Classification of Modular, Prefabricated Building Units

May 19, 2016 HQ H267030 OT:RR:CTF:TCM H267030 MAB CATEGORY: Classification TARIFF NO.: 9406.00.8030 Ms. Julie Vair, Senior Consultant Expeditors Tradewin, LLC 1015 Third Avenue, 12th Floor Seattle, WA 98104 RE: Classification of Modular, Prefabricated Building Units Dear Ms. Vair: This is in reply to your request submitted on May 18, 2015, to the Director, National Commodity Specialist Division (NCSD), Customs and Border Protection (CBP), seeking a binding ruling on behalf of your client, OneBuild, Inc., concerning the classification of modular, prefabricated building units imported to construct apartments, student dormitories, hotels, offices, and other buildings under the Harmonized Tariff Schedule of the United States (HTSUS). Your request was forwarded to our office for reply. Subsequently, you made a supplemental submission dated June 23, 2015, in response to questions asked by the NCSD, also containing descriptive literature, pictures, and drawings regarding the modular, prefabricated building units. We have also considered the arguments Mr. Nicholas Reynolds presented in a telephone conference with members of my staff on May 12, 2016. FACTS: The merchandise consists of modular, prefabricated building units that are combined with other units to form larger, permanent buildings such as apartments, student dormitories, hotels, offices, etc., depending on the project and design. Each modular building unit is manufactured inside a factory and in-filled with different materials and finishes. The modules are made from hollow steel structural sections that are welded and/or bolted together. The in-fill materials added to the steel frames vary depending upon the specification of each component, but typically include the floor, walls, and ceilings made from waterproof compressed cement sheets, magnesium oxide board or similar material. In addition, the modules incorporate drywall lining, paint, hardware, millwork (e.g., cabinets), interior finishes (e.g., tiles, carpet, and wood flooring), plumbing and accessories (e.g., pipes, fittings, and fixtures), and electrical and accessories (e.g., lights and cables). Doors and windows are incorporated into the structures. Some modular building units are complete with bathrooms and kitchens, including appliances such as ovens, exhaust fans, cooktops and washers/dryers. Some will have decks attached. Once completed, the modular building units are joined together with others to complete a building. The number of units used depends upon the building design. With this particular type of modular construction, 85% of a building project can be completed in the factory and the remaining 15% consists of onsite work, commonly referred to as the integration process (e.g., laying foundation and footings, adding an over-roof, optional external siding, stairs, walkways, decks and joints, utility and water/sewage feeds, fire sprinklers, etc.). In most cases, the modules will be imported in batches for site assembly of the larger building in stages. For instance, in an apartment building, each module is outfitted as one apartment. Many modules are entered together and assembled into some number of floors of the building along with the stairwells and corridors that are built on site before the next number of modules are shipped and entered. The interior modules do not have an exterior finish, whereas any exposed outer wall of a module is finished with the exterior material for the building. When all of the floors of the apartment building are assembled, the over-roof for the entire building is built on site. ISSUE: Whether the modular, prefabricated building units are classified in heading 9406, HTSUS, as prefabricated buildings or in heading 7308, HTSUS, as structures of iron or steel? LAW AND ANALYSIS: Classification under the Harmonized Tariff Schedule of the United States (HTSUS) is made in accordance with the General Rules of Interpretation (GRI). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative Section or Chapter Notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs may then be applied. The tariff provisions at issue are the following: 7308 Structures (excluding prefabricated buildings of heading 9406) and parts of structures (for example, bridges and bridge sections, lock gates, towers, lattice masts, roofs, roofing frameworks, doors and windows and their frames and thresholds for doors, shutters, balustrades, pillars and columns) of iron or steel: Other: Other: 7308.90.95 Other. Other: 7308.90.9590 Other * * * * * 9406.00 Prefabricated buildings: 9406.00.80 Other 9406.00.8030 Other The term “prefabricated buildings” is defined by Chapter 94 Note 4 as follows: For the purposes of heading 9406, the expression “prefabricated buildings” means buildings which are finished in the factory or put up as elements, entered together, to be assembled on site, such as housing or worksite accommodation, offices, schools, shops, sheds, garages or similar buildings. When interpreting and implementing the HTSUS, the Explanatory Notes (ENs) of the Harmonized Commodity Description and Coding System may be utilized. The ENs, while neither legally binding nor dispositive, provide a guiding commentary on the scope of each heading, and are generally indicative of the proper interpretation of the HTSUS. CBP believes the ENs should always be consulted. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (August 23, 1989). The EN’s to heading 73.08 state, in pertinent part, the following: This heading covers complete or incomplete metal structures, as well as parts of structures. For the purpose of this heading, these structures are characterized by the fact that once they are put in position, they generally remain in that position. They are usually made up from bars, rods, tubes, angles, shapes, sections, sheets, plates, wide flats including so-called universal plates, hoop, strip, forgings or castings by riveting, bolting, welding, etc. Such structures sometimes incorporate products of other headings such as panels of woven wire, or expanded metal of heading 73.14. Parts of structures include clamps and other devices specially designed for assembling metal structural elements of round cross-section (tubular or other). These devices usually have protuberances with tapped holes in which screws are inserted, at the time of assembly, to fix the clamps to the tubing. The ENs to heading 94.06 state, in pertinent part, the following: This heading covers prefabricated buildings, also known as “industrialized buildings”, of all materials. These buildings, which can be designed for a variety of uses, such as housing, worksite accommodation, offices, schools, shops, sheds, garages and greenhouses, are generally presented in the form of: complete buildings, fully assembled ready for use; complete buildings, unassembled; incomplete buildings, whether or not assembled, having the essential character of prefabricated buildings. In the case of buildings presented unassembled, the necessary elements may be presented partially assembled (for example, walls, trusses) or cut to size (beams, joists, in particular) or, in some cases, an indeterminate or random lengths for cutting on the site (sills, insulation, etc.). The buildings of this heading may or may not be equipped. However, only built-in equipment normally supplied is to be classified with the buildings. This includes electrical fittings (wiring, sockets, switches, circuit-breakers, bells, etc.), heating and air conditioning equipment (boilers, radiators, air conditioners, etc.), sanitary equipment (baths, showers, water heaters, etc.), kitchen equipment (sinks, hoods, cookers, etc.) and items of furniture which are built in or designed to be built in (cupboards, etc.). Material for the assembly or finishing of prefabricated buildings (e.g., nails, glues, plaster, mortar, electric wire and cables, tubes and pipes, paints, wallpaper, carpeting) is to be classified with the buildings, provided it is presented therewithin appropriate quantities. Presented separately, parts of buildings and equipment, whether or not identifiable as intended for these buildings, are excluded from the heading and are in all cases classified in their own appropriate headings. By its terms, merchandise cannot be classified in heading 7308, HTSUS, if it is described by the terms of heading 9406, HTSUS, as a prefabricated building described in Note 4 to Chapter 94. In cases where the prefabricated modules comprise elements of a larger building, EN 94.06 allows for merchandise having the essential character of prefabricated buildings to be classified as “prefabricated buildings”. Based on the photos, drawings, and responses to the NCSD’s request for further information, in addition to information available on OneBuild’s website, www.onebuild.com, the subject modular building units are more than simple skeletal frameworks of a steel structure. Instead, they are essentially complete, ready-for-assembly units, some with complete bathrooms and kitchens that just need to be connected together with other units over a common foundation to form a building and finished through the integration process. Contrary to what’s stated in your ruling submission, the company’s website explains to the public and prospective customers that “…modular building is a form of construction where portions of a building are built offsite, preassembled in sections called “modules” and are installed at the job site. This process is often called “prefabrication or prefab construction. Modules are completely finished, painted, carpeted and wired before delivery, greatly reducing on-site labor. OneBuild modules can be designed to fit the needs of any project or site…. [w]ith modular construction, 85% of the project can be completed in a state-of-the-art, controlled factory…” This necessarily means that the remaining 15% of any building project consists of onsite or integration work and does not require “substantial modifications” to become a complete building as you claim. The modular units at issue meet the definition of prefabricated buildings in Note 4 to Chapter 94 because they are put up as elements, entered together, to be assembled on site. There is no requirement that all of the prefabricated elements for a building be entered together. Here, a number of prefabricated apartments, dorms or other elements are entered at once and the foundation, walkways and stairwells are added on site. Each of the modular building units are already built with walls, ceilings, floors, kitchens, bathrooms, appliances, cabinetry, wiring, etc., described in the ENs to heading 9406 as prefabricated buildings even though each element may be combined with