Slip Op. 99-95
UNITED STATES COURT OF INTERNATIONAL TRADE
___________________________________
:
BMW MANUFACTURING CORPORATION, :
: Court No. 97-03-00396
Plaintiff, :
:
v. :
:
THE UNITED STATES, :
:
Defendant. :
___________________________________:
[Partial summary judgment for defendant.]
Dated: September 14, 1999
Lamb & Lerch (Sidney H. Kuflik and David R. Ostheimer) for
plaintiff.
David W. Ogden, Acting Assistant Attorney General, David M.
Cohen, Director, Commercial Litigation Branch, Civil Division,
United States Department of Justice (Jeanne E. Davidson, Todd M.
Hughes and Lara Levinson), Richard McManus, Office of the Chief
Counsel, United States Customs Service, of counsel, for
defendant.
OPINION
RESTANI, Judge: This matter is before the court on cross-
motions for summary judgment. Plaintiff seeks recovery of Harbor
Maintenance Tax (“HMT”)1 payments collected by the United States
Customs Service on merchandise admitted into a foreign trade zone
(“FTZ”) within the geographical territory of the United States.
1
The HMT is established by 26 U.S.C. §§ 4461, 4462 (1994).
COURT NO. 97-03-00396 PAGE 2
I. Jurisdiction
In United States v. U.S. Shoe Corp., 118 S.Ct. 1290 (1998),
the Supreme Court held that imposition of the HMT on exports
violated the Export Clause of the Constitution. It also upheld
jurisdiction over such challenges in this court, pursuant to 28
U.S.C. § 1581(i). Id. at 1293-94. The HMT on admissions into
foreign trade zones is paid on a quarterly basis, as was the HMT
on exports. Again, Customs’ role as HMT collector is passive; it
merely receives payments. There is no decision-making by Customs
under 19 U.S.C. § 1514 which would give rise to protest-denial
jurisdiction under 28 U.S.C. § 1581(a). As no other subsection
of § 1581 specifically covers these claims, the court’s residual
jurisdiction, 28 U.S.C. § 1581(i), applies. See Miller v. United
States, 824 F.2d 961, 963 (Fed. Cir. 1987) (§ 1581(i)
jurisdiction proper only when jurisdiction not otherwise
available under another subsection of § 1581).
II. Background2
Plaintiff, BMW Manufacturing Corporation (“BMW”), is a
United States company incorporated in the State of Delaware. BMW
is a wholly-owned subsidiary of Bayerische Motoren Werke
2
The statement of facts is derived from plaintiff’s
opening brief. Defendant does not dispute the material facts
contained therein.
COURT NO. 97-03-00396 PAGE 3
Aktiengesellschaft of Munich, Germany. BMW has a facility in
Spartanburg, South Carolina, at which it both manufactures motor
vehicles and receives foreign manufactured motor vehicles. BMW
utilizes U.S. components and foreign components in the vehicles
it manufactures at Spartanburg. The Spartanburg-manufactured
motor vehicles are sold in the United States, as well as shipped
abroad for sale in other countries. The foreign-produced motor
vehicles received at the Spartanburg facility are intended for
sale in the U.S. BMW’s Spartanburg facility is a foreign trade
subzone.3 Foreign goods admitted to the Spartanburg FTZ,
including complete motor vehicles and automotive components, are
entitled to receive beneficial FTZ treatment. See generally 19
U.S.C. Chapter 1 and 19 C.F.R. Part 146 (1999).
Customs regulations mandate the imposition and collection of
the Harbor Maintenance Tax upon the admission of foreign
merchandise into a FTZ. See 19 C.F.R. § 24.24(e)(2)(iii) (1999).
3
The difference between a general purpose foreign-trade
zone and a foreign trade subzone is that the former must be made
available for use to multiple entities which desire to operate
within a foreign-trade zone. If a company is unable to operate
within a general purpose foreign-trade zone, a foreign-trade
subzone can be established for the use of a single specific
company. See Citgo Petroleum Corp. v. United States Foreign
Trade-Zones Board, 83 F.3d 397, 399 (Fed. Cir. 1996); Nissan
Motor Mfg. Corp., U.S.A. v. United States, 884 F.2d 1375, 1375-76
(Fed. Cir. 1989) (quoting Nissan Motor Mfg. Corp., U.S.A. v.
