American Customs Brokerage Co., Inc. v. United States

• Decision Date: 30 May 1974
• Docket Number: C.D. 4546,Court No. 72-2-00308.
• Citation: 375 F. Supp. 1360
• Parties: AMERICAN CUSTOMS BROKERAGE CO., INC., A/C Astral Corp. v. UNITED STATES.
• Court: U.S. Court of Customs and Patent Appeals (CCPA)

375 F. Supp. 1360

AMERICAN CUSTOMS BROKERAGE CO., INC., A/C Astral Corp. v. UNITED STATES.

C.D. 4546; Court No. 72-2-00308.

United States Customs Court.

May 30, 1974.

Glad, Tuttle & White, Los Angeles, Cal. (Edward N. Glad, Los Angeles, Cal., of counsel), for plaintiff.

Carla A. Hills, Asst. Atty. Gen. (James Caffentzis, New York City, trial atty.), for defendant.

RE, Judge:

The question presented in this case pertains to the dutiable status of a yacht under the Tariff Schedules of the United States (TSUS). The yacht, the "MS Astral," is registered and documented under the laws of the Netherlands Antilles, and was brought into the United States by a resident of this country.

The Astral first entered the territorial waters of the United States at San Diego Harbor on or about November 23, 1970. On November 24, 1970, the yacht's master, Captain Perdue, pursuant to 46 U.S.C. § 104 and section 4.94 of the Customs Regulations, applied for and obtained a cruising license to cruise in and around the waters of San Diego, Los Angeles, San Francisco, Seattle and Honolulu until May 24, 1971. In March 1971, the Astral departed from California for Hawaii, where a 6 months' extension of the cruising permit was issued on May 20, 1971.

However, at the insistence of customs officials, an appraisement entry of the yacht was made on June 30, 1971 at Honolulu, Hawaii. The Astral was thereupon classified under TSUS item 696.10, as modified by T.D. 68-9, as a yacht or pleasure boat valued over $15,000, owned by a resident of the United States or brought into the United States for sale or charter to a resident thereof. Hence, it was assessed with duty at the rate of 6 per centum ad valorem.

Plaintiff contends that the yacht was not subject to entry under the customs laws and was therefore nondutiable under either of the following grounds: (1) since there was no intent to bring the Astral into the United States permanently, it was a nonimportation, or (2) since it was owned by a nonresident, it was not imported for charter or sale to a resident of the United States.

The pertinent statutory provisions read as follows:

Tariff Schedules of the United States General Headnotes and Rules of Interpretation

"1. Tariff Treatment of Imported Articles. All articles imported into the customs territory of the United States from outside thereof are subject to duty or exempt therefrom as prescribed in general headnote 3.

* * * * * *

3. Rates of Duty. The rates of duty in the `Rates of Duty' columns numbered 1 and 2 of the schedules apply to articles imported into the customs territory of the United States as hereinafter provided in this headnote:

* * * * * *

5. Intangibles. For the purposes of headnote 1—

* * * * * *

(e) vessels which are not `yachts or pleasure boats' within the purview of subpart D, part 6, of schedule 6,

are not articles subject to the provisions of these schedules."

Schedule 6, part 6, subpart D:

"Subpart D headnote:

1. This subpart does not cover—

(i) yachts or pleasure boats provided for in items 696.05-.10 if in use or intended to be used in trade or commerce, or if brought into the United States by non-residents thereof for their own use in pleasure cruising; or

(ii) vessels which are not yachts or pleasure boats (see general headnote 5(e)).

Yachts or pleasure boats, 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, whether or not such yachts or boats are brought into the United States under their own power; and parts thereof:

Yachts or pleasure boats:

* * * * * *

                696.10 Valued over $15,000
                  each .................... 6% ad val."
                

46 U.S.C. § 104:

"Reciprocal exemption of foreign yachts from charges and tonnage taxes; licenses.

Whenever it shall be made to appear to the satisfaction of the President of the United States that yachts used and employed exclusively as pleasure vessels and belonging to any resident of the United States are allowed to arrive at and depart from any foreign port and to cruise in the waters of such port without entering or clearing at the customhouse thereof and without the payment of any charges for entering or clearing, dues, duty per ton, tonnage taxes or charges for cruising licenses, the Commissioner of Customs may authorize and direct the customs authorities at the various ports of entry of the United States to allow yachts from such foreign port used and employed exclusively as pleasure vessels to arrive at and depart from any port of the United States and to cruise in waters of the United States without the payment of any charges for entering or clearing, dues, duty per ton, or tonnage taxes, but the Commissioner of Customs may, in his discretion, direct that such foreign yachts shall be required to obtain licenses to cruise, in a form prescribed by him, before they shall be allowed under the provisions of this section to cruise in waters of the United States. Such licenses shall be issued without cost to such yachts and shall prescribe such limitations as to length of time, direction, and place of cruising and action, and such other particulars as the Commissioner of Customs may deem proper."

