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HQ 961259

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December 8, 1998

CLA-2 RR:CR:GC 961259 DWS

CATEGORY: CLASSIFICATION

TARIFF NO.: 8471.92.20; 8471.60.20

Mr. Robert E. Burke
Barnes, Richardson & Colburn
200 East Randolph Drive, Suite 7920
Chicago, IL 60601

RE: Reconsideration of HQ 957491; PC-POS Keyboard with MSR

Dear Mr. Burke:

This is in response to your letter dated December 5, 1997, to the Port Director of Customs, Chicago, Illinois, on behalf of Preh Electronics, Inc., requesting reconsideration of HQ 957491, dated July 31, 1996, specifically concerning the classification of the personal computer (PC) - point-of-sale (POS) keyboard with a magnetic stripe reader (MSR) under the Harmonized Tariff Schedule of the United States (HTSUS). Your letter was referred to this office for a response.

Pursuant to 625(c)(1), Tariff Act of 1930 [19 U.S.C. 1625(c)(1)], as amended by section 623 of Title VI (Customs Modernization) of the North American Free Trade Agreement Implementation Act, Pub.L. 103-82, 107 Stat. 2057, 2186 (1993), notice of the proposed modification of HQ 957491 was published on November 4, 1998, in the CUSTOMS BULLETIN, Volume 32, Number 44. No comments were received in response to the notice.

FACTS:

The PC-POS keyboard with MSR (referred to as "Sample C3" in HQ 957491) is a QWERTY-style keyboard with housing and interface electronics containing a slot for the MSR. It also consists of additional "rows and columns" keys which may be programmed to accommodate a customer's unique specifications, such as POS applications. You state that the keyboard is specifically designed for use with IBM or
IBM-compatible PCs. The keyboard also includes an additional "wedge", which extends the flexibility of both the keyboard and a PC using the keyboard to various other external applications, such as laser scanners.

ISSUE:

Whether the PC-POS keyboard with MSR is classifiable under subheadings 8471.92.20 (1994) and 8471.60.20 (1998), HTSUS, as a keyboard, or under subheading 8537.10.90, HTSUS (1994 and 1998), as an other board for electric control or the distribution of electricity.

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.

Because HQ 957491 dealt with the classification of the keyboard entered both before (1994) and after amendments to chapter 84, note 5, HTSUS, were implemented in 1996, we will provide the proper classification of the keyboard for 1994 as well as under the current tariff schedule.

1994

The HTSUS provisions under consideration are as follows:

8471 Automatic data processing machines and units thereof; *****:

Other:

8471.92 Input or output units, whether or not entered with the rest of a system and whether or not containing storage units in the same housing:

Other:

8471.92.20 Keyboards.

Other:

Other:

8471.92.88 Other.

8537 Boards, panels (including numerical control panels), consoles, desks, cabinets and other bases, equipped with two or more apparatus of heading 8535 or 8536, for electric control or the distribution of electricity, including those incorporating instruments or apparatus of chapter 90, other than switching apparatus of heading 8517:

8537.10 For a voltage not exceeding 1,000 V:

8537.10.90 Other.

In part, chapter 84, note 5, HTSUS, states:

(B) Automatic data processing machines may be in the form of systems consisting of a variable number of separately housed units. A unit is to be regarded as being a part of the complete system if it meets all of the following conditions:

(a) It is connectable to the central processing unit either directly or through one or more other units; and

(b) It is specifically designed as part of such a system (it must, in particular, unless it is a power supply unit, be able to accept or deliver data in a form (code or signals) which can be used by the system).

Such units entered separately are also to be classified in heading 8471.

Heading 8471 does not cover machines incorporating or working in conjunction with an automatic data processing machine and performing a specific function. Such machines are classified in the headings appropriate to their respective functions or, failing that, in residual headings.

In HQ 957491, we held the subject keyboard to be classifiable in heading 8537, HTSUS, specifically under subheading 8537.10.90, HTSUS. In precluding classification of the keyboard in heading 8471, HTSUS, we stated that:

Samples *** C3 (the PC-POS) are not specifically designed as parts of ADP systems, are used with machines performing a specific function, and therefore, cannot be classified as ADP units. ***** Sample C3 has additional (programmable) rows and columns keys and a magnetic stripe reader that makes it particularly suitable for POS applications. It also includes an additional "wedge," which provides the capability to connect different peripherals, such as a laser scanner. These samples cannot, according to note 5, be classified as units for ADP machines under heading 8471, HTSUS (1994). See, e.g., HQ 955868, dated May 20, 1994 (wherein a POS terminal incorporating an ADP machine was classified as a cash register under heading 8470, HTSUS); HQ 087513, dated November 5, 1990 (wherein a laser machinery center with a "computer numerical control" (CNC) was classified as a laser machine tool under heading 8456, HTSUS).

