Definition of passenger; Yachts; Charitable and political organizations; Reimbursement for expenses; 46 U.S.C. App. 289; 19 CFR 4.50(b)

HQ W115072 May 17, 2002 VES-3-RR:IT:EC 115072RSD CATEGORY: Carriers Mr. Robb R. Maass 321 Royal Poinciana Plaza, South Post Office Box 431 Palm Beach, Florida 33480-0431 RE: Definition of passenger; Yachts; Charitable and political organizations; Reimbursement for expenses; 46 U.S.C. App. 289; 19 CFR 4.50(b) Dear Mr. Maass: In our ruling number 113878 of April 1, 1997, we found that certain persons transported aboard your client’s Cayman Islands documented pleasure vessel were not considered to be passengers as that word is defined in section 4.50(b) of the Customs Regulations (19 CFR 4.50(b)). We have reconsidered this position and now believe it to be incorrect. FACTS: At the time we issued our 1997 ruling (HQ 113878) we recited the following factual background. A corporation organized under the laws of the British Virgin Islands owns a 163-foot Turkish-built yacht which is registered in the Cayman Islands. It is stated that the vessel will be arriving in the United States during the month of April. The corporate owner desires to offer the vessel for the use of political and charitable organizations in this country as a venue for fund raising events. The owner would not receive compensation from the organizations utilizing the vessel, but may be compensated for the cost of food and entertainment. It is anticipated that the company may seek to obtain a charitable tax deduction for the value of services provided. During some of the events it is likely that the vessel would remain dockside, but during others the vessel would be underway and would likely remain within United States waters. ISSUE: Whether persons transported aboard a foreign-flag pleasure vessel by political and charitable organizations under circumstances as described above would be considered to be passengers within the meaning of section 4.50(b) of the Customs Regulations (19 CFR 4.50(b)). LAW AND ANALYSIS: The Act of June 19, 1886, as amended (24 Stat. 81; 46 U.S.C. App. § 289, sometimes called the coastwise passenger law), provides that: No foreign vessel shall transport passengers between ports or places in the United States either directly or by way of a foreign port, under a penalty of $200 for each passenger so transported and landed. For your general information, we have consistently interpreted this prohibition to apply to all vessels except United States-built, owned, and properly documented vessels (see 46 U.S.C. §§ 12106, 12110, 46 U.S.C. App. § 883, and 19 C.F.R. § 4.80). The definition of “passenger” for purposes of enforcement of the coastwise laws is contained in section 4.50(b) of the Customs Regulations (19 CFR 4.50(b)), and includes any person not connected with the ownership, operation, navigation or business of the vessel upon which transportation is provided. The definition of a prohibited "passenger" in this area has, been the subject of varying interpretations as demonstrated in administrative rulings. One early ruling issued by the Department of Commerce, Bureau of Navigation (General Letter No. 117, dated May 20, 1916), interpreted the term for purposes of the SteamboatInspection Laws, finding that a stockholder of the corporation owning a vessel is a passenger when transported aboard that vessel. Similarly, in directly confronting the question in relation to 19 CFR 4.50(b), Customs stated in a letter of August 29, 1960 (MA 217.1), that: ...newspapermen or cruise agents who merely accompany the vessel for publicity purposes and cruise passage sales promotion are not persons connected with the operation, navigation, ownership, or business of the vessel within the meaning of section 4.50(b) of the Customs Regulations. The activity of the persons involved is only remotely or indirectly connected with the operation or business of the vessel rather than being direct and immediate as is contemplated by the regulations. In HQ 113304, dated January 11, 1995 we determined that the existing or potential clients of the corporate owner were passengers within the meaning of 46 U.S.C. App. 289 and 19 CFR 4.50(b). We noted that the clients were not connected with the operation, navigation, ownership or business of the vessel. Accordingly, we ruled that those individuals could not be transported from one coastwise point to another coastwise point as was proposed. Similarly, in this instance, it is now our view that the individuals who are transported on the vessel during fund raising events of political and charitable organizations are not directly and substantially connected with the operation, navigation, ownership or business of the vessel. Thus, such individuals would be considered passengers even though no direct monetary consideration is given to the vessel owner. Accordingly, for these individuals, cruises entirely within U.S. territorial waters, cruises between U.S. ports, and cruises between U.S. ports via nearby foreign ports would be prohibited. However, the activities described which do not involved transporting individuals between places in the United States, such as receptions while the vessel is moored or anchored either at a U.S. port or within the U.S. territorial waters would not be in violation of the coastwise laws. HOLDING: Headquarters Ruling Letter 113878 is hereby revoked. In addition, Customs has also identified the following rulings to be modified or revoked with respect to their findings that certain persons transported on a vessel would not be considered passengers under 19 CFR 4.50(b): 1) Headquarters Ruling Letter 114343 dated June 18, 1998. 2) Headquarters Ruling Letter 113878 dated April 1, 1997. 3) Headquarters Ruling Letter 113017 dated February 9, 1994. 4) Headquarters Ruling Letter 109781 dated November 7, 1988. 5) Headquarters Ruling Letter 108501 dated August 29, 1986. 6) Headquarters Ruling Letter 108278 dated April 2, 1986. 7) Headquarters Ruling Letter 108239 dated March 14, 1986. 8) Headquarters Ruling Letter 108147 dated March 3, 1986. 9) Headquarters Ruling Letter 107028 dated October 18, 1984. 10) Headquarters Ruling Letter 105612 dated May 19, 1982. 11) Headquarters Ruling Letter 104276 dated October 22, 1979. 12) Headquarters Ruling Letter 102756 dated April 7, 1977. 13) Treasury Decision 69-120(4) dated April 30, 1969. In accordance with 19 U.S.C. 1625 (c) this ruling will become effective 60 days after its publication in the Customs Bulletin. Persons who are transported aboard a foreign-flag pleasure vessel by political and charitable organizations would be considered passengers within the meaning of section 4.50(b) of the Customs Regulations (19 CFR 4.50). Consequently, the carriage of such persons aboard the vessel in question for the purpose of fund raising for the charitable and political organizations would be in violation of 46 U.S.C. App. 289 even though there is no monetary consideration exchanged for the voyage. The issue of the possibility of charitable tax deductions surrounding the proposed activities is a matter within the jurisdiction of federal, state, and local taxing agencies. Sincerely, Larry L. Burton Acting Director International Trade Compliance Division