VES-4-02-R:IT:C 113369 LLB
Theresa Bennett, Esq.
321 Royal Poinciana Plaza, South
Post Office Box 431
Palm Beach, Florida 33480-0431
RE: Yacht dutiability; Charter; Non-resident; Foreign-flag vessel; Restrictive advertising for charter; Foreign owner
Dear Ms. Bennett:
Reference is made to your letter of March 17, 1995, which is supplemented by your letter of April 27, 1995, in which you inquire as to the potential dutiability of a foreign-flag yacht which is to be chartered by your client.
FACTS:
As we understand the facts in this matter, a foreign entity wishes to charter a British-flag vessel in order to cruise in the waters of the United States. The vessel is owned by a British concern. It was chartered to an American corporation which sub-chartered to a second American corporation. That second American corporation is sub-chartering the vessel out to your client, the foreign concern at issue. It is stated that while the vessel is in the United States your client wishes to transport family and friends, none of whom will be charged for passage.
ISSUE:
Whether a British-flag vessel may legally operate in the United States in the manner described in the Facts portion of this ruling and, further, whether restrictively offering the vessel for charter to non-residents of the United States will eliminate any possibility that duty might be assessed upon the value of the vessel.
LAW AND ANALYSIS:
Generally, a yacht or pleasure vessel, regardless of length or tonnage, whether motor, sail or steam propelled, owned by a resident of the United States or brought into this country for sale or charter to a resident of the United States, is dutiable under the Harmonized Tariff Schedule of the United States (HTSUS). Such vessels are dutiable under Chapter 89 of the HTSUS, subheadings 8903.91.00 or 8903.92.00, at the rate of 1.5 percent ad valorem.
The Act of June 19, 1886, as amended (24 Stat. 81; 46 U.S.C. App. ยง 289, sometimes called the coastwise passenger law), 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 a penalty of $200 for each passenger so transported and landed.
Under section 4.50(b), Customs Regulations (19 CFR 4.50(b)), a passenger within the meaning of the coastwise laws is defined as "any person carried on a vessel who is not connected with the operation of such vessel, her navigation, ownership or business." Customs has long held that friends and family members of the vessel owner are not considered passengers for purposes of the passenger transportation statute.
Under a bareboat or demise charter, the title owner relinquishes complete control and management to the charterers for the charter period. If the owner retains any degree of management or control, however slight, the charter is a time or voyage charter. The decisive factor is whether complete control and management has been surrendered by the owner to the charterers so that for the charter period the charterers are in effect the owners pro hac vice (i.e., for this turn; for this one particular occasion).
The facts known to us reveal that the intended charterer is a foreign citizen. Of particular relevance, however, is whether that party is a resident of the United States since the restriction goes to resident status rather than citizenship. If the foreign charterer is a non-resident, then that aspect of the transaction does not invoke an obligation to pay duty.
The other element of the restrictive language at issue concerns whether a vessel has been brought into the United States for sale or charter to a resident of this country. The question is raised as to whether advertising the vessel for charter would trigger liability for duty, and whether such a consequence might be avoided by restricting such an offer to non-citizens.
Customs has had occasion to consider the issue of advertising and restricting an offer by the inclusion of limiting language within an advertisement (Customs letter 109336 LLB, February 4, 1988). It is our position that offering a vessel for sale or charter by advertising it does render the vessel subject to duty. We further found, however, that by restricting the offer to non-residents of the United States (not just citizens of foreign countries), duty consequences may be avoided.
HOLDING:
A foreign, non-resident party may transport non-paying family members and personal friends aboard a foreign-owned pleasure vessel which is being operated under the terms of a bareboat charter. The charter may be entered into via advertisement of the availability of the vessel in this country, so long as the offer of charter is made to non-residents of the United States only.
Sincerely,
Arthur P. Schifflin
Chief
Carrier Rulings Branch