FOR 2-01
PRO 2-05
VES 5-08
OT:RR:CTF:ER H112875 GGK
Cindi Miller
Chief, Collections, Refunds and Analysis Branch
U.S. Customs and Border Protection
Office of Administration, Revenue Division
6650 Telecom Drive, Suite 100
Indianapolis, IN 46278
RE: Keppel AmFELS, Inc.: Protests 9900-10-100001, 9900-10-100002 and 9900-10-100003
Dear Ms. Miller:
This is in response to the application for further review for Protests 9900-10-100001, 9900-10-100002 and 9900-10-100003 (“protests”), filed by the protestant, Keppel AmFELS, Inc. (“Keppel”), on May 20, 2010.
FACTS:
Keppel is the operator of a Foreign Trade Zone (“FTZ”) subzone in Brownsville, Texas. The FTZ subzone provides various services including oil rig and vessel construction, upgrade, conversion and repair. Between 2006 and 2009, Keppel built and repaired multiple jack-up oil rigs and one sludge barge within the FTZ. These various jack-up rigs and sludge barge were either wet-towed into or out of the FTZ by multiple tugboats.
As the operator of the FTZ, Keppel regularly admits merchandise into its subzone. Thus, customs regulations require Keppel to submit Customs and Border Protection (“CBP”) Form 349, which lists the total value of all FTZ admissions into the Brownsville subzone. CBP Form 349 is used by importers, shippers and individuals admitting goods into FTZs to self-report and pay the amount of Harbor Maintenance Tax (“HMT”) owed on a quarterly basis. In January 2010, CBP’s Office of Administration, Revenue Division conducted an in-depth review of Keppel’s CBP Form 349 submissions for the Brownsville FTZ and discovered certain discrepancies. Specifically, Keppel admitted multiple jack-up rigs and a barge into the FTZ subzone as “merchandise,” but claimed these admissions as exempt from HMT assessment. Consequently, the Revenue Division requested Keppel to submit a complete list of all FTZ admissions between January 1, 2006 and December 31, 2009, along with relevant supporting documentation. Upon a detailed review of the materials submitted, it was confirmed by the Revenue Division that Keppel had admitted wet-towed jack-up rigs and a sludge barge as merchandise into the FTZ. Therefore, the Revenue Division determined that the jack-up rigs and sludge barge constituted commercial cargo and was subject to HMT assessment. Subsequently, the Revenue Division issued a bill to Keppel to collect the unpaid HMT on March 12, 2010.
On May 20, 2010, Keppel filed three protests with the Revenue Division objecting to the assessment of HMT on the jack-up rigs and sludge barge and requested accelerated disposition. Subsequently, on June 8, 2010, Keppel sent a letter to the Revenue Division withdrawing its request for accelerated disposition of the protests and requested further review pursuant to 19 C.F.R. § 174.24 and § 174.25. After receiving this request, the Revenue Division forwarded the protests to our office for further review, which we received on June 29, 2010.
ISSUE:
Whether wet-towed jack-up rigs and sludge barges are commercial cargo and subject to HMT.
LAW AND ANALYSIS:
As an initial matter, we note that a claimant may protest all charges or exactions of whatever character within the jurisdiction of the Secretary of the Treasury pursuant to 19 U.S.C. § 1514(a)(3). Here, Keppel timely filed its protests on May 20, 2010, which is well within 180 days from the date that CBP issued its bill to collect HMT owed, on March 12, 2010.
In protesting CBP’s bill, Keppel asserts that vessels are exempt from HMT assessment. Therefore, Keppel argues that because jack-up rigs and the sludge barge are vessels, no HMT should have been assessed. Moreover, Keppel states that several jack-up rigs and the sludge barge were constructed at the subzone and subsequently exported. Therefore, Keppel claims that these vessels were never admitted into the FTZ and HMT may not be assessed on these vessels because they are exports. Since we determined, as explained below, that these jack-up rigs and the barge are not subject to the HMT, it is not necessary to address this second issue regarding whether some of the transactions at issue concerned exports.
