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HQ 961139




April 6, 1998

CLA-2 RR:CR:GC 961139 DWS

CATEGORY: CLASSIFICATION

TARIFF NO.: 8470.50.00; 8472.90.95; 8473.29.00

Mr. George R. Tuttle
George R. Tuttle A.P.C.
Three Embarcadero Center, Suite 1160
San Francisco, CA 94111

RE: POS Terminals; Slip and Roll Journal Printers; PIN Pads; Section XVI,
Notes 3 and 4; Functional Units; Composite Machines; General Explanatory
Notes VI and VII to Section XVI; HQs 086121, 959575, 953271, 546273, and
955566; NYs 851829, 859016, 874189, and 855636

Dear Mr. Tuttle,

This is in response to your letter of November 10, 1997, to the Customs National Commodity Specialist Division, New York, on behalf of VeriFone, Inc., concerning the classification of point-of-sale (POS) terminals, slip and roll journal printers, and personal identification number (PIN) pads, imported together in the same shipment, under the Harmonized Tariff Schedule of the United States (HTSUS). Your letter has been referred to this office for a response.

FACTS:

The merchandise consists of POS terminals (Models Zon Jr. XL and Tranz 330), slip and roll journal printers (Models 600, 500, 250, and 150), and PIN pads. Both the printers and PIN pads are devices physically separate from the POS terminals; however, they are designed for use with and capable of being attached to the Zon Jr. XL and Tranz 330.

The Zon Jr. XL and Tranz 330 are used by businesses to record sales transactions as they occur. The sales data is entered manually through a keyboard or automatically by using an incorporated card reader. Once the sales information is entered, the terminals are able to record inventory information, the amounts of each sale, and the total of all sales. The devices are also able to perform automated printing of customer receipts by the use of the subject slip or roll printers. The Zon Jr. XL and Tranz 330 each have a sixteen-key keyboard for the manual input of data. The terminals have sixteen-character vacuum fluorescent alphanumeric displays with a decimal point and a comma. Both terminals are equipped with a magnetic card reader, a serial port for printer support and a Z- 80 central processing unit with 32K EPROM. The Zon Jr. XL has 16K RAM and the Tranz 330 has 32K RAM. Both terminals are battery backed. The Zon Jr. XL and Tranz 330 have a built- in Bell auto-dial modem. The terminals are operable on eight communications networks.

The model 150 printer is a 7-pin shuttle impact dot matrix printer which performs as a slip printer up to 42 columns wide, and is capable of printing a complete audit trail summarizing a day's business transactions. The model 250 is a 7-pin dot matrix printer which is capable of producing 2- and 3-part receipts and a summary of the day's transactions. The model 500 is a 4-function printer which produces roll-slip and validation receipts as well as summary journal receipts. The model 600 uses single-ply thermal paper and produces a hard copy sales receipt for the customer.

The PIN pads are devices which are used for entering the PIN associated with an individual's (i.e., Automated Teller Machine) debit card.

ISSUE:

Whether equal numbers of the subject POS terminals, slip and roll journal printers, and PIN pads, imported together in the same shipment but separately palleted and invoiced on separated commercial invoices, constitute functional units with a clearly defined function covered by heading 8470, HTSUS.

LAW AND ANALYSIS:

Classification of merchandise under the HTSUS is in accordance with the General Rules of Interpretation (GRI's). GRI 1 provides that classification is determined according to the terms of the headings and any relative section or chapter notes.

The HTSUS provisions under consideration are as follows:

8470 Calculating machines and pocket-size data recording, reproducing and displaying machines with calculating functions; accounting machines, postage-franking machines, ticket-issuing machines and similar machines, incorporating a calculating device; cash registers:

8470.50.00 Cash registers.

8472 Other office machines (for example, hectograph or stencil duplicating machines, addressing machines, automatic banknote dispensers, coin-sorting machines, coin-counting or wrapping machines, pencil- sharpening machines, perforating or stapling machines):

8472.90 Other:

8472.90.95 Other.

8473 Parts and accessories (other than covers, carrying cases and the like) suitable for use solely or principally with machines of headings 8469 to
8472:

