HQ 0112844 - Protest No. 3001-93-100481; Harbor Maintenance Fee; Public Law 99-662; 26 U.S.C. 4461, 4462 - United States International Trade Commision Rulings

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HQ 112844

October 28, 1993

VES-5-CO:R:IT:C 112844 GEV

CATEGORY: CARRIER

Daniel C. Holland
District Director
U.S. Customs Service
1000 Second Avenue
Suite 2200
Seattle, Washington 98104-1049

RE: Protest No. 3001-93-100481; Harbor Maintenance Fee; Public Law 99-662; 26 U.S.C. 4461, 4462

Dear Mr. Holland:

This is in response to the above protest and related documents forwarded to this office from your district. Our ruling on the issues raised therein is set forth below.

FACTS:

The U.S. Customs Service's Regulatory Audit Division, Pacific Region, conducted an audit of Holland America Line ("Holland America") pertaining to harbor maintenance fees (HMF) during the period of April 1, 1987 through December 31, 1991. The purpose of the audit was to determine whether Holland America had complied with the provisions of 24.24, Customs Regulations (19 CFR 24.24) regarding the assessment HMFs and remission of the correct amounts to the Customs National Finance Center, and to determine the adequacy of Holland America's recordkeeping system relative to the computation and payment of HMFs.

The results of the audit disclosed that Holland America underpaid the HMF by $322,311.00 during the audit period. By letters dated May 22, 1992 and August 20, 1992, Customs Regulatory Audit Division informed Holland America of the audit preliminary findings and the proper method to be used in calculating the HMF. A letter dated April 6, 1993, from Customs District Director, Seattle, informed Holland America that the audit was completed and that underpayment was due and payable. A bill dated June 10, 1993, from Customs National Finance Center was subsequently issued to Holland America in the amount of $322,311.00.

Counsel to Holland America filed a protest, dated July 6, 1993, addressing what are alleged to be two errors in the afore- mentioned Customs audit. Specifically, the alleged errors are as follows: (1) Customs erroneously assessed HMFs when passengers temporarily went ashore at layover ports subject to the HMF and later returned to the vessel; and (2) Customs erroneously included in the "value" of transportation on which the fee was assessed the price of non-transportation services. Included as Attachment A to the protest is counsel's supporting letter, dated July 2, 1993, detailing the claims of Holland America. By letter dated October 6, 1993, counsel requested accelerated disposition of the protest pursuant to 19 CFR 174.22(a).

ISSUES:

1. Whether, after boarding a vessel at a port exempt from the assessment of HMFs, a passenger who proceeds with the vessel to a port subject to the assessment of HMFs where he/she temporarily goes ashore and subsequently gets back on the vessel is considered to have "disembarked" or "boarded" at that port for purposes of 19 CFR 24.24(e)(4) so as to incur liability on behalf of the vessel operator for the payment of a port use fee.

2. What does Customs consider "transportation costs" for purposes of 19 CFR 24.24(e)(4), and what can the cruise lines subtract, if anything, from what the passengers paid?

LAW AND ANALYSIS:

ISSUE 1

Title 19, Code of Federal Regulations, 24.24(e)(4) provides in pertinent part:

"Subject to the exemptions and special rules of this section, when a passenger boards or disembarks a commercial vessel at a port within the definition of this section, the operator of that vessel is liable for the payment of the port use fee." (emphasis added)

Section 24.24(e)(4) was promulgated pursuant to the Water Resources Development Act of 1986 (Public Law 99-662, 100 Stat. 4082) whose purpose includes the providing of Federal funds for the maintenance of any channel or harbor in the United States which is not an inland waterway and is open to public navigation ( 4462(a)(2)(A) of Public Law 99-662, 100 Stat. 4266).

In regard to 24.24(e)(4), neither the statute nor its legislative history defines the terms "boards" or "disembarks" cited therein for purposes of assessing the port use fee. (see 100 Stat. 4266-4267, and U.S. Code Congressional and Administrative News, vol. 6, 99th Congress, Second Session, 1986
at pp. 6706-6720). It should be emphasized, however, that the fee assessed pursuant to the aforementioned statute and regulation is for the use of a port.

