HQ 0111547 - Vessel Importation; Pleasure; United States Citizen; Intent; Repairs; Cruising. - United States International Trade Commision Rulings

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HQ 111547

April 1, 1991

VES-12-02 CO:R:IT:C 111547 JBW

CATEGORY: CARRIER

Mr. John W. McConnell, Jr.
Haight, Gardner, Poor & Havens
1300 I Street, N.W.
Washington, D.C. 20005

RE: Vessel Importation; Pleasure; United States Citizen; Intent; Repairs; Cruising.

Dear Mr. McConnell:

This letter is in response to your inquiry, dated February 21, 1991, in which you request our ruling on the dutiable status of the yacht VIRGINIAN.

FACTS:

The VIRGINIAN is a pleasure yacht that was built in The Netherlands and is registered and documented under the laws and flag of Bermuda. The yacht was constructed under an agreement between the shipbuilder and the Virginian Company Limited ("the Company"), a corporation organized under the laws of the Island of Guernsey, Channel Islands. Under a nominee trust, shares of the Company are held by nominee Guernsey companies as nominees and trustees for a United States citizen and a United States trustee, jointly, for the benefit of a United States citizen ("the Beneficiary"). The Beneficiary also resides in the United States.

The VIRGINIAN was delivered in Europe to the Company in December, 1990, after which the yacht sailed to the Caribbean. During this "shakedown" cruise, items requiring repair or alteration were identified. Under the construction agreement, the shipbuilder provided a warranty for the repair of any item that did not meet specifications within six months of delivery. The warranty and service yard for the shipbuilder is the Merrill- Stevens Dry Dock Company, Miami, Florida.

The Company intends to bring the vessel to the United States to undergo the required warranty work at the end of March, 1991. After the completion of the work, the vessel will cruise in the waters of the United States for a period not to exceed three months. You state in your letter that the yacht will normally be used in the Caribbean Islands and off the coasts of Central America and northern South America during the winter. During the summer, the yacht will be used in Europe and in the Mediterranean. Incident to its worldwide voyages, the vessel may cruise the waters of the United States, but in no case is it anticipated that the yacht will remain in the United States for periods greater than three months or cruise more than once a year. During the period of ownership, the yacht will be used in United States waters less than twenty percent of the time. The owner and the beneficiary will not charter or sell the yacht while it is in the United States. While in the United States, the master of the yacht will obtain and operate the yacht under a cruising license issued by the Customs Service.

ISSUE:

Whether a vessel owned by a foreign corporation for the benefit of a United States citizen that is brought into the United States for warranty repairs and temporary pleasure cruising of United States waters is an importation, thus requiring the payment of duty.

LAW AND ANALYSIS:

United States law requires that all goods imported into the customs territory of the United States be subject to duty or exempt from duty as provided for in the Harmonized Tariff Schedule of the United States (HTSUS). General Note 1, HTSUS. From this language, an item must be deemed "imported" for tariff purposes before duty liability arises. American Customs Brokerage Co., Inc. A/C Astral Corp v. United States, 72 Cust. Ct. 245, 253, C.D. 4546, 375 F. Supp. 1360, 1365-66 (1974)("The Astral").

At the outset, we note that you do not dispute that the vessel will be brought into this country by a United States resident, despite the fact title to the vessel is in the name of a foreign corporation. We do not therefore consider questions of importations by a foreign citizen or nonresident of the United States.

The Customs Court in The Astral examined the factors under which a vessel, which is brought into the United States by a United States resident, is considered imported. In that case, a United States resident had brought into United States waters a foreign-built and documented pleasure yacht for warranty repairs and an extended shakedown cruise. Although the vessel was kept in the United States principally to ascertain whether the repairs were properly performed, the court noted that the vessel was used by the owner for pleasure purposes. Nevertheless, the court concluded that the vessel was not imported for tariff purposes.

