Yachts; fire; wrecked vessel; American Customs Brokerage Co., Inc. A/C Astral Corp v. United States, 72 Cust.Ct. 245, 253, C.D. 4546, 375 F. Supp. 1360, 1365-66 (1974); Chapter 89, U.S. Note 1, HTSUS; 19 C.F.R. §§ 4.40 and 4.94.

HQ H096537 May 11, 2010 VES-12-02-OT: RR: BSTC:CCI H096537 LLB Category: Carriers William N. Myhre, Esquire K & L Gates 1601 K Street, N.W. Washington, D.C. 20006-1600 Re: Yachts; fire; wrecked vessel; American Customs Brokerage Co., Inc. A/C Astral Corp v. United States, 72 Cust.Ct. 245, 253, C.D. 4546, 375 F. Supp. 1360, 1365-66 (1974); Chapter 89, U.S. Note 1, HTSUS; 19 C.F.R. §§ 4.40 and 4.94. Dear Mr. Myhre: This letter is in reference to your March 4, 2010, letter, in which you request a ruling on behalf of your client, Devotion Holding LLC (Devotion). As described in further detail below, your client has purchased and refurbished the wreckage of the vessel formerly known as the M/Y MARJORIE MORNINGSTAR and would like to know the dutiable status of the vessel. Our decision follows. FACTS The subject vessel, the Bermudan-owned M/Y MARJORIE MORNINGSTAR, arrived in San Diego, California on December 8, 2006 and was issued a cruising license by Customs and Border Protection (CBP). According to the statement of the former master of the vessel, the vessel’s itinerary included cruising to a shipyard in Seattle, Washington for repairs, proceeding to Canada and Alaska in June 2007, to the Caribbean for the winter of 2007-08, and then to Norway for the summer of 2008. However, according to the United States Coast Guard Board of Appraisers Salvage Value Report (“USCG Report”), on March 31, 2007, while undergoing routine repairs at the shipyard, the vessel caught fire. The vessel’s salvaged remains, including machinery and equipment, were purchased shortly thereafter by Devotion, a U.S. corporation. Based on the pre-loss value and the salved value of the vessel indicated in the USCG Report, only 19% of the vessel could be salvaged. Devotion completed its repair and reconstruction of the vessel documenting it as the M/Y DEVOTION and has entered into a contract for its sale. ISSUE Whether the subject vessel was considered imported into the U.S. prior to the fire which substantially destroyed it and therefore subject to entry and the payment of duty. If not, whether the burned remains of the vessel, as well as equipment and machineries moved from the vessel at the time of the fire, would be subject to entry and the payment of duty. LAW and ANALYSIS A. Requirement of the Foreign Owner to pay Duty on the Vessel prior to the Fire Pursuant to the Harmonized Tariff Schedule of the United States (HTSUS) all goods imported into the customs territory of the United States are subject to duty or exempt from duty. See General Note 1, HTSUS (2010). From this language, an item must be deemed "imported" for tariff purposes before duty liability arises. American Customs Brokerage Co., Inc. A/C Astral Corp v. United States, 72 Cust.Ct. 245, 253, C.D. 4546, 375 F. Supp. 1360, 1365-66 (1974)("The Astral"). A vessel is considered imported if it is brought into the United States permanently. See id. at 1366 citing T.D. 37376. “ . . . [W]hether a vessel is brought into the United States ‘permanently’ must be determined on the basis of intent.” Id. citing Estate of Lev H. Prichard v. United States, 43 CCPA 85, 87-88, C.A.D. 612 (1956). However, if a vessel is brought into the Customs territory of the United States by a nonresident for his own use in pleasure cruising, it shall be admitted without formal Customs consumption entry or the payment of duty. See Chapter 89, U.S. Note 1, HTSUS; see also 19 C.F.R. § 148.45 (2010). Accordingly, a vessel brought into the U.S. by a non-resident may be exempt from entry and the payment of duty if the vessel is used by the non-resident for pleasure cruising; however, if such non-resident imports the vessel while in the Customs territory of the U.S. while it is pleasure cruising, the vessel will be subject to entry and the payment of duty. Pursuant to 19 C.F.R. § 4.94(d), if vessels that are in the U.S. under a cruising license are sold or chartered to a resident, a consumption entry must be filed and duties have to be paid; otherwise, the vessel will be subject to seizure or to a monetary claim equal to the value of the vessel. In addition, the offer to sell or charter to a resident would subject a vessel to entry and the payment of duty. Paragraph (d) also provides, in pertinent part: Any offer to sell or charter (for example, a listing with yacht brokers or agents) is considered evidence that the vessel was brought in for sale or charter to a resident.... In the present case, the foreign owner obtained a cruising license from CBP at the Port of San Diego on December 8, 2006, which was effective through December 8, 2007. Therefore, without any evidence to the contrary, the cruising license is evidence that the vessel was in the U.S. on a pleasure cruise until the March 31, 2007, fire that substantially destroyed it, and thus, would not be considered imported and subject to the requirements of entry and payment of duty pursuant to Chapter 89, U.S. Note 1, HTSUS. However, because cruising licenses are not required by CBP, the fact the owner obtained a cruising license cannot be the sole evidence that the owner did not intend to import the vessel into the U.S. or sell or charter the vessel to a U.S. citizen during the pleasure