Yacht dutiability; Charter; Non-resident; Foreign-flag vessel; Foreign owner

HQ 113485 June 27, 1995 VES-4-02-R:IT:C 113485 LLB CATEGORY: Carriers Theresa Bennett, Esq. 321 Royal Poinciana Plaza, South Post Office Box 431 Palm Beach, Florida 33480-0431 RE: Yacht dutiability; Charter; Non-resident; Foreign-flag vessel; Foreign owner Dear Ms. Bennett: Reference is made to your letter of June 14, 1995, in which you request that Customs rule as to the potential dutiability of a foreign-flag yacht which is to be chartered by your client. FACTS: The vessel CARMAC VII is owned by a Cayman Islands company and documented under the laws of Great Britain. On April 30, 1991, the vessel was bareboat chartered to a Nevada corporation which, on June 17, 1991, subchartered the vessel under a bareboat contract to a Minnesota corporation. Subsequently, the Nevada corporation's rights under the original bareboat contract were ultimately assigned to another United States corporation. The Minnesota corporation, current operator of the vessel under bareboat charter, intends to subcharter the vessel under a bareboat agreement to yet another Cayman Islands company in the near future. During the term of the charter, the vessel will cruise the waters of the United States while transporting guests. The vessel is presently advertised for charter in various publications and listing services, and the caveat will be placed in all such advertisements that the vessel is available only to parties who are not residents of the United States. All bareboat charters and assignments of rights have taken place outside of the United States, and the upcoming charter will also be accomplished outside of this country. ISSUE: The sole question presented for our consideration is whether a British-flag vessel may arrive in the United States under the circumstances described in the Facts portion of this ruling without any possibility that duty might be assessed upon the value of that vessel. LAW AND ANALYSIS: Generally, a yacht or pleasure vessel, regardless of length or tonnage, whether motor, sail or steam propelled, owned by a resident of the United States or brought into this country for sale or charter to a resident of the United States, is dutiable under the Harmonized Tariff Schedule of the United States (HTSUS). Such vessels are dutiable under Chapter 89 of the HTSUS, subheadings 8903.91.00 or 8903.92.00, at the rate of 1.5 percent ad valorem. The facts known to us reveal that both the titled owner and the intended charterer are foreign citizens. Of particular relevance, however, is whether a charterer is a resident of the United States since the restriction goes to resident status rather than citizenship. When a foreign charterer is a non-resident, the transaction does not invoke an obligation to pay duty. The other element of the restrictive language at issue concerns whether a vessel has been brought into the United States for sale or charter to a resident of this country. The question is raised as to whether advertising the vessel for charter would trigger liability for duty, and whether such a consequence might be avoided by restricting such an offer to non-citizens. Customs has had occasion to consider the issue of advertising and restricting an offer by the inclusion of limiting language within an advertisement (Customs letter 109336 LLB, February 4, 1988). It is our position that generally offering a vessel for sale or charter by advertising it does render the vessel subject to duty. We find in this case that by restricting the offer to non-residents of the United States (not just citizens of foreign countries), duty consequences are avoided. HOLDING: Following a thorough consideration of the facts as well as an analysis of the applicable law and precedent decisions, we have determined that the vessel CARMAC VII may arrive in and be operated in the United States under the circumstances described in the Facts portion of this ruling without ad valorem duty consequences under the Harmonized Tariff Schedule of the United States. Sincerely, Arthur P. Schifflin Chief Carrier Rulings Branch