United States, 12 CIT 737, 738, 693 F.Supp. 1183, 1185 (1988));
Armco Steel Corp. v. Stans, 431 F.2d 779, 788-89 (2d Cir. 1970).
COURT NO. 97-03-00396 PAGE 4
The HMT is to be paid on a quarterly basis by the party
responsible for admitting the foreign goods into the FTZ by way
of a completed Customs Form 349 (“CF 349"). See id.
Four types of shipments are listed on the CF 349 for which
HMT payments must be made on a quarterly basis: exports, domestic
movements, passengers, and FTZ admissions. As the party
admitting foreign goods into a FTZ, BMW has been filing CF 349s
with its HMT payments for its FTZ admissions of foreign
merchandise in the manner prescribed by Customs Regulation
§ 24.24(e)(2)(iii).
BMW commenced this civil action challenging the imposition
and collection of the HMT on the foreign goods it has admitted
into its Spartanburg FTZ. BMW’s amended complaint raised four
causes of action. Three of the causes of action – the
severability claim, the Port Preference constitutional claim and
the Uniformity constitutional claim – have not been briefed, and
plaintiff does not desire to brief them in this action. Rather,
plaintiff relies on the presentations in other test cases and
raises the claims protectively. The court has recently found
these three legal theories wanting and has dismissed a test case
based upon them for failure to state a claim. See Amoco Oil Co.
COURT NO. 97-03-00396 PAGE 5
v. United States, No. 95-07-00971 (Ct. Int’l Trade Sept. 1,
1999). The court adopts that opinion for purposes of this case.
III. Discussion
Plaintiff’s argument relies on two premises, the first of
which is not disputed. First, Customs duties on imports are not
paid upon admission to a FTZ. Rather, they are paid if the goods
exit the FTZ for entry into the Customs Territory of the United
States. See 19 U.S.C. § 81c(a). Second, section 4662(f)(1) of
Title 26 requires the HMT to be treated as a customs duty for
administrative and enforcement purposes, and 19 U.S.C. § 1528
requires that a tax is to be construed as a customs duty if it is
to be treated as a customs duty. Ergo, plaintiff argues that
Customs regulations requiring collection of the HMT on admission
into a FTZ violates statutory law. See 19 C.F.R.
§ 24.24(e)(2)(iii) (requiring HMT to be paid on admission to the
FTZ by the party responsible for admission).
A. Liability upon unloading for HMT on goods
admitted to FMZ
The starting point is the HMT statute. It specifies that
HMT is to be paid on "any port use" in "an amount equal to 0.125
percent of the value of the commercial cargo involved." 26
U.S.C. § 4461(a) & (b). The statute specifies that the fee
shall be paid by --
COURT NO. 97-03-00396 PAGE 6
(A) in the case of cargo entering the United
States, the importer,
(B) in the case of cargo to be exported from
the United States, the exporter, or
(C) in any other case, the shipper.
26 U.S.C. § 4461(c). Liability attaches, for port use other than
exportation, "at the time of [cargo] unloading." 26 U.S.C.
§ 4461 (c)(2)(B).
Congress expressly exempted certain port use from the fee.
Congress created a "[s]pecial rule for Alaska, Hawaii, and
possessions." 26 U.S.C. § 4462(b). See Amoco, slip op. at 14-15
(given the dependence of Alaska and Hawaii on shipping, the
exemption equalizes burdens among the states). Congress also
expressly exempted "bonded commercial cargo entering the United
States for transportation and direct exportation to a foreign
country." 26 U.S.C. § 4462(d)(1). The facts of this matter give
rise to neither exemption and the statute does not include
specific exemption for cargo that is admitted into a foreign
trade zone after unloading at a covered port.
As there is no express exemption applicable to its goods in
the act establishing the HMT, plaintiff must rely on the FTZ
statute to provide relief. That relief is available only if the
HMT is a customs duty.
