CBP Says Proposed Wine Sales Operation From FTZ Not Compliant

CBP poked several holes in a proposed sales plan for wine stored within a foreign-trade zone in a June 15 ruling (HQ H277473). DQ Enterprises asked CBP to weigh in on a wine sales operation that would make use of several different regulations to reduce or avoid customs duties. The agency responded with concerns for the bulk of the proposed plans, but noted other agencies would need to be consulted, too.

DQE's proposal involves selling wine stored by DQE warehouses in FTZs for foreign wine suppliers that will pay the shipment costs and "hold title to the wine at the time of its importation and admission into the FTZ," CBP said. DQE will also advertise the foreign wines so that travelers will buy the wines while abroad, and once a purchase abroad is completed, "suppliers will transmit customers’ purchase orders to DQE," it said. DQE told CBP "that at the moment customers complete a purchase abroad, they acquire title to the wine held within the FTZ" and "DQE will not hold title to the wine at any point in the proposed sales operation." DQE then would "fulfill the orders paying for a commercial carrier to transport the wine from the FTZ to customers" in the U.S.

The company also suggested "using informal entry procedures for unaccompanied shipments of articles subject to personal exemptions to enter wine shipped from the FTZ." Finally, DQE would pay "any taxes, duties, or fees owed" on the wine "either when the wine is first imported and admitted into an FTZ, or when the wine is later withdrawn from the FTZ." The company "will either assume the cost of this payment itself, or transmit the payment it receives from customer," it said.

The first problem with the proposal is that DQE does not have the right to admit merchandise into an FTZ and withdraw it for consumption, CBP said. "DQE’s responsibility towards the imported wine arises from its general role as an FTZ warehouse operator," CBP said. While "DQE receives compensation for fulfilling its responsibilities as an FTZ warehouse operator, this compensation fails to create a financial interest in the wine outside of DQE’s role as a nominal consignee," the agency said.

The marketing and advertising services proposed also don't allow DQE to serve as the importer of record, CBP said. "DQE’s financial interest in the compensation it receives for these services cannot generate a reciprocal nexus between its financial welfare and the imported wine." The agency also said DQE would need to use a customs broker because the "payment of duties, taxes, and fees owed on the wine constitutes customs business."

The agency also shot down the possibility of using personal exemptions for the wine. "For a personal exemption to apply, the alcohol must be imported for personal use," it said. Here, "the wine admitted into an FTZ is imported by its suppliers, and is not imported by a customer upon their return." Also, the suppliers can't "claim a personal exemption on behalf of a customer because it is the suppliers, not customers, who own the wine at the time of its importation." Additionally, "the wine is imported in anticipation of a sale to potential customers," it said. "The wine is therefore not imported for the personal use of an actual customer, but for a commercial purpose." The company should consult with the Alcohol and Tobacco Tax and Trade Bureau on that agency's labeling requirements, CBP said.

CBP did not weigh in on whether the proposed operation constitutes "retail trade" within an FTZ. "Pursuant to the regulations promulgated by the FTZ Board in 2012, the authority to issue a determination as to whether a particular activity constitutes retail trade is vested with the Executive Director of the FTZ Board," it said.