter of a foreign-flag vessel.
FACTS:
The SOVEREIGN and SOVEREIGN TOO are foreign-built sailboats
documented under the French flag. One or both of the sailboats
are intended to be chartered in Newport, Rhode Island, during the
summer of 1992. The SFA Bank is listed as the owner. We infer
that each vessel will carry paying passengers and will be guided
by a four-person crew.
ISSUES:
I. Whether the charter of a foreign-built, French-documented
vessel, intended to be brought into the United States for
charter to a U.S. resident in Newport, Rhode Island, during
the summer of 1992, is subject to duty under the provisions
of the Harmonized Tariff Schedules.
II. Whether the subject vessel may be chartered to U.S.
residents without violating the coastwise trade laws.
III. Whether the subject vessel may be issued a cruising
license.
LAW AND ANALYSIS:
I. Under the Harmonized Tariff Schedule of the United States
(HTSUS, copy enclosed), items 8903.91.00, 8903.92.00, or
8903.99.20, yachts and other vessels for pleasure or sport,
rowboats and canoes, sailboats with or without auxiliary motor,
motorboats, and outboard motorboats, are dutiable at the rate of
1.5 percent ad valorem. A sailboat owned by a U.S. resident or
brought into the United States for sale or charter to a resident
thereof, would be subject to this duty provision of the HTSUS.
Additional U.S. Note 1 to Chapter 89, HTSUS (which contains these
items), provides that a vessel, used in international trade or
commerce or brought into the customs territory of the United
States by nonresidents thereof for their own use in pleasure
cruising, shall be admitted without formal customs consumption
entry or the payment of duty.
II. Generally, the coastwise laws (e.g., 46 U.S.C. app. 289 and
883, and 46 U.S.C. 12106 and 12110) prohibit the transportation
of merchandise or passengers between points in the United States
embraced within the coastwise laws in any vessel other than a
vessel built in and documented under the laws of the United
States, and owned by persons who are citizens of the United
States.
The passenger coastwise law, title 46 United States Code
Appendix, section 289 (46 U.S.C. app. 289), provides that:
No foreign vessel shall transport passengers between
ports or places in the United States either directly or
by way of a foreign port, under penalty of $200 for
each passenger so transported and landed.
For purposes of the coastwise laws, a vessel "passenger" is
defined as "... any person carried on a vessel who is not
connected with the operation of such vessel, her navigation,
ownership, or business." 19 CFR 4.50(b). However, we have
ruled that bona fide guests (i.e., those persons who have not
paid for or contributed to the expense of the trip) of the owner
or bareboat charterer of a yacht or pleasure vessel are not
"passengers" for purposes of section 289.
A point in United States territorial waters is considered a
point in the United States embraced within the coastwise laws
but a point beyond those waters, even if it is within the United
States Exclusive Economic Zone (EEZ), is not considered to be
such a point, with certain exceptions inapplicable to this
context (e.g., the Outer Continental Shelf Lands Act of 1958, as
amended; 43 U.S.C. 1333; and the amendments to 46 U.S.C. app. 883
regarding the transportation of valueless or dredged material
effected by Public Law 100-329).
The territorial waters of the United States consist of the
belt, 3 nautical miles wide, adjacent to the coast of the United
States and seaward of the territorial sea baseline. At the date
of this letter, the recent Presidential Proclamation (dated
December 27, 1988), proclaiming a 12 nautical mile territorial
sea, has extended the jurisdiction of the United States only for
international purposes and has not extended or changed existing
federal and state laws.
It is Customs position that the transportation of passengers
from a United States point to a foreign point and back to the
same point is not coastwise trade but that the transportation of
passengers to a different United States point is coastwise trade
(see enclosed copy of 19 CFR 4.80a, particularly paragraph
(a)(2), defining "nearby foreign port," and paragraph (b)(2) of
that section). Transportation of passengers from a United States
point to a foreign port other than a "nearby foreign port" {i.e.,
a "distant foreign port," see 19 CFR 4.80a(a)(3)} and then to a
different United States point is not coastwise trade. 19 CFR
4.80a(b)(3).
