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HQ 229202





September 24, 2002

LIQ-15-RR:CR:DR 229202 IOR

CATEGORY: LIQUIDATION

Chief Revenue Branch
National Finance Center
6026 Lakeside Boulevard
Indianapolis IN 46278
ATTN: Joan E. Dishon

RE: Protest AFR No. 9920-00-100001; Harbor Maintenance Tax; refund; supplement payment; setoff; exemptions; 19 CFR 24.24; 19 CFR 24.72

Dear Sir:

The above-referenced protest was forwarded to this office for further review. Our decision follows.

FACTS:

This is a protest of Customs denial of refund requests for asserted overpayments of Harbor Maintenance Taxes (“HMT”), and Customs setoff of a refund issued to the protestant by Customs, against an amount asserted to be owed by the protestant to Customs. The protest involves 34 HMT Amended Quarterly Reports (CF 350) submitted by “Koch Petroleum Group” on April 28, 2000, for the 1st quarter, 1995 through the 3rd quarter 1999. The CF 350’s consist of refund requests and supplement payments, arising out of alleged clerical errors, miscalculations, omissions, duplications and misinterpretations of exemptions for HMT. The cover letter for the April 28, 2000 submission pointed out that for sixteen of the amended reports for 1995 through 1998, the original reports were filed under a different corporate identifying number than the amended reports, because the original companies had become divisions of Koch Petroleum Group, LP and no longer have Federal Employer Identification numbers. We note that the April 28, 2000 letter is on “Koch Industries Inc” letterhead.

The CF 350’s filed for supplement payments owed, due to asserted underpayments, were for a total of $923,005.42. The CF 350’s filed for refunds, due to asserted overpayments, were for a total of $390,960.80. On April 28, 2000, the protestant submitted a payment in the amount of $532,044.62, which was asserted to represent the net amount due from the overpayments and underpayments. By letter dated May 10, 2000, Customs issued a letter requesting payment of $390,960.80, as the remaining amount of supplement payments due, and stated that the refund requests were denied as “untimely for 1st, 2nd, 3rd, and 4th quarters 1995; 1st, 2nd, and 3rd quarters 1996; and 3rd quarter 1997.” The denial was based on the stated requirement that a refund request must be made to Customs within two years from the date of payment of the fee, and referenced HQ 227993, dated May 5, 1999. The last Quarterly Summary Report, CF 349, which reported the HMT payments upon which the refund requests were based, was dated October 28, 1997, for the 3rd quarter of 1997. The latest payment of HMT, according to the documents supporting the CF 349, was made on September 26, 1997, more than two years prior to April 28, 2000.

Subsequently, by letter dated June 22, 2000, Customs notified the protestant that for a refund of $117,004.29 for overpayments made for the 3rd quarter of 1999, Customs “diverted the refund totaling $117,004.29 and set-off a portion of [the protestant’s] unpaid debt as authorized under 19 CFR 24.72.” According to Customs, the unpaid debt was the $390,960.80 asserted in Customs letter of May 10, 2000. The $117,004.29 refund was due to a decrease in the FTZ admissions value, and was a refund of HMT paid by Koch Petroleum Group, the protestant. The CF 350 that claimed the refund of $117,004.29 was not included among those submitted by the protestant with its letter of April 28, 2000.

The subject protest was filed on July 28, 2000 by Koch Petroleum Group, LP (“KPG”). KPG’s IRS no., according to the protest, is 41-xxxx45700. The protestant argues that HQ 227993 was overruled by Swisher International, Inc. v. United States, 205 F.3d 1358 (Fed. Cir. 2000), and that there was no time limit for the refund requests, and that the set-off was without legal authority under 19 CFR 24.72, as the amount of $390,960.80 was not a “legally fixed and undisputed” debt.

The Court of Appeals for the Federal Circuit, held in the Swisher case that a refund of HMT can be filed at anytime, and that a denial of a request for refund of HMT is a protestable decision. 205 F.3d at 1369. In light of the CAFC decision in Swisher, subsequent to the filing of the protest, Customs National Finance Center (NFC) proceeded to review the sufficiency of the refund requests submitted by KPG. Based on the review, the NFC determined that KPG had not adequately documented all of its refund requests, and in fact owed additional HMT for some of the quarters for which supplements were paid. KPG and the NFC worked through the refund requests and supplement submissions attempting to clarify and resolve the discrepancies. The NFC has submitted documentation and a summary of the discrepancies which have been resolved and those which have not. There is also a May 9, 2001 (with a June 8, 2001 follow-up) from Koch indicating for each quarter whether Koch agrees with the NFC findings. At issue therefore is whether the set off was appropriate and the amount if any owed to Customs by KPG. The issue of the timeliness of the refund requests was resolved by the decision in Swisher, in favor of the protestant, and is not further addressed herein.