At the trial, two witnesses testified for plaintiff: Mr. Cornelius Christian Vanderstar, a naturalized citizen of the United States and resident of Newport Beach, California, and Harry William Perdue, a retired Coast Guard lieutenant commander, who was hired as master of the Astral from approximately October 10, 1970 until May 30, 1971.

Mr. Vanderstar testified that the Astral is a 98-foot steel hull, ketch rigged motor sailer, which was built for him by a West German shipyard. He stated that he paid approximately $650,000 for the yacht upon its completion in July 1970.

Prior thereto, in April 1970, Mr. Vanderstar organized the Astral Corporation in Curacao, Netherlands Antilles, through two Dutch companies and their representatives. The purpose of the Astral Corporation, as stated in its articles of incorporation, was the "operation of one or more seagoing yachts and everything connected therewith in the broadest sense." After forming the company, the incorporators sold all of their shares to Mr. Vanderstar, who thereby became the sole stockholder.

In July 1970, before the yacht was completed, the Astral Corporation purchased the Astral from Mr. Vanderstar, who loaned the corporation approximately $688,000 so that it could buy the yacht from him. The yacht was subsequently registered at Curacao.

Commencing with the last half of 1970, and in 1971 and 1972, Mr. Vanderstar personally chartered the yacht for an annual fee of $140,000. Part of the chartering fee was to pay the boat's operating expenses, such as fuel, food, wages, upkeep and repairs, all of which were personally paid by Vanderstar. The balance was applied toward the repayment of the loan.

In July 1970, the Astral sailed from West Germany to Holland on the start of its "shakedown" cruise. A "shakedown" cruise is intended to test a new ship under operating conditions, and to familiarize the crew. As explained by the witness:

"Every new boat needs a certain amount of time to sort of see how everything operates at sea, whether there were any bugs in the equipment or, if changes had to be made, to get everything operating properly."

Having owned only much smaller yachts, Mr. Vanderstar did not know the duration of a "shakedown" cruise for a yacht the size of the Astral. Furthermore, the Astral was already encountering some problems in the electrical system when he acquired it in Germany, and the builder sent an engineer with him to Holland to correct some of the difficulties.

The yacht proceeded from Holland to England and thence to the Canary Islands, taking about one and a half months. It then proceeded to Curacao, taking another one and a half to two months. It was delayed about four weeks in Curacao because the entire air conditioning system was inoperative and a number of motors had to be rewired and changed. Finally, it went through the Panama Canal up the Mexican coast to Acapulco, where one of the diesel generators was completely overhauled and new pistons and cylinder linings were installed. The motor, however, still did not work properly. Although the generators were under warranty by the General Motors Corporation, that company did not have a representative in Acapulco.

Mr. Vanderstar then had the Astral proceed north to San Diego to "obtain a cruising permit in order to spend some time in the United States and, among other things, to have some repairs made to the boat."

The yacht remained two nights in San Diego, and then proceeded to Mr. Vanderstar's residence at Newport Beach where it was docked. Repairs were made at Newport Beach, and at the Lido Shipyard, by the crew, the shipyard, and representatives from various companies. The repairs consisted of a complete overhaul of both diesel generators, installation of new through-hull fittings to relieve the extensive exhaust pressure in the exhaust system, and installation of new piping and valves to lead the water overboard rather than through the exhaust. New piping valves and overboard fittings were also installed for the main engines to relieve some of the exhaust pressure out of the exhaust system. Additionally, in view of certain difficulties, new water filters were put into the diesel system in order to be able to observe the water in the systems.

Other repairs also had to be made. The rectangular port holes were rebuilt because they were leaking water inside instead of outside, an air-conditioning compressor was replaced as it had a broken shaft, and various repairs were made on the refrigerator and freezer system. The a. c. inverter, which never worked properly despite repairs in three ports, had to be taken completely apart. Because of a design defect, the parts were shipped back to the Chicago...