HQ 0111731 - Use of a Canadian-registered pleasure boat owned jointly by a Canadian and U.S. citizen for bareboat charters in the waters of the United States - United States International Trade Commision Rulings

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HQ 111731

February 19, 1992

VES 3-13-CO:R:IT:C 111731 BEW

CATEGORY: CARRIER

Mr. Alan Lawrence
Marina Sailing
600 East Bay Avenue
Newport Beach, California 92661

RE: Use of a Canadian-registered pleasure boat owned jointly by a Canadian and U.S. citizen for bareboat charters in the waters of the United States

Dear Mr. Lawrence:

This is in reference to your letter of May 30, 1991, in which you request a ruling on whether using a Canadian registered pleasure boat for bareboat chartering in the United States will require changes in the boat's registration.

FACTS:

You state that the boat is a 35 foot sailboat built and registered in Ontario, Canada. You state that the boat is jointly owned by a Canadian and a US citizen, and that it is located in the waters in California indefinitely. You also state that the vessel is over 5 net tons. You state that the vessel is registered as a pleasure craft in Canada. You state that you would like to bareboat charter the boat to members of the sailing club or to non-members qualified to operate the boat. You state that none of the employees, owners, or representatives of Marine Sailing will be on board the boat during the charter, and that no paid skipper or deckhand will be used at any time during the charter.

ISSUE:

When a foreign-flag vessel is chartered to a U.S. resident in the United States, is it subject to duty under the provisions of the Harmonized Tariff Schedules.

May a foreign-flag yacht or pleasure vessel be bareboat chartered to U.S. residents without violating the coastwise statutes.
LAW AND ANALYSIS:

Under the Harmonized Tariff Schedules of the United States (HTSUS), Heading 8903.00.00, Yachts and other vessels for pleasure or sport, rowboats and canoes, Subheading 8903.91.00, Sailboats with or without auxiliary motor are dutiable at the rate of 1.5 percent ad valorem. A sailboat owned by a resident of the United States or brought into the United States for sale or charter to a resident thereof, would be subject to this duty provision of the HTSUS.

Duty on the vessel is collectable when it is first imported. The determination of whether or not a yacht is dutiable when it has previously been subject to Customs entry and payment of duty is dependent on whether it has been exported from the United States after its first importation. If it has been exported, it is again dutiable as an importation under items 8903.91.00 or 8903.92.00, HTSUS. Exportation, in this context, is defined as occurring when the yacht is severed from the mass of things belonging to this country with the intention of being united with the mass of things belonging to some foreign country (see section 101.1(k), Customs Regulations (19 CFR 101.1(k)). Merely removing a yacht from U.S. territorial waters on a temporary foreign pleasure cruise with the intent to return it to the United States thereafter would not constitute an exportation. In addition, it should be noted that any past or future transfers of ownership of a vessel that take place while it remains within the United States do not affect its duty-paid status provided the circumstances surrounding the transfers of ownership do not indicate that an exportation has occurred within the meaning of section 101.1(k).

Since your vessel has already entered the United States and is currently docked in the waters of California, chartering the vessel to a U.S. resident would subject the vessel to Customs consumption entry procedures and the duty provisions of subheading 8903.91.00 of the HTSUS.

You should be aware that foreign-flag or foreign-built vessels are prohibited from engaging in the coastwise trade. Generally, the coastwise laws (e.g., 46 U.S.C. App. 289 and 883, 46 U.S.C. 12106 and 12110) prohibit the transportation of merchandise or passengers between points in the United States embraced within the coastwise laws in any vessel other than a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States. The penalty for violating this section of the law is $200 for each passenger so transported and landed. A "passenger" is defined in section 4.50(b) of the Customs Regulations (19 CFR 4.50(b)), as "any person carried on a vessel who is not connected with the operation of such vessel, her navigation, ownership, or business". The family and legitimate guests of the owner or bareboat charterer of a vessel used for pleasure purposes are not considered passengers.

Customs has consistently ruled that a yacht chartered under a bona fide bareboat charter and used only for pleasure purposes is not considered to be used in the coastwise trade. However, a yacht chartered under a charter agreement other than a bareboat charter (e.g., a time or voyage charter) and used in the U.S. waters is considered to be used in trade.

In review of charter arrangements to determine whether or not they are bareboat charters, we have generally held that:

The nature of a particular charter arrangement is a question of fact to be determined from the circumstances of each case. Under a bareboat charter or a demise charter the owner relinquishes complete management and control of the vessel to the charterer. On the other hand, if the owner retains a degree of management and control, however slight, the charter is a time or voyage charter and the vessel is deemed to be engaged in trade. The crux of the matter is whether complete management and control have been wholly surrendered by the owner to the charterer so that for the period of time of the charter the charterer is in effect the owner. Although a charter agreement on its face may appear to be a bareboat or demise charter, the manner in which its covenants are carried out and the intention of the respective parties to relinquish or to assume complete management and control are also factors to be considered.