HMT is only assessed on commercial cargo at the time of unloading. 26 U.S.C. § 4461(b), (c)(2). Therefore, HMT is only due on barges and jack-up rigs if they are properly determined to be commercial cargo. The HMT statute imposes a tax on any port use. 26 U.S.C. § 4461(a). However, when enacting the statute, Congress specifically limited the assessment of the tax to the value of commercial cargo rather than including the value of vessels utilizing the ports and harbors. See 26 U.S.C. § 4461(b). Moreover, the statute defines “commercial vessel” as any vessel used in transporting cargo by water for compensation or hire, or in transporting cargo by water in the business of the owner, lessee, or operator of the vessel. 26 U.S.C. § 4462(a)(4)(A)(i) and (ii); see also 19 C.F.R. § 24.24(b)(3). In turn, the statute defines “commercial cargo” as any cargo transported on a commercial vessel, including passengers transported for compensation or hire. 26 U.S.C. § 4462(a)(3)(a); see also 19 C.F.R. § 24.24(b)(2). Therefore, a vessel that falls under the HMT definition of commercial vessel cannot be considered commercial cargo for purposes of HMT assessment. Additionally, the Federal Circuit recognized that the HMT provision does not apply to commercial vessels, stating that “a ship that docks but does not load or unload cargo is not required to pay a fee [under the HMT statute], even though that ship otherwise utilizes the port.” United States Shoe Corp. v. United States, 114 F.3d 1564, 1572 (Fed. Cir. 1997) (finding that assessing HMT on exports violates the Export Clause and is, therefore, invalid to the extent that the statute applies to exports), aff’d, 523 U.S. 360 (1998). Consequently, HMT is not assessed on commercial vessels.
Although the statute directs that HMT is not assessed on commercial vessels, we note that the legislative history of the HMT statute also supports this conclusion. The legislative history of the statute demonstrates a specific congressional intent to limit the assessment of HMT to cargo without placing any tax burdens on vessel owners and operators. Consequently, because the HMT does not apply to vessel owners and operators, commercial vessels should not be subject to HMT assessment. To illustrate, the legislative history of the Water Resources Development Act, Public Law 99-662, states the following:
The bill sets this cargo tax on the value of the commercial cargo loaded or unloaded. The tax in title 8 is not on the harbor, nor is it on the vessel’s operator or owner. The tax is set on the value of the cargo, and is to be paid by the owner of the cargo, or his agent.
S. Rep. No. 99-126, at 9 (1985), reprinted in 1986 U.S.C.C.A.N. (100 Stat. 4082) 6647. Moreover, in both the House of Representatives and the Senate, members sought specific affirmation during debate that the financial and administrative burdens of payment and collection of HMT rested solely on cargo interests and was not imposed upon vessel owners or operators. In the Senate, Senator Heinz and Senator Packwood engaged in the following discourse:
Mr. Heinz. In order that the record on S. 1567 be clear and free from ambiguity, I would like to ask a question of the chairman: Is it the intent that cargo interests alone bear the responsibility for payment and administration of the ad valorem port use charge in title VIII?
Mr. Packwood. The Senator is correct. The financial and administrative burdens of payment and collection are not to be imposed upon vessel owners or operators with respect to the ad valorem port use charge authorized by section 802 of title VIII. The cargo interest—the importer, exporter, or shipper—is the responsible party.
132 Cong. Rec. S2739 (1986) (statement of Sen. Heinz and Sen. Packwood); see also 131 Cong. Rec. H9680 (1985) (statements of Rep. Rostenkowski clarifying that the vessel owners and operators would not bear the responsibility of paying the HMT). Since payment and collection of HMT is not imposed upon vessel owners and operators, this further supports our conclusion that commercial vessels are not assessed HMT under the statute.