Due to the volume of information submitted, the facts discussed are limited to two illustrative refund requests, and one illustrative supplement submission, as described below:

1st quarter 1995 refund request

A CF 349, dated April 25, 1995, signed by Robert B. Leake, was filed by “Koch Fuels Inc.”. The IRS no. is asserted as 41-xxxx103. The HMT paid was $80,386.14 on a stated value of $64,308,910.75 of domestic vessel movements, with no exemptions claimed. Upon request by Customs, the protestant submitted two itemized summaries of movements, including the date, vessel, port, and value involved for each movement in January, February and March, 1995. The company name on one summary is “Koch Supply and Trading Terminal/Koch Refining Marketing”, and on the other it is “Koch Supply & Trading”. The relationship of these entities to “Koch Fuels Inc.” is unexplained. The documented total value of the domestic movements on the two summaries is $64,308,908.75.

 The amount stated on the CF 349 is $64,308,910.75. For either amount the HMT due is $80,386.14, as reported on the CF 349.

A CF 350 signed and dated April 28, 2000, was filed by KPG, with the IRS no. 48-xxxx457. The IRS number is the same as that of the protestant indicated in the protest letter, except for the “48” prefix. The IRS no. is entirely different from that on the CF 349. According to the CF 350, the previous HMT paid was $80,386.14, and the refund requested is $49,741.76. The documentation for the refund amount consists of a summary of 60 movements for which it is asserted HMT was paid, when in fact it should not have been, and two movements for which HMT should have been paid but which were not reported. The total value of movements for which a refund is claimed is $42,245,295.35. The company name on the summary is KPG. Of the 58 movements for which an exemption is claimed, 56 were included in the reports of movements with the CF 349. One of the two movements that was not included in the CF 349 summaries is from Richmond, VA to Newport News-KO, has a value of $606,625.45, and is asserted to be a duplicate payment. The second of the two movements not included in the CF 349 summaries is from Norfolk, VA to Newport News-KO, has a value of 663,965.78, and is asserted to be an overvaluation. KPG has agreed that these two movements should not have been included on the list of movements for which a refund is requested. The total value of these two movements is $1,270,591.23. The remaining 56 movements are for inland waterway or intraport movements. Two movements were also included on the summary as “taxable not previously reported”. The total value for these two movements is $2,452,159.43.

3rd quarter 1995 refund request

Koch Fuels (IRS No. 41-xxxx103) filed an unsigned, undated summary report on a CF 349 with a payment of $64,098.83 on a stated value of $51,279,064.00 of domestic vessel shipments with no exemptions claimed. The report contains the statement that it was prepared by Robert B. Leake. Upon request by Customs, lists of the dates, ports, values and vessels involved were submitted for July, August and September, 1995 under the letterhead of Koch Supply & Trading. The value of those listed domestic movements total $73,006,000.80. In addition, the file contains a three-page listing for July, August and September, 1995 under the letterhead of Koch Supply and Trading Terminals/ Koch Refining Marketing, of vessel movements which total $2,112,807.26. Two of the six listed movements are annotated in handwriting by an unidentified person as being import movements (the total value of the two import movements is $837,811.45). The total value of the domestic movements on the two lists, less the two shown as imports on the listing, is $73,748,385.46. The discrepancy between the original stated amount of $51,279,064.00 and the amount shown by the listed vessel movements of $73,748,385.46 is unexplained. In the May 9, 2001 response to Customs findings, KPG states:

As stated in a letter earlier, the $51,279,064 originally reported was incorrect. We are not sure why that number was put on the return instead of the amount of the supporting schedules.

KPG (IRS No. 48-xxxx457) filed a refund request on a CF 350 signed and dated April 28, 2000, asserting that the refund was based on duplicate payments having been made. The CF 350 asserted a value of the shipments of $103,837,555.95 and exemptions totaling $90,207,939.42 with a net value of $13,629,616.53. The list that accompanied the CF350 asserted that there were two vessel movements that were not previously reported that had a total value of $1,787,106.64 and that the other 50 listed vessel movements had been taxed under the waterway provision, or were intraport movements, and were exempt from the HMT for that reason. However, one movement of the 50 that were asserted to have been reported on the original quarterly report was not so listed: the Newport News intraport movement of September 29, 1995 was not on the original lists submitted with the CF 349. KPG does not agree that this is a discrepancy, stating that it cannot find the amount in their “return folders.” Also, the movement of August 20, 1995, from St. James, LA, to Yorktown, VA, for which an exemption was claimed based on an asserted payment of the inland waterways tax rather than the HMT was conceded by KPG to have been in error. The total value of these two movements is $1,049,282.44. The two previously unreported movements that were reported in the refund request have a total value of $1,787,106.64. There were discrepancies in the identification of some of the ports and vessels involved. On the refund list number 28 (an August 25 movement) identified the vessel as MGM 2002, but the corresponding listing identified the vessel as MGM 2001. Number 34 (a September 3 movement) on the refund list listed the destination port as Texas City, but the corresponding listing identified the port as Baytown.

