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HQ 227385

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February 12, 1998

WAR-5 RR:CR:DR 227385 CB/WGR

CATEGORY: WAREHOUSES

David Serko, Esq.
Serko & Simon
One World Trade Center
Suite 3371
New York, NY 10048

RE: Request for Reconsideration of HQ 225287; Duty-Free Stores; Sale of Gasoline and
Diesel Fuel; 19 U.S.C. ?1555(b); 19 CFR 19.35 - 19.39; Pub. L. 104-295;
?29 Miscellaneous Trade and Technical Corrections Act of 1996

Dear Mr. Serko:

This is in response to your letters of September 8, 1995, April 19, 1996, and July 22, 1997, wherein you requested our reconsideration of HQ 225287, issued June 27, 1994. This internal advice concerned a proposal to sell "duty-free" gasoline and diesel fuel at a duty-free store in Detroit, Michigan. We concluded that such an operation did not fall within the scope of 19 U.S.C. ?1555(b). We have considered the additional arguments you have raised and our decision follows.

FACTS:

You state that your client in this matter has been granted approval by Customs to operate a "sterile" duty-free store at the Ambassador Bridge in Detroit, Michigan. In HQ 225287, the duty-free store was described as having been modified by "adding fencing, electronic gates, and constructing a private road leading directly from their sterile compound to the toll booths on the bridge plaza." According to the FACTS in HQ 225287, when the District Director of Customs physically inspected the facility, he noted a gasoline/diesel station within the sterile area. The District Director, in a letter of December 23, 1994, tentatively approved the request for permission to operate the facility as a sterile shop with "live" products, but excluded any bonded fuel operations. In response to a request by your client that the District Director reconsider his position on the bonded petroleum operation and a follow-up letter dated January 24, 1994, formally requesting approval of a bonded petroleum product operation at its duty-free store, the District Director requested internal advice from this office.

This office issued a ruling on the matter on June 27, 1994 (HQ 225287). In that ruling we reviewed the applicable law and regulations, noting that neither directly addressed the issue under consideration. We noted that before passage of the legislation involved (section 1908, title I, Omnibus Trade and Competitiveness Act of 1988 (Pub. L. No. 100-418; 102 Stat. 1315; codified as 19 U.S.C. ?1555(b)), Customs had issued a ruling in regard to the proposed handling of gasoline and diesel products in duty-free stores. We quoted from that ruling (ruling letter 200396, October 30, 1972) as follows:

We do not believe that the activities of "duty-free stores" can be extended to unidentifiable fungibles sold on a retail basis without seriously impairing our control over the operations of these stores and the merchandise sold by them. In this respect it should be noted that merchandise purchased from a duty-free store when returned to the United States, must be declared for the purpose of collecting the duty and internal-revenue taxes. Customs would have no practical means of enforcing this requirement against any of the automobiles returning to the United States from Canada with "unidentifiable" gasoline in their tanks.

On the basis of ruling 200396 and the provision in 19 U.S.C. required to "mark or otherwise place a distinguishing identifier on individual items of merchandise" to indicate that the items were sold by a duty-free sales enterprise unless the Secretary finds a pattern in which such items are being brought back into the Customs territory without declaration), we concluded that "the gasoline and diesel fuel could not be controlled like other bonded merchandise sold at duty-free stores (i.e., because gasoline and diesel fuel are unidentifiable fungibles' not subject to marking or other identification as provided for in the statute and regulations)." We ruled, in HQ 225287, that:

Duty-free gasoline and diesel fuel for automobiles may not be sold, as described in the FACTS portion of [the] ruling, at a duty-free store provided for in 19 U.S.C.

In your letter of September 8, 1995, you requested that Customs reconsider HQ 225287, arguing that Customs was not "fully versed in the facts and briefed on the law and its legislative history" when the ruling was issued. At your request, you and other representatives of your client met with representatives of this office about this matter. In addition, you and other representatives have submitted additional materials in this regard.

