HQ 548298 - Request for internal advice regarding "crusher levy" and "check off" payments; price actually paid or payable; Moss Mfg. Co. v. United States, Generra Sportswear Co. v. United States; HRLs 545296, 547958 and 547098 - United States International Trade Commision Rulings

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HQ 548298

July 25, 2003

RR:IT:VA 548298 MMC

CATEGORY: VALUATION

Port Director
112 W. Strustman
Pembina, North Dakota 58271
Attention: Pat Cayley, Team 382

RE: Request for internal advice regarding "crusher levy" and "check off" payments; price actually paid or payable; Moss Mfg. Co. v. United States, Generra Sportswear Co. v. United States; HRLs 545296, 547958 and 547098

Dear Port Director:

This is in response to a March 10, 2003 letter from Barnes, Richardson & Colburn submitted to your office, requesting internal advice concerning the dutiable status of certain payments described as "crusher levy" and "check off" fees made by Archer Daniels Midland (ADM) (the importer/buyer) to the Canadian Oilseed Processors Association and various Canadian provincial Canola Development Commissions respectively. This request supplements a November 15, 2002 request. Your office forwarded an initial internal advice on the matter on April 30, 2002, however counsel chose to withdraw the request until such time that he was able to resubmit it with additional information. Accordingly, the information provided in the March 10, 2003 and November 15, 2002 letters as well as that forwarded to us on April 30, 2002 was considered for this decision. A telephone conference was held with counsel to discuss the relevant issues on July 17, 2003.

FACTS:

Counsel in his March 10, 2003 letter and in his November 15, 2002 letter provided a total of 4 examples of the transactions in question. Each letter had one example of a crusher levy fee and one example of a check-off fee. While the actual commodities and entry dates were different, the documentation submitted to demonstrate the transactions was the same for all examples. As such, for the purposes of this ruling we will discuss only the examples submitted on November 15, 2002.

As discussed more fully below, the submitted documents indicate that in each case the seller's price for the imported canola seed to ADM (buyer) included the fees. From this total price ADM paid a "net amount" (i.e., the sales price less the fees) to the seller and the fee amounts to either an industry association (the crusher levy fee) or to a government commission (the check-off fee). According to counsel, both ADM and the seller are identified when the fees are paid to the 3rd parties.

Crusher Levy Fee

According to counsel, the Canadian canola levy is a voluntary payment made on Canadian canola seed exported from Canada as well as Canadian canola seed that is actually crushed in Canada. ADM remits the crusher levy fee to the Canadian Oilseed Processors Association (COPA). COPA is a non-government trade association. In most instances COPA remits a portion of the fees to the Canola Council of Canada. The fee reflects the Canadian canola industry's efforts to pool resources for the promotion and research of canola and canola products.

Counsel has provided a total of 14 documents to explain a typical transaction that involves the fee. The documents reflect the treatment of a specific truckload of imported canola product imported in August of 2002. In the transaction, ADM acts as the buyer and NM Patterson & Sons Ltd is the seller (vendor). The subject transaction took place at Velva, North Dakota. A review of the documents reveals that the price negotiated between the buyer (ADM) and the seller (NM Patterson & Sons Ltd.) includes an amount for the payment of the crusher levy fees. This price is identified on the various documents as the "gross price" or "gross proceeds." Additionally, the documentation indicates that ADM directly pays the seller an amount identified as the "net proceeds." The net proceeds equals the gross proceeds minus the amount for the crusher levy fee. ADM forwards the amount for the crusher levy fee to COPA on an aggregate monthly basis. According to counsel both ADM and the seller are aware at the time of their negotiation that an amount equal to the levy will be deducted from the negotiated price and paid by ADM to the COPA. The pertinent documents include:

An ADM check, which is a monthly payment of crusher levy fees for all canola, imported that month.

The ADM Commodity Management System Check Off Vendor Sheet: It shows a series of truckloads recorded from the vendor during August 2002. The sheet contains an entry indicating that the traced truck was unloaded in the U.S. from Canada on August 15, 2002, the tonnage, the "levy rate," "gross proceeds" and "price". Both the gross proceeds figure and the price include the amount for the crusher levy fee.

The Purchase Contract: indicates a "price" which includes the fees.

The Purchase Settlement Sheet: identifies a " check-off tax" which is the amount for the crusher levy, a "total adjustment" which is the amount deducted for the crusher levy and "net price" which is the reflection of an adjustment made for the crusher levy fee.

The Purchase Return for Vendor is a document generated to check on shipments received on a previous day. The gross price is identified, the adjustment for the crusher levies, the net price, and net proceeds.

The Processing Grain Purchase Contract Confirmation: is a confirmation of the contract between buyer and seller and confirms to the seller that the buyer has purchased the goods. The confirmation shows the gross price. In the remarks and special terms section it states, in pertinent part, that: "Broker/check off tax/canola levy to seller's account".

The Check-Off Fee

Counsel states that several Canadian provinces have enacted a law that contains a "check-off" program for canola and canola products produced in their respective territories. For example, in Saskatchewan the Agri-Food Act has created the Saskatchewan Canola Development Commission (SCDC). The Agri-Food law allows the SCDC to set and collect check-off fees from any person engaged in the "marketing" of canola products. According to the law, the scope of the word "marketing" includes advertising, assembling, buying, financing, grading, insuring, managing risk, offering for sale, packing, processing, selling, shipping, storing, and transporting canola products. The collected fees are administered by a "producer elected" Board of Directors which consists of six canola producers. Counsel indicates that the check-off fees are mandatory. However, they are refundable upon request by the producer. Counsel indicates that to the extent that canola check-off fees are not refunded, they are used for activities that broadly support the entire canola industry.