others to form a larger whole. Hence, the instant modules are essentially, individually complete buildings. You argue that the modular building units might be assembled in numbers from 35 to 350 to form a larger building. You also state that an individual unit cannot function independently. The number of units to complete any particular building is irrelevant. A single unit could be a full building, provided that it is given a footing, utilities, water and sewage, etc., just like the larger assemblies. In fact, OneBuild’s website features a “singular module” described as a “completed home” that was transported to Los Angeles, California, in 2011 to serve as a showcase home at a home design show. (See http://www.onebuildinc.com/gallery/projects/modules/dwell-ecofabulous-house) Additionally, during the May 12, 2016 meeting with my staff, Mr. Reynolds conceded this point. CBP has issued many rulings for structures determined to be prefabricated buildings. The instant modular building units are considerably more complex than many of the structures in those rulings, such as the storage units in HQ 083801, dated June 6, 1989, and the metal sheds in N230256, dated August 24, 2012. They are also similar, but more complete, than the units constructed from shipping containers in NY R02436, dated September 8, 2005, and N121264, dated September 24, 2010. The only noteworthy difference is that the instant modular building units are combined with many similar units to form a larger whole. We do not believe that this fact renders the essential character of the components something other than a prefabricated building. They are also similar to those described in NY J86693, dated August 6, 2003. Therefore, we believe that the modular building units are classifiable in heading 9406, HTSUS, as prefabricated buildings of metal. You claim that the merchandise at issue should be classified in heading 7308, HTSUS, in accordance with Headquarters Ruling Letter (HQ) 966862, dated March 31, 2005 (modules used to construct a pharmaceutical manufacturing facility) and HQ 086648, dated April 20, 1990 (PALC Space Frame Systems providing structural support in buildings). The merchandise in those rulings were entered as steel framed structures only to which other materials would be added. The modular building units in HQ 966862 are unlike the instant merchandise. The structures in HQ 966862 are frames, often with no walls (or fewer than four walls), flooring or ceilings: “None of the modules have four walls, a roof and a floor that would allow them to be set on the ground. Thus, the modules are not designed or built to withstand the elements nor do they provide shelter against inclement weather.” The ruling also notes that “[a]t the time of their shipping, the modules have ‘placeholder’ walls, flooring, and ceilings in many areas, which helps to protect the actual module contents. These ‘placeholder’ components consist of nothing more than plywood and/or plastic coverings, and they require additional protection from the weather.” The merchandise under consideration in HQ 086648 consisted of components that included welded steel tubes, steel tube connectors, cast or pressed nodes, cold formed pulins, stools made from welded steel tubes, neoprene joints, screws and washers. They did not include wall sheetings or other coverings, doors or windows or their frames, or floors. The instant modular building units, however, have walls, floors, ceilings and many have fully completed interiors. Additionally, it is clear from the waterproof wall, floor, and ceiling materials used, as well as from the photos provided and available on your website, that the units would provide significant shelter against weather even before they are assembled into a complete building. This is contrary to your claim that the subject merchandise is not fully enclosed and incapable of serving as sheltered rooms. The instant merchandise need only be joined to the surrounding units on a common foundation, receive utility and water/sewage feeds, and some minor additional integration work. Additionally, if provided a foundation, roof, utility and water/sewage feeds, etc., one module individually could be used as a stand-alone building. In order to construct the pharmaceutical building from the structures in HQ 966862, substantial modification and construction is required and the modules cannot be used in any stand-alone operation. Hence, the instant merchandise, infilled with all of the necessary materials to form a prefabricated element of a larger building, is not described by heading 7308, HTSUS, as simply a metal structure. For all of the foregoing reasons, the instant merchandise is classified in heading 9406, HTSUS. Because heading 9406, HTSUS, completely describes the merchandise, it is excluded from classification in heading 7308, HTSUS. HOLDING: By application of GRI 1, the building modules are correctly classified in heading 9406, HTSUS. They are specifically provided for in subheading 9406.00.8030, HTSUS, which provides for prefabricated buildings: other, other. The 2016 column one general rate of duty is 2.9%. Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on the world wide web at www.usitc.gov. Sincerely, Ieva K. O’Rourke, Chief Tariff Classification and Marking Branch cc Nicholas Reynolds, CEO OneBuild, Inc. 814 Second Ave., Suite 500 Seattle, WA 98104