It is the position of Holland America that the terms "boards" or "disembarks" apply only when passengers get on and off a vessel at ports where a cruise originates and terminates and not when passengers temporarily leave a vessel at layover ports. In this regard counsel for Holland America states that "[t]he cruise vessel's use of port facilities during layover stops is minimal - - in sharp contrast to its extensive use of port facilities at the origination and termination ports." (Attachment A at 3)

Counsel further contends that the above position is supported by the language of the HMF statute and its legislative history. To that extent counsel states that to achieve the purpose of the HMF statute (i.e., the providing of Federal funds for the operation and maintenance of U.S. ports) as stated in U.S. Code Congressional and Administrative News, vol. 6, 99th Congress, Second Session, 1986 at pp. 6705, 6709:

"...Congress contemplated two separate fee charges, differentiated in part by the particular nature of the ship's port use. While an HMF was assessed for 'loading or unloading cargo' at designated ports, a 'port maintenance charge' was contemplated for purposes 'other than loading, unloading, or transporting cargo.' Id. at 6711 (emphasis added). The activities that Congress specified do not constitute 'loading or unloading of cargo' are 'uses for burnishing (fueling), refitting, repair, convenience, or any other similar purpose.' Id. (emphasis added). A layover stop at a port for purposes of shopping or sight-seeing plainly falls within the category of 'convenience or any other similar purpose,' and not 'loading or unloading of cargo' -- the only activity that triggers liability for a harbor maintenance fee." (Attachment A at 4)

Upon reviewing the aforementioned statutory language and its legislative history, Customs is not in accord with this position. Notwithstanding the discrepancy in the degree of port use between stopover or layover ports and those ports where a voyage originates and terminates, "port use" is defined in the HMF statute as either the loading of commercial cargo on, or the unloading of commercial cargo from, a commercial port within the purview of the statute ( 4462(a)(1)(A)(B) of Public Law 99-662, 100 Stat. 4266). Furthermore, the statute defines "commercial cargo" as "any cargo transported on a commercial vessel, including passengers transported for compensation or hire." (emphasis added) ( 4462(a)(3) of Public Law 99-662, 100 Stat. 4267).

In addition, the statute specifically lists the following items which are not to be included in the above definition of commercial cargo: bunker fuel, ship's stores, sea stores, or the legitimate equipment necessary to the operation of a vessel, or fish or other aquatic animal life caught and not previously landed on shore. ( 4462(a)(3)(B)(i) and (ii) of Public Law 99-662, 100 Stat. 4267). It is these items, not the layover passengers in question, that are commensurate with the activities to which counsel refers do not constitute "loading or unloading of cargo" (i.e., "uses for burnishing (fueling), refitting, repair, convenience, or any other similar purpose").

In view of the fact that passengers are not typically characterized as being "loaded" on, or "unloaded" from, a vessel, Customs, pursuant to its authority to promulgate regulations necessary to implement the provisions of this statute ( 4462(h) of Public Law 99-662, 100 Stat. 4269), drafted 24.24(e)(4) to include the terms "boards" or "disembarks" commensurate with the provisions for the assessment of HMFs regarding cargo set forth in 24.24(a).

Accordingly, regardless of the fact that some or all of a cruise vessel's passengers may go ashore and return to the vessel, either by lighter or directly at dockside, a passenger temporarily leaving a vessel upon its arrival at a port to which the port use fee applies and returning to the vessel when it sails is nonetheless considered to "disembark" and/or "embark" for purposes of 24.24(e)(4) which constitutes "port use" within the meaning of the statute as discussed above. In fact, it may be noted that allowing passengers to disembark is the express reason for use of the port by the vessel. We do not agree, as counsel suggests, that a scheduled stop at a layover port on a commercial passenger vessel's cruise itinerary is a "convenience or other similar purpose" so as to render inapplicable the HMF. Furthermore, the clear language of the statute does not support such an interpretation. It is also important to note that although the statute does provide exemptions from the payment of HMFs for the transportation of various cargoes ( 4462(a)(3)(B), 4462(b)(1)(2), and 4462(d) of Public Law 99-662, 100 Stat. 4267, 4268), including the transportation of passengers by ferry ( 4462(a)(4)(B) of Public Law 99-662, 100 Stat. 4267), no exemption is provided for passengers such as the layover passengers in question. Consequently, it is the opinion of the Customs Service that the operator of the vessel is liable for the payment of port use fees pursuant to 24.24(e).