2nd quarter 1997 supplemental payment

An undated unsigned CF 349 was filed by “Koch Refining Co. LP”, with no IRS no. The HMT paid was $499,092.81 on a stated net value of $399,274,247.36 of domestic movements ($82,484,633.36) and FTZ admissions ($316,789,614). Upon request by Customs the protestant submitted five pages of summaries of exempt and non-exempt movements and FTZ admissions for April, May and June, 1997. The documents are all for “Koch Refining”. The total value of the non-exempt movements and FTZ admissions, from the documents is $399,274,247.36. From the documentation, the total value of the domestic movements, exempt and non-exempt is $113,830,981.14, which amount is not the same as the $208,153,980.24 total value of domestic movements stated on the CF 349. The total value of the exemptions substantiated in the documents is $31,346,347.78, as opposed to the $125,669,346.88 amount stated on the CF 349.

An unsigned and undated CF 350 was submitted by “Koch Petroleum Group, LP” (IRS no. 41-xxxx457), indicating a supplement payment due to omission of shipments in the prior report. The net value of taxable shipments is increased from $399,274,247.36, to $434,941,560.28, an increase of $35,667,312.92 in domestic taxable movements. The CF 350 is documented with an eight page list of domestic movements by “Koch Refining Company, LP”, including exempt and non-exempt movements. The total value of the non-exempt taxable movements documented is $118,151,946.28. The total value of the exempt movements documented is $169,195,776.71. With respect to the non-exempt taxable movements, all were carried over from the original documentation, except for one June 22, 1997 movement from Corpus Christi, Texas to Wilmington, in the amount of $1,953,432.81. Koch asserts that this movement was reported twice on the original report, and therefore was a duplicate and should not have been carried over. However, the original report included a June 22, 1997 movement from Corpus Christi, Texas to Charleston, also in the amount of $1,953,432.81. One of the taxable movements added to the supplement list has a value of $0.00. Koch has not provided Customs with any value for this movement.

All of the CF 350’s requesting a refund of HMT, have been signed and dated. Many of the CF 350’s submitting a supplement payment are missing either a signature, date or both. Several of the CF 349's submitted are missing either a signature, date or both. In the case of CF 350’s for supplement payments submitted by KPG (IRS. No. 48-xxxx457) for movements listed for “Koch Supply and Trading”, no CF 349’s had even been submitted, and the CF 350’s indicate that no HMT had been paid previously.

ISSUES:

Whether the protestant is entitled to a refund of Harbor Maintenance Tax paid. Whether the set-off of the amount payable by Customs to the protestant against a debt asserted to be owed by the protestant was appropriate under 19 CFR 24.72.

LAW AND ANALYSIS:

Initially, we note that the protest was timely filed under the statutory and regulatory provisions for protests (see 19 U.S.C. §1514 and 19 C.F.R. Part 174). The denial of a request for refund of HMT is a protestable decision under 19 U.S.C. §1514(a)(3). See Swisher International, Inc. v. United States, 205 F.3d 1358, 1366-1369 (Fed. Cir. 2000).

The statutory authority for the HMT is found in the Water Resources Development Act of 1986 (Pub. L. 99-662; 100 Stat. 4082, 4266; 26 U.S.C. §4461 et seq.) Under this statute, a fee is imposed for the use of a port, defined as any channel or harbor or component thereof in the United States which is not an inland waterway, is open to public navigation, and at which Federal funds have been used since 1977 for construction, maintenance, or operation. The relevant statute, 26 USC §4462(g)(2) exempts intra-port movements from imposition of the tax imposed under 26 USC §4461. Paragraph (c) of section 4462 requires no tax shall be imposed under section 4461 if the vessel carrying the cargo was liable for the fuel tax imposed under 26 USC §4042 covering transportation on inland waterways. The refund is asserted under both of those provisions.

