HQ 0224253 - Cartman; C.S.D. 82-26; 19 U.S.C. 1565; 19 CFR 112; 19 CFR 112.1(b); 19 CFR 112.2(b); 19 CFR 112.21; 19 CFR 112.22; 19 CFR 112.27; 19 CFR 112.29; 19 CFR 112.41; HQ 222402; independent contractor; H. Reuschlein & W. Gregory, Agency and Partnership. - United States International Trade Commision Rulings

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HQ 224253

February 1, 1993

CAR-2 CO:R:C:E 224253 AJS

CATEGORY: CARTAGE

District Director
U.S. Customs Service
300 South Ferry Street
Terminal Island
San Pedro, CA 90731

RE: Cartman; C.S.D. 82-26; 19 U.S.C. 1565; 19 CFR 112; 19 CFR 112.1(b); 19 CFR 112.2(b); 19 CFR 112.21; 19 CFR 112.22; 19 CFR 112.27; 19 CFR 112.29; 19 CFR 112.41; HQ 222402; independent contractor; H. Reuschlein & W. Gregory, Agency and Partnership.

Dear District Director:

This is in reply to a memorandum of October 16, 1992, which forwarded your concerns regarding Customs Legal Determination 81- 0198 of December 24, 1981, also published as C.S.D. 82-26 in 16 Cust Bull. 721 (1982). This decision held that a bonded cartman may not use vehicles belonging to another person nor persons who are employees of another firm to conduct its own cartage operations.

FACTS:

Certain companies are leasing vehicles or employing vehicle owner operators as independent contractors to perform cartage operations.

ISSUE:

Whether a cartman may lease vehicles or employ vehicle owner operators as independent contractors to perform cartage operations.

Whether a cartman may perform cartage operations using vehicles in which they do not possess legal title because of a chattel mortgage held by a bank or a lease agreement from a truck dealership.

LAW AND ANALYSIS:

The law governing Customs cartage, section 565 of the Tariff Act of 1930, as amended (19 U.S.C. 1565) provides that:

The cartage of merchandise entered for warehouse shall be done by cartmen to be appointed and licensed by the appropriate customs officer and who shall give a bond, in a penal sum to be fixed by such customs officer, for the protection of the Government against any loss of, or damage to, such merchandise while being so carted. The cartage of merchandise designated for examination at the appraiser's stores and of merchandise taken into custody by the customs officer as unclaimed shall be performed by such persons as may be designated, under contract or otherwise, by the Secretary of the Treasury, and under such regulations for the protection of the owners thereof and of the revenue as the Secretary of the Treasury shall prescribe.

The Customs Regulations on the licensing of cartmen issued under the authority of this law are found in Part 112 of the Customs Regulations (19 CFR Part 112). A "cartman" is defined in 19 CFR 112.1(b) as "one who undertakes to trans- port goods or merchandise within the limits of the port." Under 19 CFR 112.2(b), "[a] bond and license provided for in this part [i.e., Part 112] are required to transact business as a cartman . . . for the cartage . . . of merchandise entered for warehouse, designated for examination, taken to container stations, or taken into custody as unclaimed."

Subpart C of part 112 of the Customs Regulations provides for the licensing of cartmen. Under section 112.21, a customhouse cartage license is required to perform Customs cartage, with certain exceptions inapplicable in this case. Section 112.22 contains the requirements for applying for a cartage license. An applicant for such a license is required to file with the appropriate district director: (1) a bond on Customs Form 301 containing the conditions provided for in 19 CFR 113.63 in an amount specified by the District Director; (2) a fee of $100; and (3) if required by the District Director, a list of the names and addresses of the managing officers and members of the organization or of the persons who will receive or transport imported merchandise which has not been released from Customs custody, or a list of all such persons and their addresses. In addition, a cartman licensed by city or State authorities is required to present to the district director their city and State license. Vehicles licensed by Customs for cartage must be marked with the Customs license number (19 CFR 112.27).

Customs may require licensed cartmen to make, keep, and submit to Customs records of cartage and a current list of the organization's managing directors and persons who will receive or transport imported merchandise which has not been released from Customs custody (19 CFR 112.29). Customs may require licensed cartmen and each employee thereof who handles imported merchandise which has not been released from Customs custody to carry, and display upon request, an identification card (19 CFR 112.41).

In HQ 222402 (July 26, 1990) (copy attached), Customs ruled that a corporation may not be licensed as a Customs cartman when a second corporation provides the vehicles and drivers under a lease arrangement with the first corporation. We stated that there is no provision permitting two entities to be a cartman, and the binding of one corporation or legal person to the conditions of a cartman's license cannot bind another corporation (i.e., a separate and distinct legal being) to those conditions. To rule otherwise would allow a corporation which is not bound to the conditions of the cartman's license to be the responsible entity with regard to many, if not most, of the requirements for cartmen under the Customs Regulations (i.e., provision of the names and addresses of the managing officers and persons who will handle imported merchandise which has not been released from Customs custody, marking of the vehicles with the Customs license number, keeping of records of cartage, and carrying and displaying of identification cards by the cartman and employees who will handle imported merchandise which has not been released from Customs custody). We also cited C.S.D. 82-26 as support for this decision.

In this instance, your memorandum states that companies are leasing vehicles or employing owner operators as independent contractors to perform their cartage operations. In the original letter addressed to our office raising this issue, the company in question was a California corporation. Therefore, we assume that these companies are corporations. As stated previously, a corporation may not lease vehicles and use drivers from another corporation to perform cartage operations. We also find no reason to not apply this principle to a situation in which a corporation is using trucks owned by independent contractors. An independent contractor is "[a] person who contracts with another to do something for them but who is not controlled by the other nor subject to the other's right to control with respect to their physical conduct in the performance of the undertaking." H. Reuschlein & W. Gregory, Agency and Partnership, 4 (1978). Consequently, an independent contractor would not be controlled by the corporation nor subject to its right to control concerning the physical conduct of the cartage operations. This type of relationship would lead to a
situation in which an independent contractor, which is not bound to the conditions of the cartman's license issued to the corporation, is the responsible entity with regard to many, if not most, of the requirements for cartmen under the Customs Regulations. As in HQ 222402, we are of the view that this form of operation is not permissible. It would permit two legal entities (i.e., a corporation and independent contractor) to be a cartman, and attempt to bind one legal person to the conditions of a cartman's license issued to another legal person.

The issue has also been raised concerning situations in which a cartman does not possess legal title to the trucks because of a chattel mortgage held by a bank or a lease agreement from a truck dealership. In both instances, we assume that the trucks are under the physical control of the cartman and operated by one of their employees. In our view these types of cartage operations are permissible because of the important factual differences regarding control of the cartage operations which exists between these operations and the previously discussed situations. As opposed to a situation involving owner operators as independent contrac- tors, the cartman without legal title would be responsible for the physical conduct of the cartage operations through their employees and physical control of the trucks. As opposed to a situation involving trucks and drivers used from another corporation, the cartman without legal title would be the only legal entity operating as a cartman as well as the responsible legal entity for compliance with the requirements of the Customs Regulations.

We are not aware of any other legal determinations which address this issue. If you have any additional questions, please contact Allan Stevenson of my office at (202) 482-7040.

HOLDING:

A cartman may not employ vehicle owner operators as independent contractors to perform cartage operations. A cartman may use vehicles to perform cartage operations in which they do not possess legal title because of a chattel mortgage held by a bank or a lease agreement from a truck dealership.

Sincerely,

John Durant, Director

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