The Customs Service has also ruled, for purposes of the coastwise law, that a charter agreement which permits the owner to act as master or as a member of the crew, or which permits the owner to accompany the vessel during its charter period, would not be considered a bona fide bareboat charter.

When a vessel is chartered under a charter arrangement other than a bareboat charter (e.g., a time or voyage charter) and is used in coastwise transportation, the owner of the vessel is subject to penalties under the coastwise laws. The charterer of a vessel chartered under a bareboat charter would also be subject to penalties if the vessel is used for other than pleasure purposes or if the actions of the parties negated the terms of the bareboat charter agreement (e.g. if his "guests" paid for or contributed to the expenses of the trip).

The Customs Service has consistently held that when a vessel is chartered under a bona fide bareboat charter, the charterer is treated as the owner of the vessel for the period of the charter and, because owners are not considered "passengers," for purposes of the coastwise laws, the charterer is not prohibited by the coastwise laws from using the vessel during the charter for pleasure purposes only, including the transportation of family and guests. A bareboat charterer may transport family and guests from one port in the United States to a another port without violating the coastwise laws.

Title 19, United States Code, section 1433, provides that immediately upon the arrival at any port or place in the United States or Virgin Islands of: (1) any vessel from a foreign port or place; (2) any foreign vessel from a domestic port; or (3) any vessel of the United States carrying bonded merchandise, or foreign merchandise for which entry has not been made, the master of the vessel shall report the arrival at the nearest Customs facility. The report of arrival shall be in accordance with the procedures in section 4.2, Customs Regulations, as amended by T.D.87-150.

The master of any foreign vessel arriving in a United States port, whether from a foreign port or another United States port, is required to make vessel entry under title 19, United States Code, section 1435 (19 U.S.C. 1453), and section 4.3 of the Customs Regulations (19 CFR 4.3). Such vessels are also required to clear when bound for a foreign port, and must have a permit to proceed from one United States port to another. As recognized in section 4.94(e), Customs Regulations (19 CFR 4.94(e)), if a foreign-flag pleasure vessel does not have a cruising license it is required to comply with the laws applicable to foreign vessels arriving at, departing from and proceeding between United States ports.

Title 46, United States Code, Appendix, section 104 (46 U.S.C. App. 104), authorizes the issuance of cruising licenses to pleasure vessels of countries which extend reciprocal privileges to United States pleasure vessels. Canada is such a country. Section 4.94 of the Customs Regulations, concerns the issuance of cruising licenses which exempt foreign yachts from formal entry and clearance procedures. Subsequent to the receipt of the cruising license, yachts may arrive and depart from the United States and cruise in specified waters of the United States without entering and clearing, without filing manifests and obtaining or delivering permits to proceed, and without the payment of entrance and clearance fees, or fees for receiving manifests and granting permits to proceed, duty on tonnage, tonnage tax, or light money. The license is granted subject to the condition that the vessel will not engage in trade or violate the laws of the United States in any respect.

The bareboat charterer of a Canadian-flag pleasure vessel, whether to a United States resident or not, could obtain a cruising license to cruise in the waters of the United States, including California waters. A time or voyage charterer may not be issued a cruising license, however, because in our view the vessel is engaged in trade and is no longer a pleasure vessel as required by 46 U.S.C. App. 104.

The master, however, of a foreign pleasure vessel with a cruising license is required to report the vessel's arrival at each United States port as provided in 19 U.S.C. 1433.

Cruising licenses, as their name implies, are intended for the use of foreign vessels on relatively brief cruises in the United States and are not to be used as a form of permanent license to permit a foreign vessel to remain indefinitely in our waters.

We apologize for the delay in responding to your inquiry. This ruling addresses only those federal requirements which are administered by the Customs Service. Questions relating to the vessel's registration and documentation, and vessel safety requirements should be directed to the United States Coast Guard at the following address:

Mr. Thomas Willis
Chief, Vessel Documentation
U.S. Coast Guard (GMVI-6/13)
2100 Second Street., SW (Room 1312)
Washington, D.C. 20593-0001

HOLDING:

A foreign-flag yacht, or other pleasure vessel brought into the United States for sale or charter to U.S. residents is subject to duty under subheading 8903.91.00 or 8903.92.00 of the HTSUS.
A foreign-flag yacht or other pleasure vessel may be bareboat chartered to U.S. residents for pleasure use without violating the coastwise statutes provided under the charter agreement the owner relinquishes complete management and control of the vessel to the charterer.

Sincerely,

B. James Fritz

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