Internal Advice; Carnival Cruise Lines; Duty and Tax Liability for Alcohol Consumed Aboard Cruise Ships; Bonded Warehouse Withdrawal; 19 U.S.C. §§ 1309 and 1317; 19 CFR § 10.59.

U.S. Department of Homeland Security Washington, DC 20229 U.S. Customs and Border Protection HQ H260759 March 30, 2020 BOR-07-OT:RR:BSTC:CCR H260759 AMW Gregory J. McCann, Assistant Director Trade Operations Miami Field Office 909 S.E. 1st Avenue, Suite 980 Miami, Florida 33131 RE: Internal Advice; Carnival Cruise Lines; Duty and Tax Liability for Alcohol Consumed Aboard Cruise Ships; Bonded Warehouse Withdrawal; 19 U.S.C. §§ 1309 and 1317; 19 CFR § 10.59. Dear Mr. McMann: This is in response to your memorandum, dated December 31, 2014, which forwards a request for internal advice filed pursuant to 19 CFR § 177.11(b) by the Carnival Corporation (“Carnival”) and its affiliate brands. Carnival asserts that U.S. Customs and Border Protection (“CBP”) inconsistently assesses and collects duty and internal revenue tax (“IRT”) on alcoholic beverages that are withdrawn from bonded warehouses or foreign trade zones, laden on cruise ships as vessel supplies, and then consumed on their cruise vessels contrary to 19 U.S.C. § 1309. Our decision follows. FACTS Carnival’s foreign-flagged cruise vessels embark passengers and crew in multiple ports in the United States for international cruise itineraries. At these ports of entry, Carnival lades alcohol aboard their vessels which are withdrawn from bonded warehouses or foreign trade zones and manifested as vessel supplies. The purpose of lading the alcohol is for use as poured beverages, free or for purchase, for the passengers and crew during international cruises. In certain U.S. ports, CBP has required Carnival to calculate the amount of alcoholic beverages consumed while the vessels are in port and when they are within U.S. territorial waters to determine IRT and custom duties owed. These same ports do not consider alcohol “vessel supplies” and therefore, have not allowed Carnival to claim duty and tax exemptions under 19 U.S.C. § 1309. ISSUE Whether alcohol served on the subject vessels while at port in the United States or within U.S. territorial waters is subject to the duty and tax exemptions under 19 U.S.C. § 1309. LAW AND ANALYSIS The principal statute applicable in this matter is 19 U.S.C. § 1309, which states in pertinent part: Supplies for certain vessels and aircraft (a) … Articles of foreign or domestic origin may be withdrawn, under such regulations as the Secretary of the Treasury may prescribe, from any customs bonded warehouse, … or from a foreign-trade zone, free of duty and internal revenue tax, ... - ... (2) for supplies … of … (B) foreign vessels… actually engaged in foreign trade or trade between the United States and any of its possessions, or between Hawaii and any other part of the United States or between Alaska and any other part of the United States, where such trade by foreign vessels is permitted…. (Emphasis added). There are three requirements to qualify for duty- and tax-free treatment under 19 U.S.C. § 1309: 1) withdrawal of supplies 2) of a foreign vessel that is 3) actually engaged in foreign trade. In addition, 19 U.S.C. § 1317(b) states, in pertinent part with regard to supplies for certain vessels or aircraft: (b) … The shipment or delivery of any merchandise for use as supplies … upon … any vessel or aircraft described in subdivision (2) or (3) of section 309(a) of this act [19 U.S.C. § 1309(a)] … shall be deemed an exportation within the meaning of the customs and internal-revenue laws applicable to the exportation of such merchandise without the payment of duty or internal-revenue tax … (Emphasis added). The principal CBP regulation applicable to this matter is 19 CFR § 10.59, which states, in pertinent part: Exemption from customs duties and internal-revenue tax (a) A vessel shall not be considered to be actually engaged in the foreign trade … unless it is— … (2) Actually transporting passengers or merchandise to or from a foreign port, a port on the opposite coast of the United States, or between a port in a possession of the United States and a port in the United States or in another of its possessions, or between Hawaii and any other part of the United States or between Alaska and any other part of the United States. The information provided by Carnival indicates that the vessels involved are foreign-flag cruise ships that depart from U.S. ports and engage in voyages to one or more foreign destinations. Given these facts, and based upon the legal authorities outlined above, the vessels therefore satisfy two of the necessary elements within Section 1309 in that they are (1) foreign vessels which are (2) actually engaged in foreign trade. Any changes to these facts that remove the vessels from the scope of Section 1309 could provide CBP a basis to deny the duty- and tax-free treatment that otherwise would be accorded for the alcohol served onboard. As discussed in greater detail below, such changes might include: the vessel itinerary changed and it did not travel to a qualifying location; the vessel never left port; the vessel discharged passengers at the port before the vessel departed on its voyage; or the vessel discharged some of the alcohol back into the United States. Because two of the elements in Section 1309 are generally satisfied (i.e., status as foreign vessels that are engaged in foreign trade), the determinative issue in this analysis is whether the alcohol laden