CON-13-03/VES-5-10-RR:IT:EC 114641 GEV
Henry A. Lowenstein
Hill & Lowenstein Associates
Post Office Box 403672
Miami Beach, Florida 33140
RE: Vessel Supplies; Foreign Trade; Voyage-to-Nowhere; 19 U.S.C. § 1309
Dear Mr. Lowenstein:
This is in response to your letter of February 24, 1999, on behalf of your client, The Foreign Trade Zone Group, Inc. (“FTZG”), requesting a ruling concerning in-bond, consumable vessel supplies. We are also in receipt of your letter of February 26, 1999, enclosing a copy of a March 23, 1993, memorandum from the former Regional Director, Inspection and Control, Southeast Region, cited in your letter of February 24 but inadvertently left out of the mailing sent to our office. Our ruling on this matter is set forth below.
FACTS:
FTZG is a foreign trade zone operator in Port Canaveral, Florida, proposing to place in-bond, consumable items (i.e., liquor and cigarettes) onto U.S.-flag vessels departing U.S. ports each day on “voyages-to-nowhere” for the purpose of gambling beyond the three-mile limit of U.S. territorial waters. At no time during these voyages do these vessels touch foreign soil before returning to their port of departure. However, at some future date they may be transferred to other ports in the United States, particularly in the State of Florida, to engage in the same “voyage-to-nowhere” gambling activities. Thus far, however, they have not made voyages between Atlantic and Pacific ports or between any of the other U.S. ports or territories specified in 19 U.S.C. § 1309.
The vast majority of the supplies in question, which would be laden on these vessels only for onboard consumption, would be consumed outside of U.S. territorial waters. No liquor or cigarettes would be sold by the bottle or carton, only by poured drinks sold at the bar and cigarettes sold by the pack, with a per customer limit of packs to be determined by the Port
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Director. The Bureau of Alcohol, Tobacco and Firearms (“BATF”) has given approval for any goods from a BATF authorized export warehouse, or under their BATF custody, to be laden on these vessels.
You state that in 1992, the former Regional Director, Inspection and Control, Southeast Region opined that in-bond vessel supplies could be laden aboard gambling ships and “voyages-to-nowhere.” However, you do not have a copy of that opinion. Based on that decision, however, you state that the practice has become commonplace in the Port of Miami. Customs in Miami has provided you with a follow-up memorandum dated March 25, 1993, from the former Regional Director, Inspection and Control, Southeast Region, concerning how taxes should be collected by Customs on in-bond vessel supplies when liquor is served in the bars of these ships. You state that this memorandum, a copy of which was enclosed in your letter of February 26, 1999, is what Customs has used as the authority for allowing this practice, which has grown to be a large industry in Miami.
You further state, however, that as the gambling vessel industry has grown, Customs in Port Canaveral has questioned this practice and asked for more specific authority to allow in-bond vessel supplies for consumption to be laden aboard vessels that never touch foreign soil. They question whether gambling vessels conducting business in this manner can be said to be engaging in “foreign trade” as specified in 19 U.S.C. § 1309(a).
ISSUE:
Whether in-bond liquor and cigarettes loaded at a U.S. port on U.S.-flag vessels for consumption onboard during the time such vessels are engaging in “voyages-to-nowhere” constitute vessel supplies exempted from customs duties and internal-revenue tax pursuant to 19 U.S.C. § 1309(a).
LAW AND ANALYSIS:
Pursuant to § 309(a), Tariff Act of 1930, as amended, (19 U.S.C.§ 1309(a)), “[a]rticles of foreign or domestic origin may be withdrawn...from...[a FTZ] free of duty and internal-revenue tax” for supplies of foreign or United States vessels or aircraft “actually engaged in foreign trade or trade between the United States and any of its possessions, or between Hawaii and any other part of the United States or between Alaska and any other part of the United States...” (Emphasis added) The Custom Regulations pertaining to 19 U.S.C. § 1309 are found in 19 CFR §§ 10.59-10.65.
With respect to whether gambling vessels engaging in “voyages-to-nowhere” are engaging in foreign trade within the meaning of 19 U.S.C. § 1309(a), we note that 19 CFR § 10.59(a)(2) provides in pertinent part, as follows:
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(a) A vessel shall not be considered to be actually engaged in the
foreign trade,...for the purpose of withdrawing supplies free
of duty and internal-revenue tax pursuant to [19 U.S.C.§ 1309],
...unless it is-
(2) Actually transporting passengers or merchandise
to or from a foreign port... (Emphasis added)
In view of the fact that a voyage-to-nowhere encompasses the transportation of passengers beyond U.S. territorial waters and back to their U.S. port of embarkation (29 O.A.G. 318 (1912)), the gambling vessels in question would not be “...transporting passengers...to or from a foreign port...” Consequently, pursuant to 19 CFR § 10.59(a)(2) they would not be engaging in foreign trade and would therefore not be entitled to withdraw supplies free of duty and internal-revenue tax pursuant to 19 U.S.C.§ 1309(a).
