HQ 225414 - Ruling request concerning broker status of jointly-owned subsidiary of a parent brokerage group; 19 U.S.C. 1641; 19 CFR 111.2. - United States International Trade Commision Rulings

United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org Rulings By Number Rulings By Category Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 1995 HQ Rulings > HQ 225339 - HQ 226123 > HQ 225414

Previous Ruling Next Ruling
HQ 225414

November 9, 1994

BRO-3-05 CO:R:C:E 225414 TLS

CATEGORY: ENTRY

Mr. Joseph S. Kaplan
Ross & Hardies
65 East 55th Street
New York, New York 10022-3219

RE: Ruling request concerning broker status of jointly-owned subsidiary of a parent brokerage group; 19 U.S.C. 1641; 19 CFR 111.2.

Dear Mr. Kaplan:

The above-referenced ruling request has been received by this office for consideration. We have considered the points raised in your March 20, 1992, letter. Our decision follows.

FACTS:

H. A. & J. L. Wood, Inc. (Wood), W. Y. Moberly, Inc. (Moberly) and Border Brokerage (Border) are shareholders of Associated Customs Brokers, Inc. (A.C.B.). The individuals who will be the officers of A.C.B. are licensed customs brokers. In accordance with 19 U.S.C. 1641(c), a licensed individual will be employed by A.C.B. to supervise the Customs business of A.C.B. within each customs district for which A.C.B. has a permit to act. Each such licensed individual will not qualify the permit of any other broker. With the exception of the licensed individual who qualifies a permit for A.C.B., there would be no other person employed on a salary by A.C.B. Instead, A.C.B. would use the employees of the individual licensed broker who is also an officer and an employee of Wood, Moberly, or Border.

A.C.B. at each location would share an office with Wood, Moberly, or Border. Records that are required to be maintained by a broker (19 CFR 111.21-111.27) would be kept separate from the other brokers' records, although both brokers' records would be kept at the same office location. The portion of the space at each jointly-used office location that is to be used by A.C.B. would contain the materials required to be available to each broker under 19 CFR 111.11(d). Also, all of the brokers would execute a waiver of liability so that any act of any employee on a customs transaction would be considered to be the act of all four brokers. All four brokers would agree in writing not to disclaim liability for any employee's act on the ground that the employee transaction would be considered to be the act of all four brokers. All four brokers would agree in writing not to disclaim liability for any employee's act on the ground that the employee was not acting for a specific broker. To the same extent, a client of A.C.B. would not be limited to the assets of A.C.B. in the event that the client was harmed by a negligent or unlawful act on a customs transaction. On the other hand, A.C.B. will neither pay or collect withholding tax with respect to any employee of Wood, Moberly, or Border.

ISSUE:

Whether two licensed brokers may share the same office location.

Whether an unlicensed employee of one broker may be the employee of another broker without being subject to the requirement of nonconcurrent hours of work.

LAW AND ANALYSIS:

This ruling is limited to the application of the Customs laws. The question concerning the propriety of the proposed withholding tax procedures is a matter for the State tax authorities and the Internal Revenue Service and is expressly outside the scope of this ruling. Nor does this ruling address various liability issues.

Section 641 of the Tariff Act of 1930 (19 U.S.C. 1641) covers licensing for customhouse brokers. A Customs broker's license for corporations is granted under section 641(b)(3). At least one officer of the corporation must hold a valid individual customs broker's license which is granted under 641(b)(2). Section 641(b)(4) requires that the customs broker must exercise responsible supervision and control over the customs business that it conducts.

The regulations governing these activities are found in Part 111 of the Customs regulations. Under 19 CFR 111.2, the following is provided for:

A person shall obtain the license provided for in this part in order to transact the business of a broker. A separate permit is required for each Customs district in which a licensee conducts customs business.

Under 19 CFR 111.11(b) and (c), a partnership, association, or corporation must have at least one member or officer, as the case may be, who is a licensed broker and maintains an office in the Customs district where it has applied for a permit. The office must be the place where customs transactions are performed by a licensed member of the organization or an employee under the supervision of the licensed member. Additionally, a license holder is required under 19 CFR 111.19(d) to have a permit for the district in which the broker operates, unless a waiver is obtained under the same provision.

Customs ruling 221724 (June 4, 1991) addresses this issue of a subsidiary transacting customs business for the parent company's clients. That ruling held that a subsidiary may transact customs business for its parent company's clients under certain conditions. First, the parent and subsidiary each must have powers of attorney from the client and exchange powers of attorney between themselves. Second, the parent company must provide a written statement to Customs stating that it will assume all responsibility for any violative acts committed by the subsidiary while acting on the parent's behalf. Third, the parent must maintain responsible supervision and control over the subsidiary's actions as required under 19 CFR 111.19(d).