onboard Carnival’s vessels qualifies as “supplies.” Carnival’s request indicates that the alcohol is laden for the purpose of use as poured beverages on the vessel, whether provided free or for purchase, for the passengers and crew. The alcohol is not being laden to be sold in its unopened, packaged form in stores aboard the ship, nor to be unladen as cargo at other places in the United States during the voyage. To be exempt from duty and excise tax under 19 U.S.C. § 1309 and § 1317, the alcoholic beverages must be vessel supplies. There is no statutory or regulatory definition of the term “vessel supplies” for the purpose of 19 U.S.C. § 1309 and § 1317. However, in Treasury Ruling T.D. 49815 (Mar. 13, 1939), the agency set forth its interpretation of the term, stating: The term “supplies” as used in section 309, Tariff Act of 1930, as amended, includes articles commonly known as “sea stores,” that is food, medicines, toiletries, and so forth, and in addition, all consumable articles necessary and appropriate for the propulsion, operation and maintenance of the vessel, such as coal, grease, gasoline, fuel oil, caulking cotton, putty, paint, waste, wiping rags, sandpaper, emery cloth, candles, polishes, cleansing compounds, and solvents. In T.D. 22433 (Aug. 9, 1909), furthermore, the agency held that sea stores (i.e., “vessel supplies”) include such articles as are intended for the health and sustenance of the crew or passengers, or for the consumption of persons on the ship such as the officers, crew, and passengers. Likewise, T.D. 35824 (Oct. 21, 1915) held that sea stores consist of provisions taken on board solely for use by the passengers and crew of a vessel and consumed by them. Because alcoholic beverages are consumable items, those beverages that are served to the vessel’s crew and passengers for consumption during the vessel’s voyage are, in the normal situation, considered to be vessel supplies. From the foregoing authorities, it is clear that alcohol laden onboard a vessel to be used in poured beverages for passengers and crew is most reasonably considered to be vessel supplies for purposes of 19 U.S.C. § 1309(a)(2). It is important to note, however, that if the vessel does not engage in foreign trade, then it does not meet the criteria to obtain duty and tax exemptions under 19 U.S.C. § 1309. This is why, for instance, “voyages to nowhere” cannot benefit from the duty- and tax-free provisions of Section 1309. Thus, if the vessel changes its itinerary and does not engage in foreign trade, it will not be able to obtain the duty- and tax-free treatment otherwise permitted for vessel supplies under 19 U.S.C. § 1309. Similarly, the vessel might never leave port, contrary to a planned voyage. Of course, if this situation were to arise, CBP would have to consider a means by which it would enforce the collection of appropriate duties and taxes. Lading of the supplies on board the vessel is deemed to be the event triggering exportation of those supplies, which is another principle underlying the duty- and tax-free treatment accorded to the supplies. A key factor here is that the subject vessels intend to depart the United States with all persons on board and the vessels are secured in such a way that passengers will not disembark (i.e., gangplanks have been withdrawn, vessel doors secured). If, however, there are persons who do not depart the territorial limits of the United States aboard the vessel as passengers on its voyage, any alcohol consumed by such persons takes on a status equivalent to alcohol consumed at a local bar or restaurant in the port. This would undermine the assumption of exportation of the supplies, and deprive the alcohol of its duty- and tax-free status. It is for this reason – similar to how the sale of duty-free merchandise is handled – that the U.S. government requires assurances that the supplies are actually going to leave the country. As with duty-free merchandise sales, which must be delivered to a customer in a way that assures it leaves the country, the cruise ships in this situation must insure that the vessel supplies do not become part of domestic commerce. For this reason, it is our understanding that the cruise vessels do not begin serving alcohol until all persons not traveling with the vessel have disembarked, the gangways have been removed, and the vessel is intending to leave the port. Finally, Section 1309 and CBP’s regulations specifically address the situation where the alcohol, if laden as a vessel supply, is unladen in the United States. In that situation, the merchandise will be treated as if it were imported from a foreign country, and it will be subject to duty and tax. See 19 U.S.C. § 1309(c) and 19 CFR § 10.63. HOLDING The withdrawal of alcohol for use as supplies can be done duty- and tax-free pursuant to 19 U.S.C. § 1309(a)(2)(b), if all the elements of the statute are met (i.e., the vessel is foreign, it is lading supplies, and is actually engaged in foreign trade). In our opinion, all of these elements are met in the circumstances described to us. This duty- and tax-free treatment applies even if the cruise line serves alcohol to its passengers within the port of entry or territorial sea, as long as the vessel has secured itself for departure to its foreign destination(s). Sincerely, Lisa L. Burley Chief/Supervisory Attorney-Advisor Cargo Security, Carriers and Restricted Merchandise Branch Office of International Trade, Regulations and Rulings U.S. Customs and Border Protection