03-6759. Deferral of Duty on Large Yachts Imported for Sale

AGENCY:

U.S. Customs Service, Department of the Treasury.

ACTION:

Final rule.

SUMMARY:

This document adopts as a final rule, with some changes, a proposed amendment to the Customs Regulations to set forth procedures for the deferral of entry filing and duty collection on certain yachts imported for sale at boat shows in the United States. The regulatory amendments reflect a change in the law effected by section 2406 of the Miscellaneous Trade and Technical Corrections Act of 1999.

EFFECTIVE DATE:

April 21, 2003.

FOR FURTHER INFORMATION CONTACT:

Legal matters: Glen Vereb, Office of Regulations and Rulings (202-572-8730).

Operational matters: Peter Flores, Office of Field Operations (202-927-0333).

SUPPLEMENTARY INFORMATION:

Background

Section 2406(a) of the Miscellaneous Trade and Technical Corrections Act of 1999 (the Act, Public Law 106-36, 113 Stat. 127) amended the Tariff Act of 1930 by the addition of a new section 484b (19 U.S.C. 1484b). Section 484b provides that an otherwise dutiable “large yacht” (defined in the section as “a vessel that exceeds 79 feet in length, is used primarily for recreation or pleasure, and has been previously sold by a manufacturer or dealer to a retail consumer”) may be imported without the payment of duty if the yacht is imported with the intention to offer for sale at a boat show in the United States. The statute provides generally for the deferral of payment of duty until the yacht is sold but specifies that the duty-deferral period may not exceed 6 months.

In order to qualify for deferral of duty payment at the time of importation of a large yacht, the statute provides that the importer of record must: (1) Certify to Customs that the yacht is imported pursuant to section 484b for sale at a boat show in the United States; and (2) post a bond, having a duration of 6 months after the date of importation, in an amount equal to twice the amount of duty on the yacht that would otherwise be imposed under subheading 8903.91.00 or 8903.92.00 of the Harmonized Tariff Schedule of the United States (HTSUS). The statute further provides that if the yacht is sold within the 6-month period after importation, or if the yacht is neither sold nor exported within the 6-month period after importation, entry must be completed and duty must be deposited with Customs (with the duty calculated at the applicable HTSUS rate based on the value of the yacht at the time of importation) and the required bond will be returned to the importer. The statute further provides that no extensions of the 6-month bond period will be allowed, that any large yacht exported in compliance with the 6-month bond period may not be reentered for purposes of sale at a boat show in the United States (in order to receive duty-deferral benefits) for a period of 3 months after that exportation, and that the Secretary of the Treasury is authorized to make rules and regulations as may be necessary to carry out the provisions of the statute. Finally, under section 2406(b) of the Act, the amendment made by section 2406(a) of the Act applies with respect to any large yacht imported into the United States after July 10, 1999.

In order to reflect the terms of new section 484b, Customs on June 15, 2000, published a notice of proposed rulemaking in the Federal Register (65 FR 37501) to amend the Customs Regulations by the addition of a new § 4.94a (19 CFR 4.94a). In addition, Customs proposed in that document to amend Part 113 of the Customs Regulations (19 CFR Part 113), which sets forth provisions regarding Customs bonds, by the addition of a new § 113.75 and a new Appendix provision setting forth the text of the bond required to be posted by the importer of record under new section 484b.

The June 15, 2000, notice of proposed rulemaking invited the submission of public comments on the proposed amendments, and the public comment period closed on August 14, 2000. Two commenters responded to that solicitation of comments. A discussion of their comments follows.

Discussion of Comments

The two commenters made the same three points which centered on paragraphs (a)(4) and (a)(5) of proposed § 4.94a which set forth two of the conditions that give rise to the bond obligation. Paragraph (a)(4) provides that all subsequent transactions with Customs involving the vessel in question, including any transaction referred to in paragraphs (b) through (d) of § 4.94a, must be carried out in the same port of entry in which the certification was filed and the bond was posted under § 4.94a (paragraphs (b) through (d) concern, respectively, exportation of the yacht within the 6-month bond period, sale of the yacht within the 6-month bond period, and expiration of the bond period). Paragraph (a)(5) provides that the vessel in question will not be eligible for issuance of a cruising license under § 4.94.

Comment: With regard to paragraph (a)(4), the commenters made the point that in matters involving the sale of large yachts of the type under consideration, there might often be protracted negotiations which could continue for weeks or even months after the conclusion of the actual boat show at which an offer of sale was made. They stated that the final regulations should make provision for that type of eventuality by specifically providing that negotiations are permitted to continue with respect to any person who viewed a yacht at a boat show, up to the expiration of the 6-month bond period.

