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HQ 548190




November 25, 2002

RR:IT:VA 548190 MMC

CATEGORY: VALUATION

Mr. Robert J. Resetar
Customs Manager
Porsche Cars North America, Inc.
980 Hammond Drive, Suite 1000
Atlanta, GA 30328

RE: Valuation of CD-ROM subscription software

Dear Mr. Resetar:

This is in response to your August 15, 2002 letter in which you request a prospective ruling concerning the proper valuation of subscription software. Specifically, you have requested a ruling on the appropriate method of appraisement of a CD-ROM subscription software program for use with an electronic systems tester known as the "PST II".

FACTS:

Porsche Cars North America, Inc (PCNA) purchases an annual subscription program on CD-ROMs used to update the Porsche PST II system tester, from its supplier Porsche AG, (PAG). The PST II system is a handheld, electronic device, approximately the size of a laptop computer. It is used to test all the electronic systems in a Porsche car. Information from the CD is downloaded into the PST II thus allowing it to perform the correct analysis. The PST II connects to the vehicle's on-board diagnostic system. After importation, the subscription program is then sold by PCNA to the U.S. Porsche dealership network.

The CD-ROMs will be purchased as a yearly subscription. At the beginning of the year PCNA will import the first shipment of CDs and pay the annual subscription fee to PAG. There are approximately 220 United States users of the PST II who will ultimately receive CDs. You state that the data on the CDs will periodically be updated throughout the year due to new models and correcti`ons to existing data. Each time an update is released, PCNA will import another 220 CDs with no additional payments, as the updates are included in the annual subscription fee. The number of updates is not predetermined but PCNA anticipates somewhere between 9-15 a year.

We presume that the annual subscription fee is the sole remuneration paid by PCNA to PAG for the subscription program on CD-ROMs used to update the Porsche PST II system tester. Finally, in a November 7, 2002 telephone conversation, you indicated that you believed the CD-ROMs are classifiable under subheading 8524.31.0070, of the Harmonized Tariff Schedule of the United States (HTSUS).

ISSUE:

What is the appropriate method of appraisement for the importations of the annual subscription program on CD-ROMs used to update the Porsche PST II system tester?

LAW AND ANALYSIS:

Merchandise imported into the U.S. is appraised in accordance with the provisions of Section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. ยง1401a; TAA). The preferred basis of appraisement is transaction value, defined as "the price actually paid or payable for merchandise when sold for exportation to the United States..." plus additions specified in section 402(b)(1)(A) through (E) of the TAA. Further the price actually paid or payable is defined as "the total payment (whether direct or indirect) made or to be made, for imported merchandise by the buyer, to or for the benefit of the seller. 19 U.S.C. 1401a(b)(4).

In Treasury Decision 85-124, 19 Cust. B. & Dec. 299, July 8, 1985, Customs indicated that it values imported carrier media bearing data or instructions for use in data processing equipment exclusive of a value element for the data, instructions, or information component contained on the software. A copy of the decision has been enclosed for your reference. In other words, the customs value of software is the value of the carrier medium. This action is in accordance with Decision 4.1 of the Committee on Customs Valuation. Decision 4.1 sanctioned the practice of valuing software exclusive of a value element for data, instructions, or information components.

The subject merchandise is a series of CD-ROMs containing a variety of information. After importation, information is downloaded into a diagnostic system (the PST II). Downloading the information off the imported CD-ROMs allows the PST II system to perform diagnostics on the electrical system of certain Porsche vehicles. In a November 7, 2002 telephone conversation, you indicated that you believed the CD-ROMs are classifiable under subheading 8524.31.0070, of the Harmonized Tariff Schedule of the United States (HTSUS). If this classification is correct, the imported CD-ROMs fall within the scope of T.D. 85-124. As such, the subject CD-ROMs would be appraised at the time each was entered and be based on the value of the carrier medium.

HOLDING:

Transaction value is the proper basis of appraisement for the importation of the annual subscription program on CD-ROMs used to update the Porsche PST II system tester. Presuming that the CD-ROMs are classifiable under subheading 8524.31.0070, HTSUS, they are subject to T.D.85-124. As such, the subject CD-ROMs would be appraised at the time each is entered and the value would be based on the value of the carrier medium.

Sincerely,

Virginia L. Brown,
Chief, Value Branch

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