In your April 19, 1996, letter, you noted that the District Director's December 23, 1993, letter, in which he found that the facility "has fulfilled the requirements necessary to qualify as an exit point as defined in 19 CFR 19.35(d)." You provide a map of the bridge, duty-free store, and connecting roadways and state that "[i]n fact, patrons of the store have no practical alternative except to cross the bridge into Canada." You refer to security measures (i.e., the addition of manned toll booths at the entrances leading to the duty-free store) of which this office was not aware at the time of, and could not consider, in HQ 225287.

In that letter, you also described measures which would help ensure that gasoline or diesel fuel sold by the duty-free store for automobiles would be exported and practical means by which Customs could enforce the provisions for the dutiability of such gasoline or diesel fuel which is brought back into the Customs territory. You state that, among other things, cash register receipts signed by customers acknowledge that the sales are "For Export Only." Additionally, you client ". . . has a computer system which can be used in cooperation with Customs for the tracking of fuel sales." You state that ". . . a single Customs license plate query can automatically determine if the vehicle received gasoline at the . . . facility prior to entering Canada, in addition to Customs' other purposes for the query."

ISSUES:

1. May duty-free gasoline and diesel fuel for automobiles be sold, as described in the FACTS portion of this ruling, at a duty-free store provided for in 19 U.S.C. ?1555(b)?

2. Does the amendment of the personal exemption provision of the tariff laws demonstrate a Congressional intent to overturn ruling letter HR 225287 with respect to duty-free shops?

LAW AND ANALYSIS:

Issue 1:

Duty-free sales enterprises are provided for in 19 U.S.C. Omnibus Trade and Competitiveness Act of 1988 (Pub. L. No. 100-418; 102 Stat. 1315). Under this provision:

(1) Duty-free sales enterprises may sell and deliver for export from the customs territory duty-free merchandise in accordance with this subsection and such regulations as the Secretary may prescribe to carry out this subsection. ...
(3) Each duty-free sales enterprise--

(A) shall establish procedures to provide reasonable assurance that duty-free merchandise sold by the enterprise will be exported from the customs territory; . . .
(D) shall not be required to mark or otherwise place a distinguishing identifier on individual items of merchandise to indicate that the items were sold by a duty-free sales enterprise, unless the Secretary finds a pattern in which such items are being brought back into the customs territory without declaration;

(7) The Secretary shall be regulation establish a separate class of bonded warehouses for duty-free sales enterprises. Regulations issued to carry out this paragraph shall take into account the unique characteristics of the different types of duty-free sales enterprises.

Before enactment of this provision in 1988, duty-free stores were administered by Customs directives, rather than through any specific legislation or regulations (see Treasury Decision 92-81, published in the Federal Register on August 20, 1992 (57 F.R. 37692), and Duty Free International, Inc., Ammex Warehouse Co., Inc. , and Ammex Tax & Duty Free Shops, Inc. v. United States, 17 CIT 1425 (1993)).

It is your position that when Congress enacted the Omnibus Trade and Competitiveness Act, supra, it intended to substantially change the manner in which duty-free shops could be operated. Consequently, ruling letter 200396, relied upon in HQ 225287, was overridden by Congress in 1988. You argue that the 1972 ruling and the positions taken therein were never mentioned in any of the legislative history which led up to the passage of the 1988 law which is the basis for the current statutory framework. Moreover, there is no evidence that Congress was aware of this ruling. Thus, you conclude that Congress intended to abandon any practice it did not specifically adopt. It is also your position that the legislative history relied upon in HQ 225287 was taken out of context.

As stated in HQ 225287, the 1988 legislation does not directly address the issue under consideration. Although we agree with you that Congressional intent, in enacting 19 U.S.C. ?1555(b), was to legislatively direct Customs in its administration of duty-free shops, it is also true that Congress left it up to the Secretary of the Treasury (which in turn has delegated this authority to Customs) to issue regulations implementing the statutory provision. More importantly, it is provided that the regulations shall take into account the unique characteristics of the different types of duty-free stores. Thus, although Congress provided the broad statutory framework, it was left up to the administering agency to fill-in the details to carry out Congressional intent.