Customs quarterly accounting procedures are also cited in support of Holland America's position that the HMF only applies where the cruise begins and ends at an HMF port. These procedures are reflected in 19 CFR 24.24(e)(4)(ii), which provides for quarterly payments using a "Cruise Vessel Summary Sheet" ("CVSS"). It is contended that since the CVSS requires
the cruise line to identify the "Number of Passengers on Cruise," and the "Total Eligible Charges for Passengers on Cruise," the HMF is therefore calculated based on the total passengers on the cruise, which means it only applies if the cruise begins or ends at an HMF port. It is the position of Holland America that, assuming arguendo, the applicability of the HMF to passengers who make a stopover at an HMF port, even if the cruise begins and ends at non-HMF ports, the cruise operator would have to record the number of stopover passengers notwithstanding the fact that there is no place on the CVSS to record this, nor is there any indication that such records must be maintained by the cruise operator.

The above argument is partially correct. Absent evidence to the contrary (e.g. documentation establishing the number of passengers actually "disembarking" and/or "boarding" the vessel when it calls at an HMF port) the calculation of the HMF is based on the total number of passengers on the cruise as is reflected in the CVSS, Customs Form (CF) 349 ("Harbor Maintenance Fee Quarterly Summary Report"), and CF 350 ("Harbor Maintenance Fee Amended Quarterly Summary Report"). However, the fact that there is no requirement by the cruise operator, nor provision in Customs accounting procedures, to specify those passengers who actually "disembark" and/or "board" the vessel at a stopover port to which the HMF applies does not override the statutory construction discussed above so as to support Holland America's position that the HMF only applies when the cruise begins or ends at an HMF port. Passengers as a matter of course purchase cruise packages where itineraries list the ports of call, including the stopover ports in question. In fact, it appears that the primary reason for stopping at the port is to allow passengers to disembark and visit the port. Therefore, Customs is entitled to the presumption, rebuttable upon submission of adequate documentation, that every passenger travelling on the vessel "disembarks" and/or "boards" at these stopover/layover ports within the meaning of 24.24(e)(4) and that HMFs should be assessed accordingly.

ISSUE 2

Title 19, Code of Federal Regulations, 24.24(e)(4) provides in pertinent part:

"Subject to the exemptions and special rules of this section, when a passenger boards or disembarks a commercial vessel at a port within the definition of this section, the operator of that vessel is liable for the payment of the port use fee. The fee is to be based upon the value of the actual charge for transportation paid by the passenger or on the prevailing charge for comparable service if no actual charge is paid..." (emphasis added)

Section 24.24(e)(4) was promulgated pursuant to the Water Resources Development Act of 1986 (see 4462(a)(5)(B) of Public Law 99-662, 100 Stat. 4267). A review of both the statute and its legislative history yields no further clarification as to what specific expenditures constitute the transportation costs in question. In this regard it should be noted that the language contained in both is verbatim ("...'value' means the actual charge paid for such service, or the prevailing charge for comparable service if no actual charge is paid..."). (see 100 Stat. 4267, and U.S. Code Congressional and Administrative News, vol. 6, 99th Congress, Second Session, 1986 at p. 6712)

In view of the lack of guidance from the authority cited above, we look to the plain meaning of the statutory language. The American Heritage Dictionary, Second College Edition, defines "actual" as "existing in fact or reality." In this regard it should be noted that the legislative history of Public Law 99-662 provides in part that, "The port user charges...are to be administered and enforced by the U.S. Customs Service." (see U.S. Code Congressional and Administrative News, vol. 6, 99th Congress, Second Session, 1986 at p. 6707) It is apparent, therefore, that Customs is accorded a degree of latitude in the assessment of port use charges pursuant to 24.24(e)(4). Furthermore, the Supreme Court has recognized that, "...great weight should be given the construction of a law that is adopted by the agency charged with the law's enforcement." Udall v. Tallman, 380 U.S. 1, 16 (1965)

In calculating the "value of the actual charge for transportation paid by the passenger" for purposes of 24.24(e)(4), it was Customs position that this should include those expenditures which comprise the normal fare the cruise line would charge a passenger for a particular trip, including any travel agent's commission and those transportation and lodging costs included in the overall cruise package in bringing the passenger to and from the port of embarkation, provided the passenger actually availed himself of such transportation and lodging. (Customs ruling no. 543896, dated May 13, 1987) This position was reiterated in an internal memorandum from the Director, International Trade Compliance Division, OR&R, to the Director, User Fee Task Force, dated October 7, 1991 (ruling no. 111598)