We note that there is a limited exception to the general proposition that HMT is not assessed on vessels, where a vessel is actually commercial cargo because it is transported on another commercial vessel. In HQ 112612 (March 23, 1993), CBP addressed a scenario where jack-up rigs were transported on top of a heavy-lift, semi-submersible commercial vessel from the Netherlands to Pascagoula, Mississippi. Under that scenario, we found that because the rigs were placed on top of the commercial vessel, the definition for commercial cargo was satisfied for purposes of HMT assessment. In that case, the jack-up rigs were not used to transport cargo, but were, in fact, the commercial cargo being transported on another commercial vessel. Unlike jack-up rigs that are transported on top of a commercial vessel, wet-towed rigs retain their vessel functions and transport goods by water as they float on their own capacity. This distinction is crucial because jack-up rigs carried on top of other vessels (i.e., dry-towed) no longer transport themselves. Rather, they are fully transported by another vessel and function as cargo. Consequently, under the limited scenario where vessels are transported entirely on top of other vessels, such vessels assume the characteristics of commercial cargo for the purposes of HMT assessment.
Both jack-up rigs and the sludge barge are vessels. Under general maritime law, a vessel is defined as any watercraft or artificial contrivance used, or capable of being used, as a means of transportation on water. 1 U.S.C. § 3; 19 U.S.C. § 1401(a). Jack-up rigs are vessels in that they are movable structures capable of being used as a means of transportation on water. Moreover, we note that jack-up rigs have been consistently categorized as vessels by the both the courts and CBP. See, e.g., Demette v. Falcon Drilling Co., 280 F.3d 492, 498 n.18 (5th Cir. 2002); HQ 113176 (September 6, 1994); HQ 112612 (March 23, 1993). Similarly, the sludge barge at issue is also a vessel. Sludge barges are barges designated to transport sludge. Barges in general have been considered commercial vessels under the HMT statute. HQ H086062 (March 12, 2010) (holding that a barge transporting bunker fuel is a commercial vessel under the HMT statute). Therefore, because jack-up rigs and sludge barges are vessels, they are exempt from HMT assessment if they are operating as commercial vessels, and not commercial cargo.
Under the specific facts presented in these protests, jack-up rigs and the sludge barge being wet-towed into and/or out of ports by tugboats are commercial vessels and are not subject to assessment of HMT. When jack-up rigs are wet-towed, they float on water and transport the equipment and goods located on top of and inside the platform section of the rig. Similarly, a wet-towed sludge barge transports sludge in its cargo area. Moreover, neither the jack-up rigs nor the sludge barge were transported on top of other vessels (i.e., dry-towed) to their final destination. Therefore, they did not assume the characteristics of commercial cargo subject to HMT assessment. We caution that if jack-up rigs are being wet-towed into or out of ports for the purpose of unloading or loading cargo, the cargo would be subject to HMT assessment. Here, however, this is no claim by the Revenue Division or Keppel that the jack-up rigs or barge in question loaded or unloaded commercial cargo. In conclusion, jack-up rigs and sludge barges floating in water do not cease to function as a vessel transporting goods simply because they are being wet-towed by tugboats.
Finally, because we have concluded that the wet-towed jack-up rigs and sludge barge at issue in the Keppel protests are not subject to HMT assessment, we do not need to address Keppel’s argument that some of the transactions upon which HMT was assessed for the movement of jack-up rigs and the sludge barge were exports.
HOLDING:
The jack-up rigs and sludge vessel at issue in Protests 9900-10-100001, 9900-10-100002 and 9900-10-100003 are not considered commercial cargo under the Harbor Maintenance Tax statute and thus, no HMT should be assessed. Therefore, the protests are GRANTED.
In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the Protestant no later than 60 days from the date of this letter. Sixty days from the date of the decision, the Office International Trade, Regulations and Rulings, will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division