Customs Response: Customs does not read either the statute or the language of the proposed regulations as precluding the continuation or conclusion of negotiations following a boat show so long as they do not continue beyond the expiration date of the bond. The statute merely provides that at the time of importation the importer of record must certify to Customs that the vessel is imported for sale at a yacht show and must post a bond of 6 months duration. Customs interprets the law to provide that so long as the importation is in pursuance of showing and offering a qualifying vessel for sale at a boat show, a 6-month period is provided during which a sale must be completed. Customs in this final rule document has added language to § 4.94a(c) and (d) to expressly refer to completion of the sale. A sale is completed when title passes to the new owner. The alternatives to this are that either the vessel must be exported or, once the bond expires, the entry process must be completed.

On a related matter not raised in the comments, Customs notes that whereas the prescribed bond period is 6 months and may not be extended, the obligations imposed on the importer under the statute and the regulatory text include actions (that is, advising Customs within 30 days if the yacht is exported or completing the entry within 15 days if the yacht is sold or is neither sold nor exported within that 6-month period) that may be completed after expiration of the bond period. In order to ensure that there is an appropriate enforcement mechanism under the bond covering all obligations under the statute, including those that may lawfully be met after the bond period has expired, the terms of the bond set forth in Appendix C to Part 113 have been modified to include a reference to a claim for liquidated damages for a failure to advise Customs of an exportation or to complete the entry unless either of those actions is taken within the prescribed time limits.

Comment: Also with regard to paragraph (a)(4), the commenters stated that limited advertising should be allowed when a yacht is imported under the subject program, and they suggested that notice may be required that the vessel is “not available for boarding” during the 6-month period of bond coverage except at a boat show.

Customs Response: The commenters appear to be arguing, at least in part, against the first point they raised with respect to the continuation of negotiations. Among the mentioned activities which might ensue during after-show negotiations are sea trials during which boarding surely would be required.

Again, Customs does not find either in the new law or in the proposed regulations any limiting language which would preclude advertising a yacht imported for the stated limited purposes. Protection of the revenue is assured by virtue of the statutory bond requirement. If Customs determines that the certification of the importer of record is not honored in that the vessel was not in fact imported for sale at a boat show (such as, upon investigation, there being no evidence that the boat was shown and made available to potential buyers at a boat show), in addition to possible penalty action, a demand could be made against the bond. Customs finds no need for additional regulatory language in this regard.

Comment: Finally, the commenters referred to the language of paragraph (a)(5) and pointed out that boat shows take place in more than one location and within the jurisdiction of different Customs ports in South Florida. They noted that a typical boat show does not last longer than two weeks and that the law does not restrict the number of shows at which a vessel may be offered for sale during the 6-month bond period. They further noted that the proposed regulation, while making clear that the vessels in question may not obtain cruising licenses, is silent with respect to whether those vessels may be granted permits to proceed between ports in the United States. The commenters urged Customs to add language to the regulations stating that the vessels under consideration may obtain a “permit to proceed”.

Customs Response: The language relating to cruising licenses was included in the proposed regulation because the terms of a cruising license specifically prohibit a licensed vessel from being brought into the United States for sale or charter to a resident of the United States, or from being so offered during the pendency of the license. A cruising license is a mere accommodation available to certain vessels which exempts them from the necessity to enter and clear at U.S. ports. Possession of a license is not necessary in order for a pleasure vessel to travel between ports of the United States. It was not the intention of Customs to suggest that a restriction would be imposed upon vessel movement. It would merely be necessary that vessels covered by § 4.94a would have to comply with the normal requirements regarding vessel entry and clearance when traversing U.S. ports. In order to clarify this issue, Customs in this final rule document has added the words and must comply with the laws respecting vessel entry and clearance when moving between ports of entry during the 6-month bond period prescribed under this section at the end of paragraph (a)(5) of § 4.94a.

Conclusion

Accordingly, based on the comments received and the analysis of those comments as set forth above, Customs believes that the proposed regulatory amendments should be adopted as a final rule with the changes discussed above, together with one editorial change, as set forth below. This document also includes an appropriate update of the list of information collection approvals contained in § 178.2 of the Customs Regulations (19 CFR 178.2).

Regulatory Flexibility Act and Executive Order 12866

Pursuant to the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), it is certified that the amendments will not have a significant economic impact on a substantial number of small entities. The amendments directly reflect a statutory provision that accords procedural and financial benefits to members of the general public who import large yachts for purposes of sale. Accordingly, the amendments are not subject to the regulatory analysis or other requirements of 5 U.S.C. 603 and 604. Furthermore, this document does not meet the criteria for a “significant regulatory action” as specified in E.O. 12866.