Upon further review of this matter, Customs remains of the opinion that the "transportation costs" for passengers of cruise vessels includes all "embarkation-to-disembarkation" costs as reflected on passenger tickets, including commissions paid to travel agents, port taxes, charges for pilotage, U.S. Customs and U.S. Immigration and Naturalization services, wharfage, and any "suite amenities" provided they are contracted and paid for prior to the commencement of the voyage (i.e., included in the cost of the ticket). This position is supported by House Conference

Report No. 99-1013, at p. 229 (see U.S Code and Administrative News, vol. 6, 99th Congress, Second Session, 1986, at p. 6741) which provides, in part, that "Passenger vessels also are subject to the charge, with value generally determined by reference to the prices paid by the passengers for their transportation." However, after numerous discussions with representatives of the cruise industry, Customs has determined that the costs of land-based lodging and connecting air transportation are not to be included in Customs calculation of the transportation costs under consideration regardless of whether a passenger avails himself of such transportation and lodging. Although this position represents a divergence from ruling no. 543896 cited above, Customs believes this revised position constitutes an equitable resolution of this matter taking into consideration both the concerns of the cruise industry and Customs responsibility in administering the port use fee. This position was communicated to Mr. John T. Estes, President, International Council of Cruise Lines, in letters dated June 12 and October 6, 1992, from Mr. Charles W. Winwood, Assistant Commissioner, Office of Inspection and Control.

Accordingly, Customs agrees that the costs of land-based lodging and connecting air transportation should be excluded from the calculation of the transportation costs under consideration. However, counsel further states that other identifiable charges (e.g., ship-board entertainment and suite amenities), though included in the total cruise-package fare, do not reflect the "actual charge for transportation" and therefore should be excluded from the aforementioned calculations. For the same reason, counsel contends that the portion of the travel agents' commissions attributable to the costs of land-based lodging and connecting air transportation should likewise be excluded from the calculation of transportation costs.

Upon further review of this matter, we remain of the opinion, as discussed above, that identifiable charges for additional services such as ship-board entertainment and suite amenities which are included in the cruise package fare are part of the "embarkation-to-disembarkation" costs and are therefore included in the calculation of the transportation costs. However, we are also of the opinion that the inclusion of the entire amount of a travel agent's commission in the calculation of the aforementioned transportation costs without regard to whether any portion of such commission is attributable to the costs of land-based lodging and connecting air transportation is inconsistent with our position that the transportation costs include all "embarkation-to- disembarkation" costs. Accordingly, accurate apportionment of travel agents' commissions clearly distinguishing that portion of the commissions attributed to land-based lodging and connecting air transportation will result in the exclusion of any such costs from Customs calculation of - 8 -
the "value of the actual charge for transportation paid by the passenger" for purposes of 24.24(e)(4).

HOLDINGS:

1. After boarding a vessel at a port exempt from the assessment of HMFs, a passenger who proceeds with the vessel to a port subject to the assessment of HMFs where he/she temporarily goes ashore and subsequently gets back on the vessel is considered to have "disembarked" and "boarded" at that port for purposes of 19 CFR 24.24(e)(4) so as to incur liability on behalf of the vessel operator for the payment of a port use fee.

2. For the purpose of calculating port use fees pursuant to 24.24(e)(4), Customs Regulations, Customs considers the "value of the actual charge for transportation paid by the passenger" to include all items which would be included in the normal fare the cruise line would charge a passenger for a particular voyage. These "embarkation-to-disembarkation" costs would include travel agents' commissions, port taxes, charges for pilotage, U.S. Customs and U.S. Immigration and Naturalization services, wharfage, and any shipboard entertainment and suite amenities provided these costs are contracted and paid for prior to the commencement of the voyage (i.e., included in the cost of the ticket). However, the costs of land-based lodging and connecting air transportation as well as any portion of a travel agent's commission associated therewith, are not included in these "embarkation-to-disembarkation" costs.

Accordingly, the protest is granted in part and denied in part.

In accordance with 3A(11)(b) of Customs Directive 099 3550- 065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any new billing (the equivalent of the reliquidation of an entry) in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Sub- scription Service, Lexis, Freedom of Information Act and other public access channels.

Sincerely,

Stuart P. Seidel
Director, International Trade

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