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HQ 111011


July 27, 1990

VES-3/4-03-CO:R:P:C 111011 GV

CATEGORY: CARRIER

Ms. Ann Bush
Revenue Agent
Internal Revenue Service
Department of the Treasury
515 North Belt
Stop: 4704H-NW
Houston, Texas 77060

RE: English-built Yacht; Coastwise Trade

Dear Ms. Bush:

This is in response to your facsimile transmission, dated April 27, 1990, requesting information as to Customs current position regarding the use in the coastwise trade of a yacht constructed in England.

FACTS:

A yacht has been constructed in England to the order of a U.S. citizen for business purposes. Specifically, the yacht is to be used in the territorial waters of the United States, the Gulf of Mexico and the Caribbean Sea as a design prototype (i.e., the U.S. citizen wishes to sell the design packages of the yacht).

ISSUE:

Whether the use of an English-built yacht as a design prototype in U.S. territorial waters, the Gulf of Mexico and the Caribbean Sea constitutes a violation of 46 U.S.C. App. 289 and 883.

LAW AND ANALYSIS:

Title 46, United States Code Appendix, section 883 (46 U.S.C. App. 883, the coastwise merchandise statute often called the "Jones Act"), provides in part, that no merchandise shall be transported between points in the United States embraced within the coastwise laws, either directly or via a foreign port, or for any part of the transportation, in any vessel other than a vessel built in and documented under the laws of the United States and
owned by persons who are citizens of the United States (i.e., a coastwise-qualified vessel). This statute has been found to apply even to the transportation of merchandise from point to point within a harbor. Pursuant to 19 U.S.C. 1401(c), the word "merchandise" means goods, wares and chattels of every description and includes merchandise the importation of which is prohibited. Furthermore, Public Law 100-329 (102 Stat. 588) amended section 883 to apply to the transportation of "valueless material..."

Title 46, United States Code Appendix, section 289 (46 U.S.C. App. 289, the passenger coastwise statute), prohibits the transportation of passengers between points embraced within the coastwise laws of the United States, either directly or by way of a foreign port, in a non-coastwise-qualified vessel. Pursuant to section 4.50(b), Customs Regulations (19 CFR 4.50(b)) a "passenger" for purposes of section 289 is defined as "any person carried on a vessel who is not connected with the operation of such vessel, her navigation, ownership or business."

Points embraced within the coastwise laws include all points within the territorial waters of the United States, including points within a harbor, as well as artificial islands, installations, and devices permanently or temporarily attached to the seabed of the outer continental shelf for the purpose of exploring for, developing or producing resources therefrom. The territorial waters of the United States consist of the territorial sea, defined as the belt, 3 nautical miles wide, adjacent to the coast of the United States and seaward of the territorial sea baseline.

Customs has previously ruled that the use of a vessel solely for the purpose of demonstration in which persons who are transported on demonstration rides embark and disembark at the same point is not coastwise trade even if the ride is entirely within U.S. territorial waters. Such persons are not considered to be passengers for purposes of section 289. However, those rulings have been limited to demonstration rides originating and terminating at the same point because the transportation of persons between different points is itself evidence of a purpose other than the demonstration of a vessel.

In regard to the English-built yacht under consideration, if prospective buyers of the vessel's design are given rides on it for the purpose of selling the design, such persons are not considered "passengers" for purposes of section 289, even if the ride is entirely within U.S. territorial waters, provided they embark and disembark at the same point. In addition, the transportation of merchandise by the subject vessel between two coastwise points would be evidence of a purpose other the selling of the yacht's design and would be considered a movement in the coastwise trade prohibited by section 883.

In addition to the issue of coastwise trade, you should also know that under the Harmonized Tariff Schedules of the United States (HTSUS), a yacht or pleasure boat, regardless of length or tonnage, whether motor, sail or steam propelled, owned by a resident of the United States or brought into the United States for sale or charter to a resident thereof, is dutiable under HTSUS items 8903.91.00 or 8903.92.00, at a rate of 1.5 percent ad valorem.

HOLDING:

The use of an English-built yacht as a design prototype in U.S. territorial waters, the Gulf of Mexico and the Caribbean Sea does not constitute a violation of 46 U.S.C. App. 289 and 883 provided no passengers or merchandise are transported between two coastwise points.

Sincerely,

B. James Fritz

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