The Customs Regulations implementing these statutory provisions are found at 19 C.F.R. Part 24. Specifically, 19 C.F.R. 24.24(e)(1)(ii), provides that the fees shall be paid on a quarterly basis. Quarterly periods end on the last day of March, June, September and December. 19 C.F.R. 24.24(f). Subparagraph (e)(4)(iii), sets forth the procedure to be followed with regard to refunds and supplemental payments of the HMF. It provides that where a refund is requested or a supplemental payment is made, a Harbor Maintenance Fee Amended Quarterly Summary Report, Customs Form 350, should be mailed to the U.S. Customs Service, . . . along with a copy of the Harbor Maintenance Fee Quarterly Summary Report, Customs Form 349, for the quarter(s) in which the refund is requested or a supplemental payment is made, and the request must specify the grounds for the refund.

Nothing in the regulations specifies that the CF 349’s and CF 350’s must be signed and dated. However, the CF 349 and CF 350 signature line is in the “certification” block beneath the certification that “I hereby certify under penalties provided by law that the above information regarding the Harbor Maintenance Fee is complete and accurate to the best of my knowledge.” The failure to certify as to the completeness and accuracy of the forms clearly shows a lack of reasonable care. The regulations do require under 19 CFR 24.24(e)(1)(ii), and (f), that accumulated HMT be paid quarterly, and no later than 31 days after the close of the quarter being paid, by the shipper whose name appears on the Vessel Operation Report. In those instances where no CF 349 was submitted and no HMT was paid within the required 31 days, the shipper, apparently “Koch Supply and Trading” clearly failed to adhere to the requirements set forth in the regulations and exhibited a lack of reasonable care. Finally, on some reports, the amount of HMT stated to have been paid or due on the CF 349 was not the same amount actually paid or owed, and in the documentation substantiating the exemptions, not all of them were included. We recommend that these actions, omissions and discrepancies be brought to the attention of the appropriate Fines, Penalties and Forfeitures office.

As to the NFC’s calculations regarding the refund requests and supplemental payments, we agree with their conclusions as to each CF 350 submission on the basis of the three representative CF 350 submissions described in the FACTS portion above, and analyzed below, to the extent that the protestant can establish that it is entitled to a refund of HMT paid by another entity, and to the extent that discrepancies such as those pointed out in the FACTS and discussed below, can be clarified to Customs satisfaction.

The only information provided to us regarding the different corporate entities on whose behalf the payments were made and refunds requested, was in the April 28, 2000 letter, that the original companies have now become divisions of the protestant, KPG. Before the protestant is entitled to any refund of HMT, the protestant must provide documentation that it is a successor to the entity that paid the HMT, and has the rights to monies overpaid by the original entities. All of the CF 350 refund requests which are a subject of this protest are filed by the protestant with the IRS no. 48-xxxx457, or 41-xxxx457. However according to the CF 349’s, the HMT was paid by a different entity, having a different IRS no. and name, in each instance.

In addition, the protestant has the IRS no. 41-xxxx45700. In some instances it is protesting the denial of refunds claimed by KPG with IRS no. 48-xxxx457. Without an explanation of the different IRS numbers, and the successor relationship between them, the protestant does not have standing to protest the denial of a refund request made by KPG with IRS no. 48-xxxx457.

1st quarter 1995 refund request

The total value of movements listed in the CF 349 plus the two movements not previously reported is $66,761,068.18. From this total value we must subtract the value of the movements which are exempt from HMT but for which HMT was paid. The value of the movements listed as exempt, and for which Customs agrees no HMT was owed, is $40,974,704.12. The total value, thus on which HMT was actually owed was $25,786,364.06 ($66,761,068 - $40,974,704.12). The total amount of HMT that should have been paid was $32,232.96 ($25,786,364.06 x .00125). The difference in HMT actually paid and what should have been paid is $48,153.18 ($80,386.14 - $32,232.96). This is the amount upon which NFC and KPG have also agreed, and is the correct amount of overpayment to Customs, to the extent that the protestant can show that it is a proper claimant of the Koch Fuels, Inc payment.

3rd quarter 1995 refund request

The protestant does not dispute that the reported amount of $51,279,064.00 on the original CF 349 was erroneous. The listings show a value of the movements for that quarter to total $73,748,385.46. In addition, the refund request acknowledged that two cargo movements of $1,787,106.64 were not reported. Consequently, that amount must be added to the $73,748,385.46. The protestant asserts that movements of cargo totaling $39,436,555.48 were liable for the inland waterways fuel tax or were intra-port movements and therfore, exempt from the HMT. However, a comparison of the list of movements that was submitted to Customs with respect to the original CF 349 shows that the Newport News movement of September 29, 1995, had not been reported to Customs and could not be the basis for any portion of the original tax paid. The cargo in that movement had a reported value of $37,156.95. In addition, the assertion that the movement from St. James, LA, to Yorktown, VA, was by an inland waterway appears to be erroneous. The value of the cargo reported there was $1,012,125.49. Consequently, the value of those two shipments must be deducted from the asserted refund. The addition of $73,748,345.46 and $1,787,106.64 equals $75,535,492.10. The reduction of the asserted refund of $39,436,555.48 by the amounts $37,156.96 and $1,012,125.49 equals $38,387,273.03.