You state that the keyboard connects directly to the central processing unit (CPU) of an IBM or IBM-compatible PC, and can function only when connected to an operating PC. Also, the keyboard relays data to and receives information from the PC. When the PC user depresses a key on the keyboard, the keyboard sends a signal to the CPU; this signal is then interpreted and used by the PC according to the automatic data processing (ADP) application utilized by the system user. Based upon this information, we now agree that the subject keyboard meets the terms of chapter 84, note 5(B), HTSUS, and is described as an ADP unit in heading 8471, HTSUS, specifically under subheading 8471.92.20, HTSUS.

HQs 955868 and 987513 are cited in HQ 957491 as precedent for the exclusion of the keyboard from classification in heading 8471, HTSUS. However, both of those rulings dealt with the classification of machines (POS terminal and laser machinery center) incorporating computer-type devices. It is now our position that these rulings are therefore distinguishable from the present situation concerning the classification of a keyboard which is, in its condition as imported, specifically designed for use with a PC, regardless of the end use of the PC.

We also agree that the keyboard meets the terms of heading 8537, HTSUS, which is broad in coverage. The keyboard is a board, containing switches of heading 8536, HTSUS, for electric control or the distribution of electricity.

In part, GRI 3(a) states that:

[t]he heading which provides the most specific description shall be preferred to headings providing a more general description *****

It is our position that heading 8471, HTSUS, more specifically describes the keyboard then does heading 8537, HTSUS. The keyboard must meet the terms of heading 8471, HTSUS, and therefore chapter 84, note 5, HTSUS, to be deemed an ADP unit. We find that the language of heading 8537, HTSUS, is not as stringent a test. Therefore the subject keyboard is classifiable in heading 8471, HTSUS.

However, we must determine in which provision of heading 8471, HTSUS, the keyboard is classifiable. Keyboards are specifically classifiable under subheading 8471.92.20, HTSUS, and MSRs are classifiable under subheading 8471.92.88, HTSUS.

GRI 6 states that:

[f]or legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related subheading notes and, mutatis mutandis, to the above rules, on the understanding that only subheadings at the same level are comparable. For the purposes of this rule, the relative section, chapter and subchapter notes also apply, unless the context otherwise requires.
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.

As the subject keyboard also contains a MSR component, it is our position that it is a composite machine. GRI 6 allows us to apply section XVI, note 3, HTSUS, the note which governs the classification of composite machines in section XVI, HTSUS, at the subheading level.

Based upon section XVI, note 3, HTSUS, the keyboard is to be classifiable as if consisting only of that component which performs the principal function. Therefore, we must determine whether the keyboard or the MSR functions of the keyboard constitute its principal function. Based upon the literature provided and the arguments presented, although the MSR is provided to enhance the capability of the keyboard, the principal function is that of the keyboard itself. The merchandise may be used with a PC without ever utilizing the MSR or "wedge" components. Therefore, the subject keyboard is classifiable under subheading 8471.92.20, HTSUS. See NY 872612, dated March 27, 1991.

1998

The HTSUS provisions under consideration are as follows:

8471 Automatic data processing machines and units thereof; *****:

8471.60 Input or output units, whether or not containing storage units in the same housing:

Other:

8471.60.20 Keyboards.

8537 Boards, panels, consoles, desks, cabinets and other bases, equipped with two or more apparatus of heading 8535 or 8536, for electric control or the distribution of electricity, including those incorporating instruments or apparatus of chapter 90, and numerical control apparatus, other than switching apparatus of heading 8517:

8537.10 For a voltage not exceeding 1,000 V:

8537.10.90 Other.

As was stated in HQ 957491, in 1996, chapter 84, note 5, HTSUS, was substantially modified. It now states:

(B) [a]utomatic data processing machines may be in the form of systems consisting of a variable number of separate units. Subject to paragraph (E) below, a unit is to be regarded as being a part of a complete system if it meets all the following conditions:

(a) It is of a kind solely or principally used in an automatic data processing system;

(b) It is connectable to the central processing unit either directly or through one or more other units; and

(c) It is able to accept or deliver data in a form (codes or signals) which can be used by the system.

(C) Separately presented units of an automatic data processing machine are to be classified in heading 8471.

(D) Printers, keyboards, X-Y coordinate input devices and disk storage units which satisfy the conditions of paragraphs (B)(b) and (B)(c) above, are in all cases to be classified as units of heading 8471.

(E) Machines performing a specific function other than data processing and incorporating or working with an automatic data processing machine are to be classified in the headings appropriate to their respective functions or, failing that, in residual headings.

In HQ 957491, we again held the subject keyboard to be classifiable in heading 8537, HTSUS, specifically under subheading 8537.10.90, HTSUS. In precluding classification of the keyboard in heading 8471, HTSUS, we stated that:

[n]ote 5(D) must be read in light of note 5(E) to chapter 84, HTSUS. Note 5(B) to chapter 84, HTSUS, provides that a unit is to be regarded as being a part of an ADP system if it meets all the listed conditions, "subject to note 5(E) to chapter 84, HTSUS." Note 5(E), which prior to 1996 was found following notes 5(A) and 5(B) under note 5 (see above), provides that "[m]achines performing a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine are to be classified in the headings appropriate to their respective functions or, failing that, in residual headings (addition to 1996 text in bold face)." Thus, while note 5(D) negates the sole or principal use requirement when considering the classification of printers, keyboards, X-Y coordinate input devices and disk storage units, note 5(E) provides a separate prerequisite to the classification of any ADP machine and, therefore, ADP unit. To be classified as an ADP unit, a device must be used with a machine that is considered, for classification purposes, an ADP machine. See chapter 84, note 5(A), HTSUS (1994/1996) (defining "automatic data processing machines" for purposes of heading 8471, HTSUS).

