HQ 113546 - Harbor Maintenance Fee; Instrumentality of the United States; Exemption; 26 U.S.C. ?? 4461, 4462 - United States International Trade Commision Rulings

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HQ 113546

September 21, 1995

VES-5-R:IT:C 113546 GEV

CATEGORY: CARRIER

Anthony M. Ryan
General Manager
American Auto Carriers
188 Broadway
Post Office Box 210
Woodcliff Lake, New Jersey 07675

RE: Harbor Maintenance Fee; Instrumentality of the United States; Exemption; 26 U.S.C. ?? 4461, 4462

Dear Mr. Ryan:

This is in response to your letter dated August 18, 1995, requesting a ruling regarding Customs assessment of the harbor maintenance fee (HMF). Our ruling on this matter is set forth below.

FACTS:

Since October, 1994, American Auto Carriers ("AAC") has been the prime contractor under a contract with the United States Army's Military Traffic Management Command ("MTMC") for movement of service members' vehicles when those service members are transferred by the military under permanent change of station orders. The parties to the contract are AAC and MTMC. You state that under the terms of the contract, AAC is responsible for handling all arrangements regarding the movement of these vehicles, including customs entry.

As we understand from your letter, all of the vehicles in question are consigned to AAC as the nominal consignee. AAC has hired a customhouse broker to make formal customs entry of these vehicles and all of the vehicles on a given vessel are entered as one entry.

As a consequence of the above procedure, AAC has been assessed HMFs on these vehicles. AAC has been advised by Customs that since it is the nominal consignee for whom the customhouse broker is making entry, and since the owner of the cargo is the service member, the cargo is subject to the HMF. It is the view of AAC that MTMC is an agency or instrumentality of the U.S. Government and AAC is the carrier for the movement of cargo for which MTMC is the shipper. AAC is therefore of the opinion that this cargo is moved by the U.S. Government as shipper, on behalf of its service members, and therefore is exempt from assessment of the HMF.

ISSUE:

Whether vehicles owned by members of the U.S. Armed Forces, shipped pursuant to a contract between AAC and MTMC, and entered by a customhouse broker engaged by AAC are exempt from the HFM pursuant to 26 U.S.C. ? 4462(e) and ? 24.24(c)(7).

LAW AND ANALYSIS:

Title 26, United States Code, ?? 4461 and 4462, provide for the imposition of the HMF, including special rules regarding its administration. The applicable regulatory authority promulgated pursuant to these statutes is found in ? 24.24, Customs Regulations (19 CFR

"Commercial cargo loaded on or unloaded from a commercial vessel is subject to a port use fee of 0.125 percent (.00125) of its value if the loading or unloading occurs at a port within the definition of this section, unless exempted under paragraph (c) of this section..." (emphasis added)

Included among the above-referenced exemptions is ? 24.24(c)(7) which provides that the HMF does not apply to, "Cargo or vessels of the U.S. or any agency or instrumentality of the U.S." (See also 26 U.S.C. ? 4462(e), the specific statutory authority from which ? 24.24(c)(7) was promulgated.)

In regard to the above exemption, the courts have never addressed the issue of what constitutes an instrumentality of the United States for purposes of HMF assessment. Nonetheless, we find instructive numerous judicial decisions where the issue before the court was whether an entity was an instrumentality of the Federal Government and therefore exempt from state taxation. This collective authority developed the following criteria to be considered in resolving this issue: (1) whether the entity was created by the Federal Government; (2) whether the entity received substantial appropriations from the Federal Government; (3) the degree of federal regulation of the entity's activities; and (4) whether the entity was engaged in the performance of an important function of the Federal Government. Although no single factor was deemed dispositive, the - 3 -
courts attached the greatest significance to the last of these criteria. (See generally, Department of Employment v. United States, 385 U.S. 355, (1966); Standard Oil Co. v. Johnson, 316 U.S. 481 (1942); Federal Land Bank of St. Paul v. Bismark Lumber Co., 314 U.S. 95 (1941); United States v. City of Spokane, 918 F.2d 84 (9th Cir. 1990), cert. denied, 501 U.S. 1250 (1991); United States v. State of Michigan, 851 F.2d 803 (6th Cir. 1988); and Federal Reserve Bank of St. Louis v. Metrocenter Improvement District, 657 F.2d 183 (8th Cir. 1981).

While it is readily apparent that MTMC meets the above criteria, the same cannot be said for AAC. To that end, we note that the U.S. Supreme Court has long-held, "The mere fact that a private corporation conducts its business under a contract with the United States does not make it an instrumentality of the latter." (See Buckstaff Bath House Co. v. McKinley, 308 U.S. 358, 362 (1939) citing Fidelity & Deposit Co. v. Pennsylvania, 240 U.S. 319 (1916)).

Furthermore, as the nominal consignee under the contract with MTMC, AAC exercised its right to hire a customhouse broker to make formal customs entry of the subject vehicles. The customhouse broker for AAC is therefore the importer of record of these vehicles pursuant to 19 U.S.C. ? 1484. Section 24.24(e)(3)(i), Customs Regulations, provides that the importer of the cargo is liable for the HMF at the time of unloading. Consequently, the customhouse broker, which is not an agency or instrumentality of the U.S., is the importer liable for the HMF.

Parenthetically, we note that the customhouse broker is legally responsible for payment of the HMF and whatever arrangements may exist between it and AAC in that regard are of no consequence to Customs.

HOLDING:

Vehicles owned by members of the U.S. Armed Forces, shipped pursuant to a contract between AAC and MTMC, and entered by a customhouse broker engaged by AAC are not exempt from the HMF pursuant to 26 U.S.C. ? 4462(e) and 19 CFR ? 24.24(c)(7). The customhouse broker as the importer of record pursuant to 19 U.S.C. ? 1484 is liable for payment of the fee pursuant to 19 CFR ? 24.24(e)(3)(i).

Sincerely,

Arthur P. Schifflin

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