Parts and accessories of the machines of heading 8470:

8473.29.00 Other.

In HQ 086121, dated March 30, 1990, we held the Zon Jr. XL and Tranz 330 to be classifiable under subheading 8470.50.00, HTSUS. In that ruling, we stated that:

[t]he language of [Harmonized Commodity Description and Coding System Explanatory Note] 84.70(C), HCDCS, makes clear that the Zon Jr. XL and the Tranz 330 point-of-sale terminals are "cash registers" within the meaning of heading 8470. Both terminals provide a record of all sales transactions after the sale information is entered. Therefore, the appropriate classification for the terminals is subheading 8470.50.00, [HTSUS].

In NY 851829, dated April 25, 1990, slip printers, for use with POS terminals, were held to be classifiable under subheading 8472.90, HTSUS. Therefore, we find that the subject slip and roll journals, also for use with POS terminals, are classifiable under subheading 8472.90.95, HTSUS.

In NY 859016, dated January 7, 1991, Customs held PIN pads, for use with transaction terminals of heading 8470, HTSUS, to be classifiable under subheading 8473.29.00, HTSUS. Consequently, it is our position that the subject PIN pads are also classifiable under subheading 8473.29.00, HTSUS.

Before we discuss whether multiple units, imported together in the same shipment, may constitute functional units, we must first determine whether a Zon Jr. XL or Tranz 330, slip or roll journal printer, and a PIN pad, imported together, constitute a functional unit. Section XVI, note 4, HTSUS, states that:

[w]here a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in chapter 84 or chapter 85, then the whole falls to be classified in the heading appropriate to that function.

In understanding the language of the HTSUS, the Harmonized Commodity Description and Coding System Explanatory Notes may be utilized. The Explanatory Notes, although not dispositive or legally binding, provide a commentary on the scope of each heading of the HTSUS, and are generally indicative of the proper interpretation of these headings. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (August 23, 1989). In part, General Explanatory Note VII (p. 1227) to section XVI, HTSUS, states that:

[f]or the purposes of this Note, the expression "intended to contribute together to a clearly defined function" covers only machines and combinations of machines essential to the performance of the function specific to the functional unit as a whole, and thus excludes machines or appliances fulfilling auxiliary functions and which do not contribute to the function of the whole.

It is our understanding that, to function effectively, the Zon Jr. XL or Tranz 330, which are cashless transaction terminals, require a printer for the printing of receipts, and a PIN pad for customers to input their debit PIN code. Therefore, we find that, in light of General Explanatory Note VII to section XVI, HTSUS, the slip or roll journal printer and the PIN pad are "essential" to the function of the Zon Jr. XL or Tranz 330. Consequently, it is our position that the three items (POS terminal, printer, and PIN pad), imported together, constitute a functional unit in that they are intended to contribute together to a clearly defined function of heading 8470, HTSUS, and are together specifically classifiable under subheading 8470.50.00, HTSUS. See
NY 859016 and NY 874189, dated May 14, 1992.

You cite NY 855636, dated August 24, 1990, and HQ 959575, dated May 6, 1997, as precedent for the claim that the three subject items (POS terminal, printer, and PIN pad) are also composite machines as defined in section XVI, note 3, HTSUS. Section XVI, note 3, HTSUS, states that:

[u]nless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines adapted for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function.

In NY 855636, Customs held the Zon Jr. XL and Tranz 330, each imported with one of the printers subject to this ruling (Models 600, 500, 250, and 150), to be composite machines classifiable under subheading 8470.50.00. In HQ 959575, citing NY 855636, we held the Tranz 330, imported with an Everest Transaction System, to be a composite machine also classifiable under subheading 8470.50.00, HTSUS.

While we agree with the holdings in NY 855636 and HQ 959575 that the goods are classifiable under subheading 8470.50.00, HTSUS, we must clarify the reasoning in both rulings for reaching such conclusions. To be considered a composite machine, two or more machines must be fitted together to form a whole. In part, General Explanatory Note VI (p. 1227) to section XVI states that:

[f]or the purposes of the above provisions, machines of different kinds are taken to be fitted together to form a whole when incorporated one in the other or mounted one on the other, or mounted on a common base or frame or in a common housing.