The classification of sample C3 (the PC-POS), in light of the 1996 amendments, is a more difficult determination. However, it is our opinion that sample C3, although it can be connected to a standard, desktop PC, cannot be classified as an ADP input unit under heading 8471, HTSUS. Although "principal use" is not required, some degree of "capacity" for use with an ADP machine, in light of the purpose of the 1996 amendments, must be required. To be "capable" of being used with an ADP machine, a device must be actually, practically and commercially fit for such use. Such "capacity" requires more than a casual, incidental, exceptional or possible use.

Sample C3 has additional (programmable) rows and columns keys and a magnetic stripe reader that makes it particularly suitable for POS applications. It also includes an additional "wedge," which provides the capability to connect different peripherals, such as a laser scanner. Because of its special design, sample C3 costs a great deal more than a "standard" desktop keyboard (approximately ten times more than the "standard" keyboard). Moreover, sample C3 provides certain features (i.e., many programmable function keys; "wedge") that would not be used if connected to a standard, desktop PC. Thus, while sample C3 can be connected to a standard, desktop PC, it is highly unlikely that one would purchase it for such use, as it is not practically and commercially fit for such use. While counsel for Preh has provided pictures of sample C3 connected to a standard, desktop PC, it is our opinion that any such use would be merely "casual, incidental, exceptional or possible." This type of use was not the type contemplated by the amendments to chapter 84, note 5, HTSUS. Accordingly, sample C1 [sic], *** is classifiable under subheading 8537.10.90, HTSUS.

It is our understanding that the 1996 addition of note (D) to chapter 84, note 5, HTSUS, was intended to be expansive, not restrictive. Indeed, as noted in HQ 957491, for merchandise to meet the terms of note (D), the product need not meet the "sole or principal use" test of chapter 84, note 5(B)(a), HTSUS. We now find that the "actually, practically and commercially fit for such use" test created in HQ 957491 is too strict. In utilizing such a test, it appears that an actual use requirement is substituted for the "sole or principal use" requirement of chapter 84, note 5(B)(a), HTSUS. Based upon information we have received, it is our understanding that such a restrictive substitution was not intended by the drafters of note (D).

The test for meeting the terms of note (D) should be what is specifically required in note (D). If certain devices satisfy the conditions of chapter 84, notes 5(B)(b) and (c), HTSUS, they are to be classified as units of heading 8471, HTSUS. As we have previously stated, the subject keyboard is connectable to a CPU and it is able to accept or deliver data in a form which can be used by an ADP machine, thereby satisfying the terms of chapter 84, notes 5(B)(b) and (c), and note 5(D), HTSUS.

We will confine the application of chapter 84, note 5(E), HTSUS, to the subject merchandise. Based upon the information provided, and contrary to the holding in HQ 957491, the subject keyboard performs a data processing function, as its intended use is to input data. In fact, it is our understanding that a keyboard user can manually input the data from a credit card or other card into the PC by punching the keys of the keyboard rather than sliding the card through the MSR. Therefore, the MSR does not necessarily have to be utilized. Consequently, because the purpose of the keyboard is for data input, it is now our position that chapter 84, note 5(E), HTSUS, does not preclude classification of the keyboard in heading 8471, HTSUS. We also note that, as previously stated, MSRs themselves are classifiable in heading 8471, HTSUS.

As we have now determined that the keyboard is described in heading 8471, HTSUS, as an ADP unit, based upon our analysis of the classification of the keyboard under the 1994 HTSUS (same rules apply), it is our position that the keyboard is classifiable under subheading 8471.60.20, HTSUS. See NY 817753, dated January 4, 1996.

HOLDING:

The PC-POS keyboard with MSR is classifiable under subheadings 8471.92.20 (1994) and 8471.60.20 (1998), HTSUS, as a keyboard.

HQ 957491 is modified to reflect the reasoning herein. In accordance with 19 U.S.C. 1625(c)(1), this ruling will become effective 60 days after its publication in the CUSTOMS BULLETIN. Publication of rulings or decisions pursuant to 19 U.S.C. 1625(c)(1) does not constitute a change of practice or position in accordance with section 177.10(c)(1), Customs regulations [19 CFR 177.10(c)(1)].

Sincerely,

John Durant, Director
Commercial Rulings Division

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See also:

• Tariff No.: 8471.60.20 - Keyboards for automatic data processing machines not entered with the rest of a system
• Tariff No.: 8537.10.90 - Boards, panels, consoles, desks, cabinets, etc., equipped with apparatus for electric control, for a voltage not exceeding 1,000, nesi