Consequently, deducting $ 38,387,273.03 from $75,535,492.10 equals $37,148,219.07. The original payment was $64,098.83. The tax should have been paid on $ 37,148,219.07 X .00125 and based on that amount, should have been $46,435.28. There was an overpayment of $17,663.55 to the extent that the protestant can show that it is a proper claimant of the Koch Fuels, Inc payment, and to the extent that KPG can explain the discrepancies in the identification of the ports and vessels in the refund listing and the original movement list. Customs needs to be satisfied that the movement for which a refund is claimed is the same movement for which HMT was paid.

2nd quarter 1997 supplemental payment

In addition to the supplement payment which the protestant has asserted it owes, it owes a supplement payment for the movement of June 22, 1997, which the protestant asserts to be a duplicate of another movement, and removed from the list of taxable movements. As the two June 22, 1997 movements are listed as having two different destinations, we do not see how they can be duplicates. In any event, the protestant has not established that the movement missing from the CF 350 is a duplicate. As neither the CF 349 nor the CF 350 were certified as to their accuracy, the protestant has little basis upon which to makes assertions as to the correct amounts at this time. Therefore the supplemental payment should be increased by $2,441.79 ($1,953,432.81 x .00125) for this movement not carried over. The total amount receivable by Customs for this quarter is $2,441.79, plus any HMT due for the movement with a $0.00 value, unless the protestant can explain the lack of a value for the movement.

With respect to all of the quarters at issue, based on the foregoing representative calculations made by the NFC, and assuming the discrepancies pointed out above can be clarified, we agree with the NFC’s calculation that the total amount of excess HMT that has been collected by Customs is $322,340.46, and that the protestant owes Customs an additional $11,541.32 in supplemental payments. Therefore assuming the protestant establishes its right as a successor to the $322,340.46, the protestant owes a balance of $68,620.34 to Customs for the difference between the refund amount initially requested and the amount the protestant offset from the supplemental payments made on April 28, 2000. To this amount we must add the $11,541.32 owed in additional supplemental payments, which is a total of $80,161.66 owed to Customs by the protestant. Customs is holding the amount of $117,004.29, previously approved as a refund for the 3rd quarter of 1999, and which amount was set off against the amount owed to Customs by the protestant.

Customs Regulation 24.72 provides for set-off:

When an importer of record or other party has a judgment or other claim allowed by legal authority against the United States, and he is indebted to the United States, either as principal or surety, for an amount which is legally fixed and undisputed, the port director shall set off so much of the judgment or other claim as will equal the amount of the debt due the Government.

The basis for Customs diversion of the refund amount that was allowed, is 19 CFR 24.72. In this case, the timeliness of the refund requests was a subject of dispute, and subsequent to the announcement of the diversion by the letter of June 22, 2000, the NFC and the protestant were actively working together to determine the actual overpayments of HMT, and the amounts of HMT still owed. Therefore, the $390,960.80 was not a legally fixed and undisputed amount. It was disputed by Customs, as is evidenced by the NFC’s analysis of the refund claims. Therefore under 19 CFR 24.72 Customs did not have the right to apply the refund payment owed to the protestant to the amount asserted to be owed by the protestant. Until this protest decision becomes final, the amount owed by the protestant will not be legally fixed and undisputed. The $117,004.29 should be released to the protestant.

In the event the protestant is unable to satisfy Customs that it is entitled to a refund of HMT paid by other entities, or a refund claimed by other entities, the protestant owes Customs the amount the protestant offset from the supplemental payments made on April 28, 2000 ($390,960,80) and the additional supplemental payments owed ($11,541.32), for a total of $402,502.12.

HOLDING:

The protestant is entitled to a refund of Harbor Maintenance Tax paid, provided that it can document that it has a right to refunds of the Harbor Maintenance Tax paid by a different corporate entity, and refunds claimed by a different corporate entity, and the discrepancies in the reports are clarified. The set-off of the amount payable by Customs to the protestant against a debt asserted to be owed by the protestant was not appropriate under 19 CFR 24.72, because the debt is not legally fixed and undisputed.

The protest should be DENIED in part and GRANTED in part, in accordance with the above instructions. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the Protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision.

Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Myles B. Harmon
Acting Director

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