cruise. In The Astral, supra, the Customs Court held that the vessel in that case was not imported into the U.S. and therefore, not subject to entry and the payment duty. In determining whether the U.S. vessel owner intended to permanently bring the vessel into the U.S., the court stated: Intent is a state of mind which is difficult of precise proof and can only be inferred from acts and circumstances. A person's intent is usually evidenced by his conduct or statements. Expressions of intent, however, may be used for self-serving purposes. Hence, the court must scrutinize them carefully, together with the conduct of the person making them, and the external circumstances which might tend to confirm or refute them. The Astral, 72 Cust. Ct. at 254, 375 F. Supp. at 1366-67 (citations omitted). In determining that the owner did not intend to bring his yacht permanently into the U.S., the court stated inter alia, that the owner brought the vessel into the U.S. temporarily for repairs, the voyage of the vessel finally terminated in the Mediterranean, and two Customs ports issued cruising licenses to the vessel’s master. 72 Cust. Ct. at 256, 375 F.Supp. at 1368. In the present case, the vessel’s master obtained a cruising license prior to the fire. That fact, coupled with the statement of the vessel’s master that subsequent to the repairs performed at the Seattle shipyard the vessel would proceed to Alaska, Canada, the Caribbean, and Norway, without any evidence to the contrary, leads us to determine the vessel owner did not intend to import the vessel into the U.S. prior to the shipyard fire. Therefore, because the vessel was in the U.S. on a pleasure cruise, was in the U.S. temporarily for repairs, and the vessel was destined for Canada, the Caribbean, and Norway, after its pleasure cruise in the U.S., absent any evidence to support that there was an intention to import the vessel, the foreign vessel owner was not required to file a consumption entry and pay duty on the vessel prior to the fire. B. Requirement of the Foreign Vessel Owner to Pay Duty after the Fire Pursuant to 19 C.F.R. § 4.40: Ship's or sea stores, supplies, and equipment of a vessel wrecked either in the waters of the United States or outside such waters, on being recovered and brought into a United States port, and like articles landed from a vessel dismantled in a United States port shall be subject to the same Customs treatment as would apply if the articles were landed from a vessel arriving in the ordinary course of trade. Parts of the hull and fittings recovered from a vessel which arrived in the United States in the course of navigation and was wrecked in the waters of the United States or was dismantled in this country are free of duties and import taxes, but if such articles are recovered from vessels outside the waters of the United States and brought into a United States port, they shall be treated as imported merchandise. Hence, the threshold issue is whether the vessel was wrecked in the waters of the United States. Insofar as the fire occurred in Seattle, Washington, the remaining inquiry is whether the vessel was “wrecked”. In HQ 103461 (Feb. 13, 1979), CBP held that a vessel was “wrecked” within the meaning of 19 C.F.R. § 4.40 when 65 to 70 percent of the vessel was destroyed by fire. In the present case, the USCG in its March 13, 2008, letter, determined that the vessel was a “wrecked vessel”. Based on our review of the USCG Report, only 19 percent of the vessel was salvageable. Thus, the vessel being 81 percent destroyed by fire was “wrecked” within the meaning of 19 C.F.R. § 4.40. With regard to the machineries and equipment that were removed from the vessel, pursuant to 19 C.F.R. § 4.40, those articles are treated as if they arrived in the ordinary course of trade. The USCG Report indicates that the machineries and equipment were removed at the time of the fire. Accordingly, at that time, e.g. when the machineries and equipment were landed, the provisions for the entry of merchandise and payment of duty found in 19 U.S.C. § 1484 and the regulations promulgated thereunder, 19 C.F.R. § 141 et seq., applied. With regard to the hull and fittings of the subject vessel, which was wrecked and recovered in U.S. waters, the foreign vessel owner could have entered the vessel duty free. In summary, based on the evidence provided, the foreign vessel owner did not intend to import the vessel prior to the fire; therefore, no duty was owed on the vessel prior to the fire. However, subsequent to the fire, although the hull and fittings could have been entered duty free, the foreign owner should have filed a consumption entry and paid duties, if any were due, on the machineries and equipment that were removed from the vessel. HOLDING The subject vessel was not imported into the U.S. prior to the fire which substantially destroyed it, and therefore, was not subject to entry and the payment of duty. Subsequent to the fire, insofar as the vessel was wrecked and recovered in the waters of the U.S., pursuant to 19 C.F.R. § 4.40, the hull and the fittings are subject to entry and dutiable at a “free” rate; however, the equipment and machineries removed from the vessel at the time of the fire would be subject to the entry requirements of 19 U.S.C. § 1484 and the 19 C.F.R. § 141 et seq., and the payment of any applicable duty. Sincerely, Glen E. Vereb Chief Cargo Security, Carriers, and Immigration Branch