Request for binding ruling on billing procedures by broker; 19 CFR 111.36

HQ 224406 August 5, 1993 BRO-3-05-CO:R:C:E 224406 CB CATEGORY: Entry Mr. H. J. Henderson Cortez Customhouse Brokerage 4950 West Dickman Road Battle Creek, MI 49015 RE: Request for binding ruling on billing procedures by broker; 19 CFR 111.36 Dear Mr. Henderson: This is in response to your letter of January 12, 1993, wherein you requested a ruling regarding several hypothetical fact scenarios and questions regarding the arrangement and billing of transportation. FACTS: Cortez Customhouse Brokerage Company (Cortez) is a licensed Customs broker. Additionally, Cortez was recently licensed by the Federal Maritime Commission as an Ocean Freight Forwarder and a Nonvessel Operating Common Carrier. Cortez was also recently licensed by the Interstate Commerce Commission as a Property Broker of General Commodities. You set out four fact situations and ask whether the proposed methodology is in compliance with our regulations. In Fact Scenario #1 and #2 Cortez retains a freight forwarder on behalf of a customer. You ask whether you may bill the client more than the freight forwarder charges you and simply invoice the charge as "transportation". In Fact Scenario #3 you ask whether you can charge more than the steamship company charges you and invoice it as "transportation". Finally in Fact Scenario #4 you ask whether you can hire a trucking company and charge your customer more than the quote you receive and invoice the difference as "transportation". In all four situations you ask whether you are required to file rates and/or tariffs with the Customs Service. ISSUE: Whether the described procedures are permissible under the Customs Regulations? LAW AND ANALYSIS: First of all, the Customs Service does not require that a broker's rates and/or tariffs be filed with the agency. Regarding Fact Scenario #1, #2, and #3, a Customs broker is required to impart any information relative to any Customs business to a client who is entitled to the information. See 19 CFR 111.39(a). Additionally, a broker is required to notify the importer in advance of the name of the selected freight forwarder and to transmit directly to the importer "[a] statement of his brokerage charges and an itemized list of any charges to be collected for the account of the freight forwarder if the fees and charges are to be collected by or through the broker; ...." See 19 CFR 111.36(b) If Cortez wants to impose a surcharge on the cost of transportation it may do so, provided that there is full disclosure to the importer. Section 111.29(a) requires a broker to exercise diligence in making financial settlements. The last two sentences of this section indicate that if the broker receives money from the client to pay a charge but does not pay it, the broker must provide a written accounting to the client. Enclosed for your information is a copy of T.D. 78-308 which sets forth Customs change of policy relating to brokers' charges for incidental services. Under this policy change, "Customs will inquire only into the reasonableness of the charges and then only in cases in which the charges are not itemized on the broker's statement to the client or are not itemized in writing to the client before the charges are incurred." Finally, regarding Fact Scenario #4, you are asking for a ruling regarding the transportation of merchandise once "[a]n international shipment belonging to our customer terminates transportation at Chicago." We are assuming that by "terminates transportation at Chicago" you meant that entry was made in Chicago. Customs regulation of brokers pertains only to the transacting of customs business. Section 641 of the Tariff and Trade Act of 1930 (19 U.S.C. 1641), as amended by section 212 of the Tariff and Trade Act of 1984, Public Law 98-573, provides the following definition of the term "customs business": The term "customs business" means those activities involving transactions with the Customs Service concerning the entry and admissibility of merchandise, its classification and valuation, the payment of duties, taxes, or other charges assessed or collected by the Customs Service upon the merchandise by reason of its importation, or the refund, rebate or drawback thereof. (emphasis provided) The inland transportation arrangements the importer wishes to make after the merchandise has been entered are not within the purview of the Customs Service. HOLDING: A broker may impose a surcharge on the amount that was charged by a freight forwarder provided there is full disclosure on the invoice to the importer. Sincerely, John Durant, Director Commercial Rulings Division