Regarding the legislative history relied upon in HQ 225287, we disagree with your interpretation.
It is your position that Senator Bentsen's comments is not supportive of Customs position. In your letter you quote certain remarks made by Senator Bentsen (however a cite was not provided) and conclude that the Senator did not see the then proposed legislation as the means of restraining the activity of duty-free shops. However, the quote you have used is not the one referred to in HQ 225287. The statement made by Senator Bentsen and relied upon by Customs reads as follows:

. . . Mr. President, section 921 of the bill would introduce for the first time a comprehensive framework for the regulation and operation of duty-free sales stores. . . .

Section 921 is not intended to change the way duty-free stores currently operate, but rather to codify current practice by providing a regulatory framework for continued operation of duty-free stores in the future. . . .

Congressional Record, (July 15, 1987, p. S 9952, remarks of Senator Bentsen). Thus, it is clear that, contrary to your assertion that Senator Bentsen was only referring to border stores in the State of Texas, the quoted text provides clear Congressional intent to codify procedures which had been implemented through Customs directives and circulars. Senator Bentsen's remark is the only indication contained in the legislative history which addresses the point raised; that is, whether the purpose of the legislation was to codify or change the existing Customs practice. The statement is consistent with the purpose of providing a statutory basis for a procedure that was created by Customs administrative practice.

It is your position that with respect to the applicability of ruling letter 200396 after passage of the 1988 act, that Congress intended to abandon this practice because it was not specifically adopted. We reach the opposite conclusion, i.e., the fact that Congress did not specifically reject Customs policy regarding the sale of gasoline by duty-free stores means that Congress did not object to such practice. Thus, in holding that gasoline and diesel fuel may not be sold by duty-free stores, it was proper to follow the precedent established by ruling letter 200396.

Issue 2:

It is also your position that the 1996 amendment rendered ruling letter 200396, and HQ 225287, obsolete by removing the underlying reasoning because, under ?1555(b)(6)(B), any gasoline purchased in a duty-free sales enterprise remaining in a vehicle upon its return to the United States can be covered by the personal allowance or under the de minimis provisions of the Tariff Act. We disagree.

Congress amended the personal allowance for duty exemptions by Section 29 of the Act of October 17, 1996 (Pub. L. 104-295, 110 Stat. 3535) (Miscellaneous Trade and Technical Corrections Act of 1996). That law amended 19 U.S.C. ?1555(b)(c) to provide:

(6)(A) Except as provided in subparagraph(B), merchandise that is purchased in a duty-free sales enterprise is not eligible for exemption from duty under subchapter IV of chapter 98 of the Harmonized Tariff Schedule of the United States if such merchandise is brought bact to the customs territory.

(B)Except in the case of travel involving transit to, from, or through an insular possession of the United States, merchandise described in subparagraph (A) that is purchased by a United States resident shall be eligible for exemption from duty under subheadings 9804.00.65, 9804.00.70, and 9804.00.72 of the Harmonized Tariff Schedule of the United States upon the United States resident's return to the customs territory of the United States, if the resident meets the eligibility requirements for the exemption claimed. Notwithstanding any other provision of law, such merchandise shall be considered to be an article acquired abroad as an incident of the journey from which the resident is returning for purposes of determining eligibility for any such exemption.

The stated purpose of the change in Senate Report 104-393, 17(October 1, 1996) is as follows:

Personal Allowance Duty Exemption for Merchandise Purchased in a Duty-Free Sales Enterprise

(Section 29)

Current law

Subchapter IV of HTS Chapter 98 provides that U.S. residents who travel outside the country for more than 48 hours may bring back up to $400 of merchandise purchased on their trip without paying duties or taxes when they return to the U.S. (Higher limits apply to residents returning from the U.S. insular possessions or from beneficiary countries under either the Caribbean Basin Economic Recovery Act or the Andean Trade Preference Act.) However, section 555(b)(6) of the Tariff Act of 1930 (19 U.S.C. ?1555(b)(6)) provides that merchandise purchased in a duty-free sales enterprise in the United States is not eligible for exemption from duty upon the traveler's return to the United States.