COURT NO. 97-03-00396 PAGE 7
As recently stated, however, in Texport Oil Co. v. United
States, Nos. 98-1352, 98-1353, 98-1373, 1999 WL 538186, at *6
(Fed. Cir. July 27, 1999), “The HMT is a generalized Federal
charge for the use of certain harbors.” It is also codified in
the Internal Revenue Code. It is not by its nature a customs
duty. Further, by itself, 26 U.S.C. § 4462(f)(1) does not make
the HMT a customs duty. It merely states, in relevant part:
Except to the extent otherwise provided in
regulations, all administrative and
enforcement provisions of customs laws and
regulations shall apply in respect of the tax
imposed by this subchapter (and in respect of
persons liable therefor) as if such tax were
a customs duty.
To treat something for administration and enforcement, as
something else, does not make it that other thing for all
purposes. Congress could easily have said the HMT was a “customs
duty” or a “customs duty for all purposes”; it did not do so.
The next issue is whether 19 U.S.C. § 1528 provides the
necessary link. It states, in relevant part:
No tax or other charge imposed by or
pursuant to any law of the United States
shall be construed to be a customs duty for
the purpose of any statute relating to the
customs revenue, unless the law imposing such
tax or charge designates it as a customs duty
or contains a provision to the effect that it
shall be treated as a duty imposed under the
customs laws.
COURT NO. 97-03-00396 PAGE 8
As the previous discussion indicates, Congress did not
designate the HMT a customs duty. Is it enough that it is
treated as a duty for administration and enforcement? The answer
is “no.” To be treated as a duty for purposes of the Customs
laws denotes a much broader and more substantive treatment than
treatment for mere administration or enforcement purposes. See
U.S. Shoe Corp. v. United States, 20 CIT 206, 208 (1996) (purpose
of 26 U.S.C. § 4462(f)(1) was to specify which agency has
responsibility for collecting and processing HMT payments).
Plaintiff also ignores the purpose of § 1528. Its purpose
is “to make it clear that preferences and exemptions applicable
to customs duties [are not applicable] to internal revenue taxes
unless Congress expressly [says] so.” United States v. Westco
Liquor Prods. Co., 38 CCPA 101, 107 (1951). Congress has not
said expressly that FTZ exemptions are applicable to the HMT.
The language of 26 U.S.C. § 4462(f)(1) does not satisfy the
express language requirement of 19 U.S.C. § 1528. Cf. Chicago
Heights Distrib. Co. v. United States, 55 Cust. Ct. 254, 259
(1965) (distinguishing “collection purposes” from an “exemption”
or “preference” covered by § 1528).
Furthermore, plaintiff’s construction is at odds with the
purpose of the HMT. Although constructed as an ad valorem tax on
COURT NO. 97-03-00396 PAGE 9
merchandise, the purpose of the HMT is to charge for port use.
See Texport, 1999 WL 538186, at *3. The HMT applies whether the
goods are exported, imported or shipped between domestic ports.
See id. To have goods escape the HMT,4 even though the port use
is the same as for other goods, is not within the intent of
Congress.5 In addition, to further its purpose, Congress
provided that the HMT is to attach at the time of unloading
(except for exports). 26 U.S.C. § 4461(c)(2)(B). To delay
liability until the goods (as entered or transformed) leave the
4
Under plaintiff’s interpretation goods may “escape” the
HMT because those products entering the FTZ duty-free need not be
later imported into the Customs territory of the United States.
See, e.g., Citgo, 83 F.3d at 399 (“a company that ships raw
materials into a foreign-trade zone, processes the raw materials
into finished products, and then exports the finished products is
not required to pay duties on the raw materials, as they are
deemed never to have entered the customs territory of the United
States.”).
5
The one exception to this general intent states that the
Harbor Maintenance Tax "shall not apply to bonded commercial
cargo entering the United States for transportation and direct
exportation to a foreign country." 26 U.S.C. § 4462(d)(1).
