Internet; Importation; General Note 16(b), HTSUS; Softwaremodules and products; 19 CFR 141.4(b)(1)

HQ 114459 September 17, 1998 ENT-1-RR:IT:EC 114459 GOB CATEGORY: Entry Kamen Lozev General Manager Intellectronix LLC 5001 Baum Blvd. Suite 793 Pittsburgh, PA 15224 RE: Internet; Importation; General Note 16(b), HTSUS; Software modules and products; 19 CFR 141.4(b)(1) Dear Mr. Lozev: This ruling is in response to your letter of August 12, 1998. FACTS: You ask whether software modules and products which are brought into the United States via the Internet are subject to duty. You describe the pertinent facts as follows: We plan to outsource some of our development to software companies in Eastern Europe and/or India. We plan to purchase from them software modules (source code and/or binary code) which we will incorporate into our products or will sell without any modification to individual users and organizations. Both the importing and the selling will be done over the Internet. In a telephone conversation you confirmed that the product will be imported via the Internet (i.e., this is not a situation where the sale will be made over the Internet and the product will be shipped separately). You ask: "Is the import of software modules and products as described above subject to any customs duties/fees?" ISSUE: Whether software modules and products which are brought into the United States by the Internet are subject to entry and the payment of duty. LAW AND ANALYSIS: Importation Issue 19 U.S.C. 1401(c) provides: (c) Merchandise The word "merchandise" means goods, wares, and chattels of every description, and includes merchandise the importation of which is prohibited, and monetary instruments as defined in section 5312 of Title 31. Black's Law Dictionary (6th ed., 1990) defines merchandise as "[a]ll goods which merchants usually buy and sell, whether at wholesale or retail; wares and commodities such as are ordinarily the objects of trade and commerce." Black's Law Dictionary, supra, defines "goods, wares, and merchandise" as "[a] general and comprehensive designation of such chattels and goods as are ordinarily the subject of traffic and sale." Your letter indicates that the software modules and products will be purchased by Intellectronix and sold by Intellectronix. It appears clear from the facts that the subject software modules and products will be the objects of trade and commerce in the ordinary course of their use. Accordingly, we find that the subject software modules and products are "merchandise" and "goods" within the meaning of the above definitions. In Loblaw Grocetarias, Inc. v. United States, 22 C.C.P.A. 479 (1935), the court stated: It must be held that within the ordinary meaning of the word "import," this merchandise was imported from Canada. "Importation * * * consists in bringing an article into a country from the outside." Cunard S.S. v. Mellon, 262 U.S. 100. 122. See, also, The Conqueror, 49 Fed. 99, 102; United States v. Estate of Boshell, 14 Ct. Cust. Appls. 273, T.D. 41884. Its meaning is the opposite of "export." Kidd v. Flagler, 54 Fed. 367, 369. We further find that the transmission of software modules and products to the United States from a foreign country via the Internet is an importation of merchandise into the customs territory of the United States in that the software modules and products are brought into the United States from a foreign country. The fact that the importation of the merchandise via the Internet is not effected by a more "traditional vehicle" (e.g., transported on a vessel) does not influence our determination. The essential facts are that merchandise in a foreign country is brought into the United States. Requirement of Entry and Duty General Note 1, Harmonized Tariff Schedule of the United States ("HTSUS") provides that "[a]ll goods provided for in this schedule and imported into the customs territory of the United States from outside thereof ... are subject to duty or exempt therefrom as prescribed in general notes 3 through 14, inclusive, and general note 16." General Note 16, HTSUS, provides in pertinent part: Exemptions. For the purposes of general note 1- ... (b) telecommunications transmissions, ... are not goods subject to the provisions of the tariff schedule. In Ruling 960179 dated April 17, 1997, Customs stated: With regard to software entered via electronic transmissions, General Note 16(b), HTSUS, exempts telecommunications transmissions from the general rule that all goods provided for in the HTSUS are subject to duty. Therefore, no duty is owed if software is entered via electronic transmissions. 19 CFR 141.4 provides in pertinent part:  141.4 Entry required. (a) General. All merchandise imported into the United States is required to be entered, unless specifically excepted. (b) Exceptions. The following are the exceptions to the general rule: (1) The exemptions listed in General Note 16 to the Harmonized Tariff Schedule of the United States (HTSUS). Pursuant to the authorities detailed above, the software modules and products which are imported into the United States by the Internet are not subject to duty, nor are they required to be entered. HOLDING: The software modules and products, which are imported into the United States via the Internet, are not subject to duty, nor are they required to be entered. Sincerely, Jerry Laderberg Chief, Entry Procedures and Carriers Branch