OT:RR:CTF:VS H265070 RMC
David M. Murphy
Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP
399 Park Avenue, 25th Floor
New York, NY 10022-4877
Re: Eligibility of Women’s Fashion Samples for Duty-Free Treatment under Subheading 9811.00.60, Harmonized Tariff Schedule of the United States
Dear Mr. Murphy:
This is in response to your letter dated May 14, 2015, on behalf of your client Jill Acquisition, LLC (“J. Jill”). You requested a ruling as to whether women’s fashion samples imported by your client will be eligible for duty-free treatment under subheading 9811.00.60, Harmonized Tariff Schedule of the United States (“HTSUS”) if the samples are used in the United States and then placed in a Foreign Trade Zone to be sold and subsequently exported or destroyed.
FACTS:
J. Jill sells women’s clothing, accessories, and gifts through retail stores, mail-order catalogs, and a website. In the course of its business, J. Jill solicits or otherwise receives samples of a variety of items from its foreign suppliers and potential suppliers. J. Jill states that these samples are entered duty-free under subheading 9811.00.60, HTSUS as “sample[s] . . . to be used in the United States only for soliciting orders for products from foreign countries.”
This ruling request concerns what happens to the imported samples once J. Jill is finished using them or otherwise does not need them anymore. J. Jill has provided a “Sale Agreement and Indemnification” that explains how it intends to dispose of the samples. First, J. Jill will enter into a contract agreeing to sell the samples to the buyer. The buyer will then “assume risk of loss, assume all costs and responsibility for the proper transportation and exportation of the samples at the U.S. location or locations designated by [J.] Jill.” The buyer will then move the samples to an approved Foreign Trade Zone (“FTZ”), admit the samples into the FTZ in “zone restricted status,” and supply J. Jill with supporting documentation (Customs Form 214). J. Jill states that such an entry will mean that the goods are “deemed exported” for the purposes of the customs law. After the samples’ admission to the FTZ, the buyer will purchase and take title to the samples. Finally, the Sale Agreement and Indemnification document states that the buyer agrees that the samples will be withdrawn from the FTZ for direct exportation or transportation and exportation under Customs bond, and will not resell any of the merchandise in the U.S. Should any of the samples be unsuitable for sale for exportation, the buyer agrees to destroy the samples and provide J. Jill with proof of the destruction.
ISSUE:
Whether imported samples will be eligible for duty-free treatment under subheading 9811.00.60, HTSUS, if the samples are used in the United States and then placed in a Foreign Trade Zone in zone-restricted status to be sold and subsequently exported or destroyed.
LAW AND ANALYSIS:
Subheading 9811.00.60, HTSUS, provides for the duty-free entry of a sample that is either “valued at less than $1 each, or marked, torn, perforated, or otherwise treated so that it is unsuitable for sale or for use otherwise than as a sample, to be used in the U.S. only for soliciting orders for products of foreign countries.” The controlling factor is whether the importer uses the sample for the purpose of soliciting purchase orders of foreign made merchandise and the creation of demand for future orders. Here, J. Jill states that its samples comply with subheading 9811.00.60 when they are imported and that the samples receive duty-free treatment upon entry into the United States. For purposes of this ruling request, we will assume that the samples will meet the subheading 9811.00.60, HTSUS requirements of being marked, torn, perforated, or otherwise treated so that they are unsuitable for sale or for use otherwise than as samples and they will be used in the U.S. for soliciting orders.
J. Jill’s sales agreement acknowledges that samples imported under subheading 9811.00.60, HTSUS, are ineligible for duty-free treatment if they are sold in the United States after importation. However, J. Jill argues that the samples will remain eligible for duty-free treatment because the transfer of title will not occur until after the goods have been admitted in the FTZ, such that the sale will not occur in the United States.
CBP has previously ruled that samples remained eligible for duty-free treatment under subheading 9811.00.60, HTSUS, when the importer later exported the samples for sale abroad. For example, in Headquarters Ruling (“HQ”) 557683, dated March 3, 1994, CBP allowed sample shoes to enter the United States duty-free even though the importer intended to export the items for sale abroad or for reconstitution into useful footwear. CBP held that “the fact that the mutilated samples which are unsuitable for sale will be exported, does not affect eligibility for duty-free treatment under subheading 9811.00.60, HTSUS.” However, it was also held that the reconstitution of the samples into items that are “suitable for sale” in the U.S. precluded eligibility for duty-free treatment under subheading 9811.00.60, HTSUS. Therefore, the importer could not unmark or reconstruct the sample shoes (e.g., by filling in drilled-out holes) and turn them into ordinary commercial articles for sale in the United States. See also HQ 563524, dated September 13, 2006.
Here, unlike HQ 557683, we find that J. Jill’s samples will not remain eligible for duty-free treatment under subheading 9811.00.60, HTSUS, because the buyer will assume risk of loss for the samples before they are exported from the U.S. For the purposes of customs law, CBP often cites VWP of America, Inc. v. United States, 175 F.3d 1327, 1339 (Fed. Cir. 1999), namely, that a sale is a “transfer of title from one party to another for consideration.” CBP will consider factors such as whether the purported buyer assumed the risk of loss for, and acquired title to, the imported merchandise. Normally, a determination of when title and risk of loss pass from the seller to the buyer in a particular transaction depends on whether the applicable contract is a “shipment” or “destination” contract. See HQ 543708, dated April 12, 1988. Unless otherwise agreed by the parties, title and risk of loss pass from the seller to the buyer in “shipment” contracts when the merchandise is delivered to the carrier for shipment, and in “destination” contracts when the merchandise is delivered to the named destination. Id.
Here, although J. Jill does not specify whether the contract is a shipment or destination contract, its sales agreement specifies that risk of loss will transfer to the buyer before the goods are entered into the FTZ and that title to the goods will transfer after the goods are entered into the FTZ. However, no further documents, such as sample invoices or proof of payment records have been submitted. In HQ 547798 dated August 23, 2000, CBP noted that consideration could consist of the mutual promises to sell and to purchase, such that a “sale” as opposed to a “sale for exportation” could occur. It was also noted that this inquiry is a fact-specific one, and is determined on a case-by-case basis. CBP has also stated that in the absence of a written instruction to the contrary, it is commonly accepted that title passes simultaneously with assumption of risk of loss. See H017621, dated October 30, 2007.
The arrangement contemplated also raises questions about what would happen if the goods were damaged before arrival at the FTZ, as title is related to who has an insurable interest, and whether the buyer would continue to pay J. Jill for the goods. No specific information has been presented on the FTZ operations and how the goods will be admitted into the FTZ if the buyer is not the owner. It is also unclear if a sale may occur if J. Jill admits the goods in zone-restricted status. The agreement also imposes obligations on the buyer to perform certain tasks notwithstanding that they are the supposed owner at that point in time of the goods. Subheading 9811.00.60, HTSUS, also refers to the United States, and not just the customs territory of the United States. Therefore, for purposes of subheading 9811.00.60, HTSUS, which requires the samples to be unsuitable for sale, it is our opinion that what constitutes a “sale” should be strictly construed. On these facts, we find that the sale occurs in the United States when risk of loss transfers to the buyer. The samples are therefore “ordinary commercial articles for sale in the United States” and will be ineligible for duty-free treatment.
HOLDING:
J. Jill’s samples are ineligible for duty-free treatment under subheading 9811.00.60, HTSUS because they will be sold in the United States.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch