HQ 230746 - Internal advice; 19 U.S.C. § 1555; Class 9 bonded warehouse; Brady’s Duty Free application; other than duty-free; gasoline and diesel fuel; Ammex Inc. v. United States, 341 F. Supp. 2d 1308 (Ct. Int’l Trade 2004) - United States International Trade Commision Rulings

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HQ 230746

June 3, 2005

WAR-5
RR:CR:DR 230746 EMS

U.S. Customs and Border Protection
Director, Field Operations, Laredo
Jaurez/Lincoln Bridge #2
P.O. Box 3130
Laredo, TX 78044
ATTN: Gurdit S. Dhillon

RE: Internal advice; 19 U.S.C. § 1555; Class 9 bonded warehouse; Brady’s Duty Free application; other than duty-free; gasoline and diesel fuel; Ammex Inc. v. United States, 341 F. Supp. 2d 1308 (Ct. Int’l Trade 2004)

Dear Mr. Dhillon:

This letter is in reply to your correspondence dated October 7, 2004, concerning an application for a duty-free store submitted by Northwest Ventures, Inc. for the operation of Brady’s Duty Free in Brownsville, Texas (Brady’s). You are seeking internal advice concerning its application for the sale of gasoline and diesel fuel from the anticipated Class 9 warehouse.

Per the advice of Associate Chief Counsel in Houston, you have requested our position on the aforementioned sales given that an appeal of Ammex, Inc. v. United States, 341 F. Supp. 2d 1308 (Ct. Int’l Trade 2004), is pending in the United States Court of Appeals for the Federal Circuit. Our decision follows.

FACTS:

On July 26, 2004, Brady’s submitted an application to operate a Class 9 warehouse (duty-free store) on the southern border of the United States, at 3320 S. Expressway 77, Brownsville, Texas, 78520. The proposed facility is located south of the CBP inspection station, and it consists of a 12,012 square feet building, which is divided into four separate areas: a convenience store; a duty-free store; a convenience store warehouse; and a duty-free warehouse. In addition, two fueling stations are located adjacent to the building.

Retail customers, who are travelers exiting the United States southbound to Mexico, have access to the convenience store, the duty-free store, and the fueling stations. The convenience store will sell milk, bread, soda water, and other taxable merchandise. The duty-free store will sell in-Customs bond merchandise, primarily liquor and tobacco products. One fueling station will be for the sale of gasoline, and the other will be for the sale of diesel fuel. Brady’s states that the purchase price for retail customers purchasing gasoline and diesel fuel will be the fully taxed price of the merchandise, which includes both federal and state taxes. Brady’s intends to pass these costs along to its retail customers.

With respect to the fueling stations, Brady’s anticipates that it will purchase domestic gasoline and diesel fuel from domestic sources in tank truck lots. The common carrier delivery trucks (tank trucks) will deliver gasoline and diesel fuel to Brady’s. The entry points for Brady’s facilities are surrounded by a double-gated, fenced enclosure. The tank trucks will enter the double-gated, fenced area and then pump the domestic tax-paid gasoline and diesel fuel into underground tanks through buried lines.

In addition, Brady’s states that prior to delivery, the tank trucks will stop by the CBP export lot for verification of the volume of merchandise and that, after delivery, the trucks will stop at the CBP lot for verification that the merchandise has been delivered to Brady’s. Brady’s application also states that it anticipates drawback on the basis of “fuels [which] will have been exported from the U.S. territory in truckloads lots of approximately 9,000 gallons of gasoline or 8,5000 gallons of diesel accompanied by Shipper’s Export Declaration (Form 7525-V).”

ISSUE:

Whether the proprietors of a Class 9 warehouse may sell domestic, duty-paid gasoline and diesel fuel to retail customers traveling southbound in compliance with 19 U.S.C. § 1555?

LAW AND ANALYSIS:

Under 19 U.S.C. § 1555(b), duty-free sales enterprises may sell and deliver duty-free merchandise for export from the customs territory of the United States. Duty-free sales enterprises include “border stores,” which deliver merchandise to, or on behalf of, individuals departing from the customs territory through a land or water border by a means of conveyance other than an aircraft. § 1555(b)(8)(B). Additionally, duty-free merchandise means “merchandise sold by a duty-free sales enterprise on which neither Federal duty nor Federal tax has been assessed pending exportation from the customs territory.” 19 U.S.C. § 1555(b)(8)(e).

In Ammex, Inc. v. United States, the Court of International Trade (CIT) addressed the issue of whether a duty-free store is prohibited from selling gasoline and diesel fuel from tanks located on its facility to individual vehicles, as CBP ruled in HQ 227385 dated February 12, 1998. 24 Ct. Int’l Trade 851, 116 F. Supp. 2d 851 (2000) (“Ammex I”). The CIT held that, despite certain provisions of 19 U.S.C. § 1555(b), gasoline and diesel fuel are not prohibited from sale in duty-free stores, based on 19 U.S.C. § 1557(a)(1), which only prohibits entry into bonded warehouses (including duty-free stores) of explosives and perishables, and thus the CIT set aside HQ 227385. Ammex I, 24 Ct. Int’l Trade 851, 116 F. Supp. 2d at 1275-76.

On November 9, 2001, CBP issued HQ 229215, which revoked a previous grant of permission to the plaintiff in Ammex I for the expansion of its duty-free store to include the sale of duty-free gasoline and diesel fuel purchased wholesale from Canada. CBP reasoned that the gasoline and diesel fuel were not “duty-free,” because taxes were “assessed” upon this merchandise within the meaning of 19 U.S.C. § 1555(b)(8)(e).

The CIT subsequently set aside CBP’s revocation letter and, applying an IRS definition of the term "assessed," determined that the administrative record was insufficient to show whether taxes had been “assessed” on the gasoline and diesel fuel that the plaintiff purchased wholesale from Canada. Ammex, Inc. v. United States, 341 F. Supp. 2d 1308 (Ct. Int’l Trade 2004)("Ammex II”).

Regardless of the outcome of CBP’s pending appeal on the merits of Ammex II, the instant case is distinguishable. Here, Brady’s states that the gasoline and diesel fuel are tax-paid, domestic fuels, which Brady’s will purchase and then sell to retail customers exiting the United States. Clearly, this is not “duty-free” merchandise per 19 U.S.C. § 1555(b)(8)(e), and the issues raised in Ammex II do not materially affect the decision in the instant case.

Under 19 U.S.C. § 1555(b)(5), a duty-free shop may sell merchandise that is “other than duty-free,” so long as the other than duty-free merchandise will "not be stored in a bonded warehouse facility other than a bonded facility used for retail sales.” The CBP regulations implement this statutory provisions in 19 C.F.R. § 19.36(e):

Only conditionally duty-free merchandise may be placed in a bonded storage area of a Class 9 warehouse. However, domestic merchandise and merchandise which was previously entered or withdrawn for consumption, may be brought into the bonded sales or crib area of a Class 9 warehouse for display and sale, and in the case of a crib, for delivery to purchasers. However, such merchandise must be either identified or marked “DUTY-PAID” or “U.S. ORIGIN”, or similar markings, as applicable, so that Customs officers can easily distinguish conditionally duty-free merchandise from other merchandise in the sales or crib area.

In this case, Brady’s will be a bonded warehouse facility used for retail sales, with the gasoline and diesel fuel pumps being located adjacent to the building that houses the duty-free store and convenience store. The gasoline and diesel fuel are stored in underground tanks that are within the double-gated enclosure that surrounds the proposed bonded facility. However, Brady’s application for permission to operate a Class 9 warehouse makes no mention of the marking requirement set forth in 19 C.F.R. § 19.36(e).

With respect to potential drawback claims for the gasoline and diesel fuel, Brady’s application anticipates claiming drawback on the tank truck lots of this merchandise delivered to its facilities. Brady’s does not specify whether it intends to claim drawback under either the Internal Revenue Code or CBP drawback laws. If the latter, there is insufficient information presented to determine whether 19 U.S.C. § 1313 applies in this case. However, there appears to be an assumption on the part of Brady’s that delivery to a retail facility, per 19 U.S.C. § 1555(b), is an exportation. That movement is not an exportation under 19 C.F.R. §§ 101.1 or 191.2(m).

Drawback claims are not within the scope of the issue presented in this internal advice, but we nonetheless note that Brady’s is a facility located in the United States. Mere delivery of merchandise to such a facility would not constitute an exportation as defined in the CBP regulations, that being a severance from the things of this country and a joining with the things of some foreign country. 19 C.F.R. § 101.1; HQ 220745 (C.S.D. 91-17) dated March 26, 1991, aff’g C.S.D. 80-129. Cf. Chrysler Motors Corp. v. United States, 14 Ct. Int’l Trade 807, 755 F. Supp. 388 (1990), aff’d by 945 F.2d 1187 (Fed. Cir. 1991)(holding that merchandise transferred to a foreign trade zone is not “exported” under CBP regulations).

Accordingly, the delivery of domestic, tax-paid merchandise to a retail facility of a duty-free store in Brownsville, Texas would not be a severance from the United States. Given the information provided by Brady’s, we call to your attention that the tank truck lots of gasoline and diesel fuel delivered to this retail sale facility which will be located in Brownsville, Texas, are not exported under any provision of the law, and that movement would not create drawback eligibility.

HOLDING:

Brady’s duty-free shop may sell the domestic tax-paid gasoline and diesel fuel to individual vehicles exiting the United States because the underground storage tanks and gas pumps are part of a bonded facility used for retail sales, in compliance with 19 U.S.C. § 1555(b)(5). We presume that your office will oversee compliance with the marking requirement set forth in 19 C.F.R. § 19.36(e). Please note that this internal advice does not authorize the drawback claims for gasoline and diesel fuel, for which Brady’s alleges eligibility in its application to operate a Class 9 warehouse.

You are to mail this decision to the internal advice applicant no later than 60 days from the date of this letter. On that date, the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home page on the World Wide Web at "www.cbp.gov" by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Myles B. Harmon, Director
Commercial Rulings Division

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