A review of the submitted documentation indicates that the price negotiated between the buyer and the seller includes an amount for the payment of the check-off fees. Counsel states that both the buyer and seller are aware at the time of their negotiation that an amount equal to the check-off fee will be deducted from the negotiated price and that ADM will then transfer that amount to SCDC. The documentation provided indicates that ADM paid the check-off fee to SCDC. In this case, the fees at issue were not refunded.

ISSUE:

Whether the crusher levy and check-off fees are part of the price actually paid or payable for the imported goods.

LAW AND ANALYSIS:

Counsel contends that neither the levy nor check off fee should be included in the transaction value of the imported canola seed. Counsel asserts that no direct or indirect benefit accrues to the seller from the payments. Rather counsel argues that the benefit accrues to the canola industry as a whole. Additionally, counsel asserts that the fees are paid by ADM for its own account and not for the account of the seller. Counsel points to the fact that no party has an obligation to pay the fees noting that the crusher levy fee is voluntary and that the check-off fee is refundable. Finally, counsel contends that the payments at issue are not part of the price actually paid or payable because they are not paid to the seller. For the reasons discussed below, we find that both fees are included in the transaction value of the imported canola seed.

Merchandise imported into the United States is appraised in accordance with §402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA, codified at 19 U.S.C. § 1401a). The preferred method of appraisement under the TAA is transaction value, defined as the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus enumerated statutory additions. 19 U.S.C. §1401a(b)(1).

Section 402(b)(4) of the TAA defines the term “price actually paid or payable” 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). The TAA also requires adjustments to the price actually paid or payable to determine the transaction value of the merchandise. The statutory additions include packing costs, selling commissions, assists, royalties or license fees, and the proceeds of any subsequent resale that accrue to the seller. 19 U.S.C. § 1401a(b)(1).

Although the customs valuation statute and regulations address many of the additional charges that importers sometimes pay sellers, some payments are not specifically covered by law or regulation. The mere absence of a charge from the statutory additions listed in 19 U.S.C. § 1401a(b)(1), however, does not mean that such charges cannot be considered part of the price actually paid or payable for the merchandise. See, Generra Sportswear Co. v. United States, 905 F.2d 377 (Fed. Cir. 1990), finding that quota payments are part of the price actually paid or payable. In addition, once the seller's price includes certain fees, there is no authority to deduct them. See, Moss Manufacturing Co, Inc. vs. United States, 13 CIT 420, 714 F. Supp. 1223 (1989); aff'd., 896 F. 2.d 535 (1990) where buying commissions included in the proce could not be deducted [Moss]; and Headquarters Ruling Letter (HRL) 547958 dated July 23, 2001, where the license fees were not deducted from the price actually paid or payable because they were already included in the negotiated price. See also HRLs 547098 dated February 2, 1999, and 545296 dated August 16, 1993, where Customs held that it had no authority to deduct buying commissions from the price actually paid or payable.

The relevant documents indicate that the fees at issue here are already included in the seller's price (the gross price). The Purchase Contract is made for the total amount including the cost of the fees. The Processing Grain Purchase Contract Confirmation is a confirmation of the contract between the buyer and seller. It is issued by the buyer and confirms to the seller that the buyer has purchased the canola product. The submitted confirmations also show the price includes the fees. The buyer and seller determined that this is how they wanted to structure their transaction. Once these payments were included in the price, they became a part of the total payment for the goods. While the statute at 19 U.S.C. § 1401a(b)(3), lists certain expenses which are not included in transaction value, the subject payments do not fall within the scope of these exclusions. Nothing in the statute or regulations allows for a deduction for an amount representing the subject fees where they have already included in the price. See HRLs 547958 and 547098, supra.

Although counsel claims that the buyer pays the fees for its own account, the documentation and circumstances presented do not support such an assertion. In the remarks and special terms section of the Processing Grain Purchase Contract Confirmation it states, in pertinent part, that: "Broker/check off tax/canola levy to seller's account". While these remarks are not entirely clear, a reasonable interpretation based on the facts is that the fees paid by ADM are to be credited to the seller's account. Additionally, counsel indicates that both ADM and the seller are identified to the 3rd party when ADM makes the payment. Furthermore, the fact that the contract price includes the fees is a further indication that the buyer paid the fees for the seller's account. The fact that the crusher levy is voluntary and the check-off fee is refundable is irrelevant. The seller's contract price to ADM included these fees making payment of them by ADM mandatory.

Finally, the fact that ADM did not pay the fees in question directly to the seller is immaterial. The definition of the price actually paid or payable is the total payment whether direct or indirect madeby the buyer to or for the benefit of the seller. The contract between the parties indicates that the parties included the fees in their contract price and agreed that ADM would pay a portion of the contract price to a third party. Under these circumstances we find that these payments were indirect payments to the seller and were paid for the benefit of the seller.

HOLDING:

Based on the evidence submitted, the crusher levy and check-off fees are included in transaction value of the imported merchandise as they are part of the price actually paid or payable for the imported merchandise.

This decision should be mailed by your office to the party requesting internal advice no later than sixty days from the date of this letter. On that date the Office of Regulations & Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act, and other public access channels.

Sincerely,

Virginia L. Brown

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