We note your citation to C.S.D. 81-85 and the rulings cited therein which held that lightering/supply vessels carrying merchandise from a U.S. port to a vessel outside U.S. territorial waters is engaged in foreign trade for purposes of 19 U.S.C. § 1309(a). While such lightering/
supply vessels are not transporting merchandise to or from a foreign port, such activities comport with the judicially-recognized definition of foreign trade inasmuch as they constitute an engagement in “the commercial interchange of commodities from different countries.” Standard Oil Co. of New Jersey v. United States, 120 F.2d 340, 342 (CCPA (1941).
Upon reviewing the 1993 memorandum to which you refer, we note that it is devoid of any legal analysis pertaining to the applicability of 19 U.S.C. § 1309(a) that would support any exemption from duty assessment on liquor purchased onboard gambling vessels engaging in “voyages-to-nowhere.” To the contrary, the first procedure listed therein states that, “[d]uty at the HTSUSA rate and I.R.T. for over-the-bar sales of alcoholic beverage will be collected.” (Emphasis added) It is therefore readily apparent that permission to lade such articles is not tantamount to an exemption from the assessment of duty thereon.
We note that in addition to the issue discussed above, you pose the following questions. Our corresponding answers are set forth below.
(1) If Customs does not give approval, does it matter whether the liquor is of
foreign origin on which no duties or taxes have been paid, or of domestic
origin on which no taxes have been paid, since the BATF has given its
approval for merchandise under its control?
Response: Section 1309(a) addresses the exemption from customs duties
and internal-revenue tax of “articles of foreign or domestic origin.” Any
approval BATF has given with respect to the laws and regulations administered
by that agency is not dispositive as to those administered by Customs.
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(2) If Customs does not give approval, could the BATF authorize domestic,
tax-free distilled spirits to be laden aboard these vessels from Customs
bonded warehouses, if the warehouses contained nothing but domestic,
tax-free distilled spirits?
Response: Section 1309(a) is inapplicable with respect to those articles
on which no custom duties or internal-revenue tax is owed. However,
authorization to lade vessels with merchandise taken from Customs
bonded warehouses is within the purview of Customs, not the BATF.
(3) Since some gambling vessels FTZG wishes to supply may, in the future,
be foreign-flag vessels, does it matter whether vessels are American or
foreign flag vessels for purposes of this ruling on the lading of in-bond
vessel supplies onboard these ships?
Response: The provisions of § 1309(a) are applicable only to U.S
vessels. The legislative history of this statute provides that, “the
original and main purpose for the exemption from duty and taxes of
ships’ supplies was to place U.S. vessels engaged in foreign trade on
an equal footing with foreign vessels.” S. Rep. 1491 (1960), U.S. Cong.
& Admin. News 1960 - 175, p. 2785. The flag of a vessel is therefore
relevant in regard to this ruling.
(4) For purposes of this ruling, does it make a difference if a vessel, to qualify
for duty-free vessel supplies, made a voyage to a foreign port once a year,
or once a month, as some ships in other ports do?
Response: Making a voyage to a foreign port once a year, or once a month,
is not tantamount to a blanket qualification for purposes of § 1309(a). The
fact remains that a vessel engaging in a “voyage-to-nowhere” is not engaged
in foreign trade for the duration of that particular voyage.
(5) If this practice is allowed, does the Port Director have authority to allow
a system by which duties and taxes may be paid to Customs on bonded
liquor and tobacco consumed before passing the three-mile limit, based
on time-stamped sales receipts from the bar? (This practice is currently
in force at the Port of Miami and the former Southeast Region.)
Response: Duty collection procedures are within the authority of the
respective Port Directors. However, as discussed above, the exemption
from customs duties and internal-revenue tax pursuant to § 1309(a) is
not applicable with respect to “voyages-to-nowhere.”
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HOLDING:
In-bond liquor and cigarettes loaded at a U.S. port on U.S.-flag vessels for consumption onboard during the time such vessels are engaging in voyages-to-nowhere do not constitute vessel supplies exempted from customs duties and internal-revenue tax pursuant to 19 U.S.C. § 1309(a).
Sincerely,
Jerry Laderberg
Chief
Entry Procedures and Carriers Branch