Legislative history supports the conclusion that this exception
addressed particularly competitive concerns not implicated by the
issue at hand. S. Rep. No. 228, at 229-30 (1986), reprinted in
1986 U.S.C.C.A.N. 6705, 6742 (exempting "bonded cargo entering
the U.S. for transportation and direct exportation to a foreign
country. This exemption does not apply (a) if Canada imposes a
similar port use charge or (b) to U.S. ports (or classes of
cargo) if the mandated cargo diversion study . . . shows that the
charge is not likely to result in a significant diversion of
cargo or that the nonapplicability of the charge to a given U.S.
port would cause economic harm to another U.S. port.").
COURT NO. 97-03-00396 PAGE 10
FTZ and perhaps enter the United States Customs territory
conflicts with this express provision.6
Accordingly, the court concludes the HMT must be paid on
goods unloaded at covered ports for admission into FTZs, in
accordance with 19 C.F.R. § 24.24(e)(2)(iii). The only question
remaining is whether the payor specified in 19 C.F.R.
§ 24.24(e)(2)(iii) is the one provided by statute.
B. Person responsible for HMT on merchandise
admitted into FTZ
The answer to the question now posed depends in part on
whether merchandise admitted into an FTZ is cargo “entering the
United States.” 26 U.S.C. § 4461(c)(1)(A). In such a case the
HMT is to be paid by the “importer.” If it is not, the HMT is to
be paid by the “shipper.” 26 U.S.C. § 4461(c)(1)(C).7
If the statute stated “entering the Customs Territory of the
United States,” this matter would be largely resolved. The
goods, not being unloaded for immediate entry into the United
6
Plaintiff’s contention that HMT is paid quarterly, not at
the time of unloading, is irrelevant. Liability attaches at
unloading, before goods can be made into new products in the FTZ.
7
The court also does not decide whether liability attaches
if bonded sealed merchandise enters an FTZ. This case does not
present such a factual scenario. Nor is the court concerned as
to whether Customs’ forms support the court’s reading of the
statute. The forms, like the regulations, must conform to the
statute, not the converse.
COURT NO. 97-03-00396 PAGE 11
States Customs Territory, but being an “other case,” would give
rise to shipper liability. Of course, the statute dispenses with
these fine words of art and merely states “entering the United
States.” At first, it is not easily decipherable whether
Congress meant the geographical United States or its Customs
Territory. The word “entering,” which is common Customs
parlance, implies that the Customs Territory is meant, but it is
a mere implication, and not a strong one at that. As defendant
points out, the word “enter” has also been used in reference to
admission to an FTZ. See e.g., Nissan Motor Mfg. Corp., 12 CIT
at 744, 693 F. Supp. at 1189 (“right to enter production
machinery into [a] zone without paying duty.”); see also S. Rep.
No. 81-1107, at 1 (1949), reprinted in U.S.C.C.A.N. 2533, 2533
(referring to merchandise “entered” into an FTZ).
Plaintiff notes on the other hand, that for several excise
tax purposes “United States” is defined to include specifically
FTZs. See 26 U.S.C. §§ 4612(a)(4)(C) (1994) and 4682(e)(2)
(1994). It also notes that there is no specific inclusion of
FTZs in the more general definition of “United States” found at
26 U.S.C. § 7701(a)(9) (1994). This is a strong argument.
Congress clearly knows how to include FMZs in the definition of
the United States for tax purposes, if it so chooses.
COURT NO. 97-03-00396 PAGE 12
Further, who the “importer” is when there is no actual
importation or attempted importation is a somewhat difficult
question to answer. Customs argues that its regulations answer
the query by defining importer as “the person . . . responsible
for bringing merchandise into the zone.” 19 C.F.R. §
24.24(e)(2)(i). In fact, the regulations do not state that this
is a definition of “importer.” Customs’ general regulation does
not include this as a category of “importer.”8
As HMT must be paid on the FTZ admissions, one might ask,
who pays the HMT if there is no “importer” for FTZ admissions?
As indicated, except for imports and exports, the shipper is
liable for HMT. 26 U.S.C. § 4461(c)(1)(C). With regard to
domestic shipments, Customs’ regulations indicate a shipper is
the party paying the freight. 19 C.F.R. § 24.24(e)(1)(i). As a
8
19 C.F.R. § 101.1 (1999) defines importer as:
[T]he person primarily liable for the
payment of any duties on the merchandise, or
an authorized agent acting on his behalf.
