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HQ 229963

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June 12, 2003

LIQ-15 RR:CR:DR
229963RDC

CATEGORY: HARBOR MAINTENANCE FEE

Paxton Shreve & Hays, Inc.
2191 Main Street
San Diego, CA 92113
Att: Stephen M. Stonehouse

Dear Mr. Stonehouse:

This is in response to your request dated May 6, 2003, for a ruling as to the applicability of the Harbor Maintenance Fees’ (“HMF”) to yachts.

FACTS:

The following facts are presented in your request. A foreign - flag private yacht enters the territory of the U.S. under its own power. The yacht is registered as a pleasure vessel and does not carry passengers nor cargo for remuneration. After the yacht arrives in the U.S. the owner decides to offer the yacht for sale in the U.S. Upon making the decision to sell the yacht, the owner is required to file a consumption entry and pay all applicable duties, including the merchandise processing fee. It is your position that under the described circumstances the yacht is not subject to the Harbor Maintenance Fee (“HMF”).

ISSUES:

Is a foreign-flag private yacht which enters U.S. territory, is registered as a pleasure vessel and offered for sale in the U.S. subject to the Harbor Maintenance Fee?

LAW AND ANALYSIS:

Chapter 89 of the Harmonized Tariff Schedule of the United States (HTSUS) provides for ships, boats and floating structures. Additional U.S. Note 1 to that chapter states in part that if a vessel is brought into the Customs territory of the United States by a nonresident for his own use in pleasure cruising, it shall be admitted without formal Customs consumption entry or the payment of duty. See also 19 C.F.R. § 148.45.

Section 4.94 of the Customs Regulations (19 C.F.R. § 4.94) provides that the offer to sell or charter to a resident would subject a vessel to duty. Paragraph 19 C.F.R. § 4.94(d)
states in pertinent part, the following: “Any offer to sell or charter (for example, a listing with yacht brokers or agents) is considered evidence that the vessel was brought in for sale or charter to a resident . . . .” Consequently, any offer to sell to a resident would immediately subject a vessel to duty.

The Harbor Maintenance Fee, provided for at 26 U.S.C. §§ 4461, 4462, supplies federal funding for the maintenance of any channel or harbor in the United States which is not an inland waterway and is open to public navigation. Specifically, 26 § U.S.C. 4461(a) and (b), as amended by 11214 of the Omnibus Budget Reconciliation Act of 1990 (Pub. L. 101-508), provide for the assessment of a tax (i.e., HMF) on any port use in an amount equal to 0.125 percent of the value of the commercial cargo involved. The applicable regulatory authority promulgated by Customs pursuant to 26 U.S.C. § 4462(h) to implement the above statutory provisions is § 24.24, Customs Regulations (19 C.F.R. § 24.24).

"Port use" for purposes of assessing the HMF is defined as either the loading of commercial cargo on, or the unloading of commercial cargo from a vessel, a commercial port subject to the HMF (26 U.S.C. § 4462((a)(1)). “Commercial cargo means any cargo transported on a commercial vessel, including passengers transported for compensation or hire.” (26 U.S.C. § 4462(a)(3)(A)). A “commercial vessel” is “any vessel used in transporting cargo by water for compensation or hire, or in transporting cargo by water in the business of the owner, lessee, or operator of the vessel.” (26 U.S.C. § 4462(a)(4)(A)).

In Aker Gulf Marine v. United States, 138 F. Supp. 2d 1304 (Ct. Int’l Trade 2000) the Court of International Trade (CIT) examined the meaning of the phrase “transported on a commercial vessel.” The CIT held that oil drill platforms which were towed by a tugboat were “transported on a commercial vessel” for purposes of applying the HMF per 26 U.S.C. § 4462(a)(3)(A). In Aker Gulf Marine, the plaintiff transported oil drill platforms from the port of Corpus Christi, Texas, to the Outer Continental Shelf by attaching the platforms to tug boats via cables. In this way the platforms were towed from Corpus Christi to the Outer Continental Shelf. Aker Gulf Marine argued, inter alia, according to the CIT, that,
the platforms were not “on” the tugboat, but were beside it, and therefore there is no covered “port use.” That is, the cargo was not loaded or transported ‘on’ a commercial vessel, as required by 26 U.S.C. § 4462.

Id. at 1307. The Court unequivocally rejected this argument and stated:

The court will not rest the issue of applicability of the tax on a narrow definition of a statutorily undefined preposition, which in common usage has a broad meaning. Plaintiff cannot argue seriously that cargo "inside" a vessel is not to be taxed. In context, "next to," "beside," "behind" may be equivalent to "on," just as much as "inside" is. What Congress intended was to tax cargo transported by means of a commercial vessel from a port of the United States. There is no indication that Congress meant any distinction based on the physical means of connecting the cargo to the vessel, i.e., gravity versus a cable.

Id. at 1307-08.

In Aker Gulf Marine, because the tug boat was hired to transport the platforms, the tug was the “commercial vessel” and the oil platforms were “the commercial cargo.” The described yacht is distinguishable from the tug boat and the platform at issue in Aker Gulf Marine. Here the yacht, according to your description, “enters a port under its own power” and does not carry passengers or things for compensation. The yacht is therefore, neither cargo transported nor transporting cargo. Consequently it is neither “commercial cargo” nor a “commercial vessel” within the intended meaning of 26 U.S.C. 4462. Further, since the yacht does not carry cargo or passengers for remuneration there is no loading or unloading of commercial cargo and thus no “port use” within the meaning of 26 U.S.C. § 4462(a)(1)(A). Therefore, no Harbor Maintenance Fees are applicable to the entering for consumption of such a yacht as described.

HOLDING:

A yacht which enters U.S. territory under its own power, and is not for hire to carry passengers or cargo and is subsequently offered for sale in the U.S. is not subject to the Harbor Maintenance Fee.

Sincerely,

Myles Harmon, Director

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