It is our understanding that the goods in both rulings were interconnected by cables. It is our position that such connections do not meet the term "fitted together to form a whole", and, therefore, the goods cannot be considered composite machines as defined in section XVI, note 3, HTSUS.

However, using the same analysis as with the subject merchandise, we find that the goods in the two rulings constitute functional units as defined in section XVI, note 4, HTSUS. That note allows for items to be interconnected by cable, and it is our position that the goods in both rulings contribute together to a clearly defined function covered by heading 8470, HTSUS, specifically under subheading 8470.50.00, HTSUS. Therefore, NY 855636 and HQ 959575 should no longer be cited in a section XVI, note 3, HTSUS, composite machine analysis.

We must now ascertain whether equal numbers of the subject POS terminals, slip and roll journal printers, and PIN pads, imported together in the same shipment but separately palleted and invoiced on separated commercial invoices, constitute functional units with a clearly defined function covered by heading 8470, HTSUS.

In HQ 953271, dated March 12, 1993, we stated that:

[r]ecently, the U.S. Court of International Trade reiterated that "[i]t is well established that an imported article is to be classified according to its condition as imported . . . ."
XTC Products, Inc. v. United States, 771 F.Supp. 401, 405 (1991). See also, United States v. Citroen, 223 U.S. 407 (1911).

In HQ 546273, dated July 25, 1996, we stated that:

[i]n IA 63/83 (Headquarters Ruling Letter (HRL) 074909), dated November 5, 1984, we addressed a similar issue under the Tariff Schedules of the United States (TSUS). In this decision, we noted Customs obligation to classify and assess duty on merchandise in its condition as imported--that is, merchandise which arrives in the customs territory in the same shipment. We held that merchandise laden aboard separate trucks which arrived within the customs territory of the U.S. on the same day would be considered, for classification and appraisement purposes, as having arrived at the same time, or as comprising a single shipment. See also, Franklin Industries, Inc. v. United States, 1 C.I.T. 349 (1981) (wherein the U.S. Court of International Trade held that to enjoy classification under a single tariff item number all components necessary to the completion of a particular article must be imported in the same shipment); United States v. Baldt Anchor, Chain & Forge Division of Boston
Metals Co., 59 CCPA 122, C.A.D. 1051, 429 F.2d 1403 (1972). This principle applies as well for purposes of classifying merchandise under the HTSUS. See, HRL 085252 dated
September 29, 1989. Accordingly, the components for the Cutting Line Cut-to-Length and Rewinding machine, which arrived on different vessels, on different days and at different ports, cannot be considered as a single shipment for classification purposes.

Based upon the legal analysis above, when equal numbers of POS terminals, printers, and PIN pads are imported together in the same shipment, regardless of whether they are separately palleted or invoiced, in their condition as imported they together constitute multiple functional units classifiable under subheading 8470.50.00, HTSUS. Should there be extra printers or PIN pads in the shipment, each of which not matching a POS terminal, then they are to be separately classifiable in the HTSUS provisions describing them (printers - 8472.90.95, HTSUS; PIN pads - 8473.29.00, HTSUS).

It has been suggested that the goods should not constitute multiple functional units even if imported in the same shipment, because, after importation, some of the items will be broken out and used as inventory. We disagree. Section XVI, note 4, HTSUS, is not a legal note which requires actual use. It is enough that, in their condition as imported, the goods are intended to contribute together to a clearly defined function covered by heading 8470, HTSUS. The fact that the printers and PIN pads are solely or principally used with the POS terminals is evidence of such an intention. See HQ 955566, dated April 20, 1994.

HOLDING:

Equal numbers of the subject POS terminals, slip and roll journal printers, and PIN pads, imported together in the same shipment but separately palleted and invoiced on separated commercial invoices, constitute functional units with a clearly defined function covered by heading 8470, HTSUS, specifically under subheading 8470.50.00, HTSUS.

Sincerely,

John Durant, Director
Commercial Rulings Division

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