The importer may be:
(1) The consignee, or
(2) The importer of record, or
(3) The actual owner of the merchandise,
if an actual owner’s declaration and
superseding bond has been filed in accordance
with § 141.20 of this chapter, or
(4) The transferee of the merchandise, if
the right to withdraw merchandise in a bonded
warehouse has been transferred in accordance
with subpart C of part 144 of this chapter.
COURT NO. 97-03-00396 PAGE 13
shipper is a person responsible for procuring movement of goods,9
this regulatory definition comports with common meaning. Unlike
“importer,” there is no general regulatory definition of
“shipper.”
The person paying the freight, however, may be either the
seller or buyer.10 With domestic shipments, this creates no
problem, but as to shipments into an FTZ a collection problem
might arise if the person responsible for the freight is
interpreted to be the foreign seller.11
9
Black’s Law Dictionary defines “shipper” as:
One who ships goods to another. One who
engages the services of a carrier of goods.
One who tenders goods to a carrier for
transportation; a consignor. The owner or
person for whose account the carriage of
goods is undertaken.
Black’s Law Dictionary 1378 (6th ed. 1990).
10
Under a carriage, insurance, and freight (“C.I.F.”)
contract, the price includes in a lump sum the cost of the goods
and the insurance and freight to the named destination. Black’s
Law Dictionary 242. If the contract has a free on board
(“F.O.B.”) delivery term, the seller ships the goods and bears
the expense and risk of loss to the F.O.B. point designated. Id.
at 642.
11
One might argue that the buyer always pays the freight,
because in a C.I.F. contract the price paid by the buyer includes
the freight and in an F.O.B. contract, the freight is paid
directly by the buyer. See John H. Jackson, William J. Daley, &
Alan O. Sykes, Legal Problems of International Economic Relations
54 (3d ed. 1995) (comparing responsibilities under C.I.F. and
(continued...)
COURT NO. 97-03-00396 PAGE 14
The parties declined to brief the issue of shipper liability
and have not advised if the plaintiff paid the freight on the FTZ
admissions at issue, or whether the sales contracts placed
responsibility for freight with the seller. In any case, the
court doubts that any reasonable interpretation of the statute
would permit the shifting of liability, by means of a simple
contractual arrangement, beyond Customs’ practical ability to
collect the HMT.
In accordance with Customs’ broad authority to design
procedures for collection of HMT, it may be permissible for
Customs to require that the person responsible for admission to
an FTZ assure that the HMT payment is made. This may be so even
if another party was responsible, pursuant to contract, for the
freight payment, and is, therefore, nominally the “shipper.”
The statute is not entirely clear as to which party is
responsible for HMT on admissions into an FTZ. In such a case,
the court must examine the reasonableness of the agency’s
interpretation. Chevron, U.S.A., Inc. v. Natural Resources
Defense Council, Inc., 467 U.S. 837, 843 (1984); see also United
States v. Haggar Apparel Co., 119 S.Ct. 1392, 1400 (1999)
(Chevron analysis to be applied to Customs classification if
11
(...continued)
F.O.B. terms).
COURT NO. 97-03-00396 PAGE 15
Customs promulgates regulation interpreting ambiguous statute).
While the interpretation of the statute presented to the court by
the government is not particularly convincing, the regulations
themselves may reasonably carry out the statute by simply
providing that the person responsible for FTZ admission pay the
HMT. As indicated, the court is unaware if plaintiff paid the
freight charge, in which case plaintiff would be liable, no
matter which interpretation of the statute the court accepts.
Accordingly, the parties will inform the court within 20
days hereof if there is agreement as to plaintiff’s
responsibility for HMT under this opinion. If no further dispute
exists, the parties shall submit a form of judgment. If a
dispute exists, a briefing schedule shall be submitted.
_______________________
Jane A. Restani
JUDGE
Dated: New York, New York
This 14th day of September, 1999.