Paperwork Reduction Act

The collection of information contained in this final rule has been reviewed and approved by the Office of Management and Budget (OMB) in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507) under control number 1515-0223. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number assigned by OMB.

The collection of information in this document is in § 4.94a. This information is required and will be used to effect the deferral of duty collection on certain pleasure vessels, in order to ensure enforcement of the Customs and related laws and the protection of the revenue. The likely respondents are owners of large pleasure vessels.

The estimated average annual burden associated with this collection of information is 1 hour per respondent or recordkeeper. Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be directed to the U.S. Customs Service, Information Services Group, Office of Finance, 1300 Pennsylvania Avenue, NW., Washington, DC 20229, and to OMB, Attention: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503.

List of Subjects

19 CFR Part 4

• Customs duties and inspection
• Entry
• Imports
• Reporting and recordkeeping requirements
• Vessels
• Yachts

19 CFR Part 113

• Bonds
• Customs duties and inspection
• Imports
• Reporting and recordkeeping requirements
• Surety bonds
• Vessels

19 CFR Part 178

• Administrative practice and procedure
• Reporting and recordkeeping requirements

Amendments to the Regulations

Accordingly, for the reasons stated in the preamble, parts 4, 113 and 178, Customs Regulations (19 CFR Parts 4, 113 and 178), are amended as set forth below.

PART 4—VESSELS IN FOREIGN AND DOMESTIC TRADES

1. The general authority citation for Part 4 continues to read, and a specific authority citation for § 4.94a is added to read, as follows:

Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1431, 1433, 1434, 1624; 46 U.S.C. App. 3, 91.

* * * * *

Section 4.94a also issued under 19 U.S.C. 1484b;

* * * * *

2. A new § 4.94a is added to read as follows:

§ 4.94a

Large yachts imported for sale.

(a) General. An otherwise dutiable vessel used primarily for recreation or pleasure and exceeding 79 feet in length that has been previously sold by a manufacturer or dealer to a retail consumer and that is imported with the intention to offer for sale at a boat show in the United States may qualify at the time of importation for a deferral of entry completion and deposit of duty. The following requirements and conditions will apply in connection with a deferral of entry completion and duty deposit under this section:

(1) The importer of record must certify to Customs in writing that the vessel is being imported pursuant to 19 U.S.C. 1484b for sale at a boat show in the United States;

(2) The certification referred to in paragraph (a)(1) of this section must be accompanied by the posting of a single entry bond containing the terms and conditions set forth in appendix C of part 113 of this chapter. The bond will have a duration of 6 months after the date of importation of the vessel, and no extensions of the bond period will be allowed;

(3) The filing of the certification and the posting of the bond in accordance with this section will permit Customs to determine whether the vessel may be released;

(4) All subsequent transactions with Customs involving the vessel in question, including any transaction referred to in paragraphs (b) through (d) of this section, must be carried out in the same port of entry in which the certification was filed and the bond was posted under this section; and

(5) The vessel in question will not be eligible for issuance of a cruising license under § 4.94 and must comply with the laws respecting vessel entry and clearance when moving between ports of entry during the 6-month bond period prescribed under this section.

(b) Exportation within 6-month period. If a vessel for which entry completion and duty payment are deferred under paragraph (a) of this section is not sold but is exported within the 6-month bond period specified in paragraph (a)(2) of this section, the importer of record must inform Customs in writing of that fact within 30 calendar days after the date of exportation. The bond posted with Customs will be returned to the importer of record and no entry completion and duty payment will be required. The exported vessel will be precluded from reentry under the terms of paragraph (a) of this section for a period of 3 months after the date of exportation.

(c) Sale within 6-month period. If the sale of a vessel for which entry completion and duty payment are deferred under paragraph (a) of this section is completed within the 6-month bond period specified in paragraph (a)(2) of this section, the importer of record within 15 calendar days after completion of the sale must complete the entry by filing an Entry Summary (Customs Form 7501) and must deposit the appropriate duty (calculated at the applicable rates provided for under subheading 8903.91.00 or 8903.92.00 of the Harmonized Tariff Schedule of the United States and based upon the value of the vessel at the time of importation). Upon entry completion and deposit of duty under this paragraph, the bond posted with Customs will be returned to the importer of record.