In its administration of 46 U.S.C. app. 289, the Customs
Service has ruled that the carriage of passengers entirely within
territorial waters, even though the passengers disembark at their
point of embarkation and the vessel touches no other coastwise
point, is considered coastwise trade subject to the coastwise
laws. However, the transportation of passengers to the high seas
(i.e., beyond U.S. territorial waters) and back to the point of
embarkation, assuming the passengers do not go ashore, even
temporarily, at another United States point, often called a
"voyage to nowhere," is not considered coastwise trade. It
should be noted that the carriage of fishing parties for hire,
even if the vessel proceeds beyond territorial waters and returns
to the point of the passenger's embarkation, is considered
coastwise trade.
With regard to the charter of a yacht or pleasure vessel,
when a non-coastwise qualified vessel is chartered under a bona
fide bareboat charter, the charterer is treated as the owner of
the vessel for the period of the charter, and, because the owners
are not considered "passengers" for purposes of the coastwise
laws, the charterer is not proscribed by the coastwise laws from
using the vessel during the charter for his pleasure purposes
only. A vessel chartered under a charter arrangement other than
a bareboat charter (e.g., a time or "captained" charter) to
transport the charterer and/or his guest between coastwise
points or solely in territorial waters (see discussion above on
the carriage of passengers entirely in territorial waters or to
the high seas or foreign waters) would be considered coastwise
trade and therefore subject to penalties under the coastwise
laws. A vessel chartered under a bareboat charter would also be
subject to penalties if the bareboat charterer used it in the
coastwise trade (e.g., to transport paying passengers between
coastwise points or entirely within territorial waters).
In our review of charter arrangements to determine whether
or not they are bareboat charters we have generally held that:
The nature of a particular charter arrangement is a
question of fact to be determined from the
circumstances of each case. Under a bareboat charter
or demise charter the owner relinquishes complete
management and control of the vessel to the charterer.
On the other hand, if the owner retains a degree of
management and control, however slight, the charter is
a time or voyage charter, and the vessel is deemed to
be engaged in trade. The crux of the matter is whether
complete management and control have been wholly
surrendered by the owner to the charterer so that for
the period of the charter the charterer is in effect
the owner. Although a charter agreement on its face
may appear to be a bareboat or demise charter, the
manner in which its covenants are carried out and the
intention of the respective parties to relinquish or to
assume complete management and control are also
factors to be considered.
Generally, we have held that a charter arrangement in which
the captain and crew are selected by the owner or his agent, by
its very nature, results in an implication that the owner may not
have relinquished complete management and control of the vessel
to the charterer. However, the mere fact that a crew is
furnished to the charterer would not render the agreement a time
charter provided the charterer had full authority to hire,
discharge, or replace the crew. Customs Ruling 108278, dated
April 2, 1988. Further, we have ruled that even when a charter
is described as a bareboat one, the actual circumstances of the
charter agreement control in the determination of whether it is a
bareboat charter for purposes of the coastwise laws. C.S.D. 83-
11. Although it would appear that your proposal is more in the
nature of a time or voyage charter as opposed to a bareboat
charter for pleasure use alone, until such time as a copy of the
charter agreement is submitted for our review, we are unable to
determine whether it is a bareboat charter for purposes of the
coastwise laws. In any event, even if the charter arrangement is
considered a bareboat or demise charter, if the guests carried on
the vessel are considered "passengers," the transportation will
be prohibited by the coastwise laws.
III. You should also be familiar with the Customs provisions
regarding entry and clearance. The master of any foreign vessel
arriving in a United States port, whether from a foreign port or
another United States port, is required to immediately report its
arrival (see 19 U.S.C. 1433 and 19 CFR 4.2) and to make vessel
entry (see 19 U.S.C. 1435 and 19 CFR 4.3). Such vessels are also
required to clear when bound for a foreign port (see 46 U.S.C.
app. 91 and 19 CFR 4.60), and must have a permit to proceed from
one United States port to another (see 46 U.S.C. app. 313 and 19
CFR 4.87).
Title 46, United States Code Appendix, section 104 (46
U.S.C. app. 104), authorizes the issuance of cruising licenses
to pleasure vessels of countries which extend reciprocal
privileges to United States pleasure vessels. The determining
factor as to whether a vessel is eligible for a cruising license
is the documentation of the vessel and not the residency of the
owner. France is on the list of countries appearing in 19 CFR
4.94(b), whose yachts may be issued cruising licenses. Section
4.94 of the Customs Regulations, concerns the issuance of
cruising licenses which exempt foreign yachts from formal entry
and clearance procedures. The license is granted subject to the
condition that the vessel will not engage in trade or violate the
laws of the United States in any respect. 19 CFR 4.94(c).
Subsequent to the receipt of the cruising license, yachts
may arrive in and depart from the United States and cruise in
specified waters of the United States without entering and
clearing, without filing manifests and obtaining or delivering
permits to proceed, and without the payment of entrance and
clearance fees, or fees for receiving manifests and granting
permits to proceed, duty on tonnage, tonnage tax, or light money.
However, a cruising license does not exempt a vessel from the
requirement to report to Customs its arrival at the first United
States port of arrival from a foreign port or place immediately
upon such arrival. 19 U.S.C. 1433; 19 CFR 4.2.
Cruising licenses, as their name implies, are intended for
the use of foreign vessels on relatively brief cruises in the
United States. A cruising license may be issued for a period not
to exceed one year. 19 CFR 4.94(c). Because it appears that
your vessel will not be used solely for pleasure purposes, in
that you will be transporting paying "passengers," the vessel may
not be issued a cruising license. We emphasize that although
cruising licenses exempt yachts having them from the above
described requirements while cruising in the United States, they
are not required as a condition precedent to cruising in the
United States or its waters. A foreign yacht or pleasure boat
may be kept in the United States under its foreign registry;
however, the owner or master of the vessel must enter, obtain a
permit to proceed to other United States ports, and clear when
going foreign.
HOLDING:
I. Since the subject sailboat will be brought into the United
States by a nonresident for other than pleasure purposes
alone, it would be dutiable.
II. The subject sailboat may be chartered to paying passengers,
so long as the proposed itinerary does not involve the
carriage of passengers: (1) entirely within territorial
waters, even if the vessel returned the passengers to the
point of embarkation without touching at any other coastwise
point; or (2) between points in the United States. The
vessel may be used to transport passengers from a point in
the United States, to the high seas beyond territorial
waters and back to the same point, assuming that the vessel
touched at no other coastwise point during the
transportation. The vessel may also carry passengers
between points in the United States if the vessel first
touched at a distant foreign port.
III. The subject vessel may not be issued a cruising license,
unless it is chartered under a bona fide bareboat charter
and the vessel does not engage in trade or violate the laws
of the United States.
To the extent that this ruling conflicts with prior Customs
decisions, they are hereby revoked. Further this letter
addresses only those federal requirements that are administered
by the United States Customs Service. Questions with regard to
vessel documentation and vessel safety requirements are within
the jurisdiction of the United States Coast Guard. The address
is:
Mr. Thomas Willis
Chief, Vessel Documentation
U.S. Coast Guard (GMVI-6/13)
2100 Second St., S.W. (Room 1312)
Washington, D.C. 20593-0001
Tax questions should be referred to:
Internal Revenue Service
Office of the Assistant Commissioner (International)
950 L'Enfant Plaza
Washington, D.C. 20024
While we are unaware of any other federal or state agency
requirements that might pertain to the undertaking you describe,
it is possible that such requirements exist.
Sincerely,
B. James Fritz
Chief
Carrier Rulings Branch
Enclosures