A yacht purchased abroad and brought into the United States by a United States resident is presumed, in the absence of evidence to the contrary, to be brought into the United States for use here "permanently" so that it would be classifiable as imported merchandise and thus subject to duty. The Astral, 72 Cust. Ct. at 253-54, 375 F. Supp. at 1366; Estate of Lev H. Pritchard v. United States, 43 C.C.P.A. 85, 88 , C.A.D. 612 (1956). This presumption can be overcome by satisfactory evidence establishing that the yacht owner did not intend to bring the yacht into this country permanently. The Astral, 72 Cust. Ct. at 254, 375 F. Supp. at 1366.

The court in The Astral noted the difficulty of divining intent:

Intent is a state of mind which is difficult of precise proof and can only be inferred from acts and circumstances. A person's intent is usually evidenced by his conduct or statements. Expressions of intent, however, may be used for self-serving purposes.
Hence, the court must scrutinize them carefully, together with the conduct of the person making them, and the external circumstances which might tend to confirm or refute them.

The Astral, 72 Cust. Ct. at 254, 375 F. Supp. at 1366-67 (citations omitted). In determining that the owner did not intend to bring his yacht permanently into the United States, the court stated that the owner brought the vessel into the United States for repairs in the only qualified repair yard available, that design features demonstrated that the vessel would cruise in the Mediterranean, that the owner intended to change his residence to Europe, and that the voyage of the vessel finally terminated in the Mediterranean. 72 Cust. Ct. at 256, 375 F. Supp. at 1368. The court stated that pleasure use by the owner did not change the essential nature of the shakedown cruise following the repairs. Id.

Applying these principles, we determine that the VIRGINIAN may be brought temporarily into the United States for warranty repairs without subjecting the vessel to duty. The Company has demonstrated that the warranty repairs are required and are to be made in the most competent yard available.

The use of the yacht for pleasure purposes in United States waters following repairs and in the future for cruising incidental to the voyages of the yacht for periods not to exceed three months presents greater difficulty. The court in The Astral stressed that the principal use of the vessel in the United States following the repairs was for assessing whether repairs were properly made and whether further repairs were required. As stated above, the court noted that limited pleasure use of the vessel did not change the fundamental character of the post-repair shakedown cruise. While determining that such use did not constitute an intent to permanently bring the vessel into the United States, the issue of pleasure cruising by a United States resident that is unrelated to repairs was not before the court.

For duty liability to arise, we must find that the owner intended to bring the yacht permanently into the United States. The term permanent is defined to mean "continuing or enduring in the same state, status, place, or the like, without fundamental or marked change...not temporary or transient." Websters New International Dictionary 1824 (2d ed. 1953). The term temporary is defined to mean "lasting for a time only; existing for a limited time...." Id. at 2598. From these definitions, the time that a vessel is kept in the United States is a significant factor in evaluating the owner's intent to permanently bring the vessel into the United States. Other factors that may be relevant are: (1) the regularity that the vessel is used in the United States, (2) the frequency that the vessel calls at particular ports in the United States, and (3) the registry and regular berth of the vessel.

The proposed peregrinations of the VIRGINIAN lead us to conclude that the present intention of the owner is not to bring the vessel permanently into the United States; consequently, the yacht would not be considered imported for tariff purposes at this time. You state that in no case is it anticipated that, in any one year, the yacht will remain in the United States for periods greater than three months or cruise more than once. The time spent in the United States will usually be in transit between the Caribbean and the Mediterranean, the two principal waters in which the yacht will be used. We caution that if the vessel engages in conduct that suggests the vessel is here for any purpose other than a temporary or transit cruise, then the vessel will then become liable for duty. The present intent of the owners cannot form a reasonable basis for a ruling at this time as to the possible future dutiability of the yacht when it enters United States waters.

As to the contemplated immediate arrival, we note that this ruling is based on representations as to the use of the vessel. An application for a cruising license requires a statement of the waters in which the yacht will cruise and the length of time that the vessel will remain in the United States. 19 C.F.R. 4.94(c) (1990). Requests not conforming to the guidelines established above will result in the vessel being assessed duty. Sale or chartering of the yacht to United States residence will also result in duty liability.

HOLDING:

The yacht VIRGINIAN may be brought into the United States for repairs and pleasure cruising for periods not to exceed three months.

Sincerely,

B. James Fritz
Chief

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