(d) Expiration of bond period. If the 6-month bond period specified in paragraph (a)(2) of this section expires without either the completed sale or the exportation of a vessel for which entry completion and duty payment are deferred under paragraph (a) of this section, the importer of record within 15 calendar days after expiration of that 6-month period must complete the entry by filing an Entry Summary (Customs Form 7501) and must deposit the appropriate duty (calculated at the applicable rates provided for under subheading 8903.91.00 or 8903.92.00 of the Harmonized Tariff Schedule of the United States and based upon the value of the vessel at the time of importation). Upon entry completion and deposit of duty under this paragraph, the bond posted with Customs will be returned to the importer of record, and a new bond on Customs Form 301, containing the bond conditions set forth in §113.62 of this chapter, may be required by the appropriate port director.

PART 113—CUSTOMS BONDS

1. The general authority citation for part 113 continues to read, and a specific authority citation for § 113.75 and Appendix C is added to read, as follows:

Authority: 19 U.S.C. 66, 1623, 1624.

* * * * *

Section 113.75 and Appendix C also issued under 19 U.S.C. 1484b.

2. Part 113 is amended by adding a new § 113.75 to read as follows:

§ 113.75

Bond conditions for deferral of duty on large yachts imported for sale at United States boat shows.

A bond for the deferral of entry completion and duty deposit pursuant to 19 U.S.C. 1484b for a dutiable large yacht imported for sale at a United States boat show must conform to the terms of appendix C to this part. The bond must be filed in accordance with the provisions set forth in § 4.94a of this chapter.

3. Part 113 is amended by adding at the end a new appendix C to read as follows:

Appendix C to Part 113—Bond for Deferral of Duty on Large Yachts Imported for Sale at United States Boat Shows

Bond for Deferral of Duty on Large Yachts Imported for Sale at United States Boat Shows

____, as principal, and ____, as surety, are held and firmly bound to the UNITED STATES OF AMERICA in the sum of ____ dollars ($____), for the payment of which we bind ourselves, our heirs, executors, administrators, successors, and assigns, jointly and severally, firmly by these conditions.

Pursuant to the provisions of 19 U.S.C. 1484b, the principal has imported at the port of ____ a dutiable large yacht (exceeding 79 feet in length, used primarily for recreation or pleasure, and previously sold by a manufacturer or dealer to a consumer) identified as ____ for sale at a boat show in the United States with deferral of entry completion and duty deposit and has executed this obligation as a condition precedent to that deferral.

A failure to inform Customs in writing of an exportation, or to complete the required entry, within the 6-month bond period will give rise to a claim for liquidated damages unless the principal informs Customs of the exportation or completes the entry within the time limits prescribed in 19 CFR 4.94a. If the principal fails to comply with any condition of this obligation, which includes compliance with any requirement or condition set forth in 19 U.S.C. 1484b or 19 CFR 4.94a, the principal and surety jointly and severally agree to pay to Customs an amount of liquidated damages equal to twice the amount of duty on the large yacht that would otherwise be imposed under subheading 8903.91.00 or 8903.92.00 of the Harmonized Tariff Schedule of the United States. For purposes of this paragraph, the term duty includes any duties, taxes, fees and charges imposed by law.

The principal will exonerate and hold harmless the United States and its officers from or on account of any risk, loss, or expense of any kind or description connected with or arising from the failure to store and deliver the large yacht as required, as well as from any loss or damage resulting from fraud or negligence on the part of any officer, agent, or other person employed by the principal.

WITNESS our hands and seals this ____ day of ____ (month), ____ (Year).

(Name)  (Address)

_______________ [SEAL]

(Principal)

_______________ [SEAL]

(Name)  (Address)

_______________ [SEAL]

(Surety)

Certificate as to Corporate Principal

I, _____, certify that I am the* _____ of the corporation named as principal in the attached bond; that _____, who signed the bond on behalf of the principal, was then _____ of that corporation; that I know his signature, and his signature to the bond is genuine; and that the bond was duly signed, sealed, and attested for and in behalf of the corporation by authority to its governing body.

_______________

(CORPORATE SEAL)

(To be used when no power of attorney has been filed with the port director of customs.)

*May be executed by the secretary, assistant secretary, or other officer of the corporation.

PART 178—APPROVAL OF INFORMATION COLLECTION REQUIREMENTS

1. The authority citation for Part 178 continues to read as follows:

Authority: 5 U.S.C. 301; 19 U.S.C. 1624; 44 U.S.C. 3501 et seq.

2. In § 178.2, the table is amended by adding a new listing for § 4.94a in numerical order to read as follows:

§ 178.2

Listing of OMB control numbers.

19 CFR section	Description	OMB control No.
* * * * *
§ 4.94	Deferral of duty on large yachts imported for sale	1515-0223
* * * * *

Robert C. Bonner,

Commissioner of Customs.

Approved: February 25, 2003.

Timothy E. Skud,

Deputy Assistant Secretary of the Treasury.