In this situation, in any Customs transaction performed by A.C.B. for a client, that client will have given a power of attorney to A.C.B. Any billing procedure must conform to 19 CFR 111.29 and 111.39, as well as C.S.D. 79-111 and T.D. 78-308.

Shared Office Locations
In the proposed situation, A.C.B. would share an office with one of the other three brokers. Each broker's permit would be qualified by a different licensed individual who would be required to exercise responsible supervision and control over each respective broker's business. It is clear that without the creation of A.C.B., Moberly, for example, could exercise authority under a power of attorney from an importer to issue a power of attorney from the importer to Border and that Border could make an entry in accordance with C.S.D. 79-111 and T.D. 78-308. The creation of A.C.B. as a separate licensed corporate broker does not change the legal concept.

The relevant regulations with respect to permit locations are 19 CFR 111.19, 111.21 through 111.27, and 111.43. Under the facts presented, each corporate broker will have a different licensed individual who will qualify each respective permit. The qualifying individual for A.C.B. will be an officer-shareholder of A.C.B. and that individual will not qualify any other permit. That same individual will be an officer-employee of one of the other three brokers.

Section 111.23(a), Customs Regulations, generally requires that the records required to be kept by a broker be retained within the customs district to which they relate, with certain exceptions not relevant here. Counsel for A.C.B. has stated that at each shared office, A.C.B. and the other broker will each keep separate records for their respective Customs transactions in order to comply with 19 CFR 111.23(a).

Under Section 111.19(d), Customs Regulations, within each district for which a permit is granted a Customs broker must have a licensed individual who must exercise responsible supervision and control over the broker's business in that district. The elements of responsible supervision and control are set forth in 19 CFR 111.11(d). Counsel for A.C.B. has stated that at each shared office, A.C.B. will take steps to meet the requirements of 19 CFR 111.11(d).

Under these circumstances, there would be no violation of the Customs laws and regulations relating to brokers if A.C.B. shared an office with another licensed broker. We assume that compliance with 19 CFR 111.43 poses no problem.

Sharing Employees

The relevant regulations concerning employees are in 19 CFR 111.3(b) and 111.28(b). The only employees of A.C.B. will be the individuals who qualify the permits. Wood, Moberly, and Border will provide a written waiver of their right to disclaim liability for any violation on a Customs transaction on the ground that the person who did the act was not their employee. The stipulation will contain an agreement that the Customs Service will not be required to attribute responsibility on a transaction said to be performed by A.C.B. to Wood, Moberly, or Border in order to assess liability or take disciplinary action against Wood, Moberly, or Border. In addition, each licensed individual who will qualify the permits issued to A.C.B. will provide a written stipulation to each district director who issues a permit that any violative act or omission on an A.C.B. customs transaction shall be considered the personal act or omission of the individual licenseholder. Each licenseholder will agree to waive any right to assert that the act or omission as that of an employee Wood, Moberly, and Border. Wood, Moberly, Border, and each individual who qualifies a permit for A.C.B. will agree in writing that with respect to any violation on an A.C.B. transaction will be a violation by both A.C.B. and the broker operating in the shared permit location.

The procedure for designating an unlicensed employee for acting for a broker is set in 19 CFR 111.3(b)(2). Upon compliance with that provision, the filing of the waivers of defenses described above would protect Customs interest in having work done under the supervision of a licensed individual and would eliminate any requirement for Customs to determine which broker was at fault for an employee's act or omission. Here, both brokers involved, A.C.B. and one of the other three brokers, and both licensed individuals who quality the respective permits would be subject to disciplinary action if the violation occurred on an A.C.B. transaction.

Under 19 CFR 111.28, brokers are required to submit employee lists to any district director who issued the permit to operate. Both brokers at each shared location would be required to provide such lists. The fact that A.C.B. will not pay the salary of any unlicensed employee will not prevent A.C.B. from using the services of that employee, provided that the waiver of defenses is given to Customs and that powers of attorney are issued by A.C.B. to each person who performs work for A.C.B.

HOLDING:

Two brokers may share the same office space if there is complete compliance with 19 CFR 111.19(d), 111.21-111.27, and 111.43.

An unlicensed person shall be considered the employee of two brokers despite being paid by only one broker if both brokers list that person as an employee, both brokers issue a power of attorney to that person, and both brokers and each permit qualifying licensee provide written waivers of defenses so that Customs will not be required to determine if the act or omission was done by a specific broker in order to take disciplinary action.

Billing practices that conform to 111.29, 111.39, C.S.D. 79-111, and T.D. 78-308 are permissible.

Sincerely,

John Durant, Director
Commercial Rulings Division

Previous Ruling Next Ruling