Explanation of provision

This section amends section 555(b)(6) of the Tariff Act of 1930 to permit U.S. residents who have been outside the United States for at least 48 hours to apply merchandise purchased from a U.S. duty-free store against their personal duty-free allowance. The provision does not apply to residents returning from travel that involves transit to, from, or through a U.S. insular possession (American Samoa, Guam, or the Virgin Islands of the United States).

Reason for change

The Committee believes that current law disadvantages U.S. duty-free stores and is inconsistent with the practices of other countries, which allow purchases made in their duty-free shops to be reimported under returning-resident allowances. As under current law, purchases made in U.S. duty-free shops must be made at the beginning of a resident's outbound journey.

The report is silent with respect to HQ 225287 or any other Customs ruling. When Congress intends to overturn or modify a Customs or judicial interpretation, it announces that intention in clear language. For example, section 484A of the Customs and Trade act of 1990 (Act of August 20, 1990, Pub. L. 101-382, 104 Stat. 699) amended 19 U.S.C. ?1313 to modify the effect of the ruling issued as C.S.D. 88-1. To make that intention clear, Congress expressly noted that ruling in the Conference Report (H. Rpt. 101-650, 242 (July 30, 1990)). See also S. Rpt. 101-252, 39 (March 22, 1990). Likewise, with respect to the amendment of 19 U.S.C. ?1504 in the North American Free Trade Agreement Implementation Act (Act of December 8, 1993, Pub. L. 103-182, 107 Stat. 2057), Congress expressly made clear its intention to overturn the case of Nunn Bush Shoe v. U.S., 784 F. Supp. 892 (CIT 1992) by so stating in H. Rpt. 103-361, Part 1, 139 (November 15, 1993).

In HR 225287, Customs ruled that duty-free gasoline and diesel fuel may not be sold from a duty-free store under 19 U.S.C. ?1555(b). The ruling cited Customs determination (as set forth in HQ 200396) and the remarks of Senator Bentsen that the purpose of enacting the legislation was to codify current administrative practice in reaching that decision. A primary administrative concern is the lack of feasible control over bulk materials such as gasoline and diesel fuel for automobiles. As noted in HQ 225287 paragraphs (2)(D) and (8)(G) of 19 U.S.C. be capable of relatively simple, effective controls.

The change with respect to making certain merchandise sold in duty-free store eligible to be included in a returning resident's personal exemption under subheadings 9804.00.65, 9804.00.70 and 9804.00.72, HTSUS (19 U.S.C. ?1202) does not eliminate the need for simple, effective administrative controls over such merchandise. The authority to waive the collection of duty under 19 U.S.C. ?1321(a) also does not eliminate the need for administrative oversight over such merchandise. Customs remains responsible for determining the eligibility for exemption from duty and for the correct recordation of the entry in import statistics pursuant to 19 U.S.C. ?1484.
Moreover, the eligibility for a duty exemption does not exempt the imported merchandise from being subject to other customs laws. The exemption from duty depends on the status of the individual and the circumstances regarding the exportation of the goods, the time spent out of the United States, and the frequency of the claims for eligibility. In order to administer those requirements, the need for simple effective controls has not been lessened by the 1996 statutory change. In any event, neither the statutory change itself nor the relevant legislative history shows an intent to modify the existing Customs position.

Finally, the other points raised in your letters were covered by HQ 225287. Your letters do not add any additional points or information so as to require us to reconsider those aspects. We believe that the Customs position on those points is clear.

HOLDING:

Having reviewed our previous decision in light of your written submissions, we do not
find the arguments presented as compelling a reversal of HQ 225287. Thus, HQ 225287 is hereby affirmed.

Sincerely,

John A. Durant
Director
Commercial Rulings Division

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See also:

• Tariff No.: 9804.00.65 - For person arriving in the U.S., returning resident, etc.: acquired abroad, accompanying: n/over $400 value, etc (limit on tobacco & alcoho
• Tariff No.: 9804.00.70 - For person arriving in the U.S., returning resident, etc.: acquired abroad: n/over $1,200 value, etc (limit on tobacco & alcohol): insular
• Tariff No.: 9804.00.72 - For person arriving in the U.S., returning resident, etc.: acquired abroad: n/over $600 value, etc (limit on tobacco & alcohol): beneficiar