HQ 545731: Application for Further Review of Protest number 0901-94 -100232 concerning the dutiability of state sales tax payments made by the importer on imported precast concrete building panels that will be used in the construction of a hotel; post importation charges, invoicing requirements

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 545731
                                                                  February 3, 1995
CO:R:C:V   545731 RSD

CATEGORY:  Valuation

District Director of  Customs
111 W.  Huron Street
Room 603 
Buffalo, New York 14202

RE:     Application for Further Review of Protest number 0901-94 -100232  concerning the  dutiability of  state sales tax payments made by the importer on imported precast concrete     building panels that will be used in the construction of a  hotel; post importation charges, invoicing requirements

Dear Sir:

     This is in response to your memorandum dated July 26, 1994, forwarding the application
for  further review of protest number 0901-94-100232 filed by Artex Precast Systems Inc.,
concerning the dutiability of sales tax payments made to New York State for imported precast
panels used in the construction of a hotel.  Copies of part of the contract between buyer and seller
were faxed to our office.  We regret the delay in responding.  

FACTS:

     Artex Systems Ltd., based in Ontario, Canada, is a manufacturer and seller of exterior
building panels.  This case involves the sale of precast concrete building panels faced with natural
limestone that were used in the construction of the Regent Hotel in New York City.   In January
1990, Artex contracted with Tishman Corporation, the general contractor of the Regent Hotel, to
manufacture and deliver the panels to the job site.  Delivery took place over a period of 
approximately 1 1/2 years beginning in 1991 and ending in the middle of 1992.  Initially Artex was
required to hire its own subcontractor to erect the imported panels to the exterior of the Regent
building.  The cost of erecting the panels to the building was included in the price of the panels
purchased by Tishman.   However, Tishman determined that the cost of  erecting the panel  was
too high and they hired their own sub-contractors to install the panels.  It is our understanding
that Artex retained the responsibility of paying the New York State sales taxes incurred on the
panels. 

     The protestant, Artex Systems, maintains that it should have been allowed to deduct the
New York State sales tax it paid on the panels from the dutiable value because it was the party
responsible for the erection and installation of the panels.   It points out that by the contract, it
was responsible for "engineering, design, fabrication,  providing installation shop drawings,
detailing and supply of installation anchors to meet construction schedule, erection procedure
based on the design requirements, erecting  sequencing and full time erection supervisor and
inspector overseeing the panel  installation."   However, a rider to the contract last revised on
October 15, 1990, states that work not in contract includes "Erection of panels or supervision of
erector."

     The protestant claims that it paid a total of  $271,770 and $332,053 for New York State
sales tax on the panels.  As proof of payment of these amounts, the protestant presented copies of 
23 checks made payable to New York State Sales Tax, which total $271,770.  However, there is
no indication what these sales tax payments were levied against.  There is also a copy  of  a tax
notice which indicates a tax obligation of  $270,032.83 plus a interest assessment of 
 $60, 020.19, for a total of $ 332,053.02, but there is no indication if this amount was ever paid.  
The invoice in the file prepared by the Customs broker, F.W. Meyers and Co. Inc.,  does not
show an amount that was due for the payment of the sales tax for the panels.   It is our
understanding that Artex did not present Customs with an invoice for the sale of the panels to
Tishman, which showed that the price paid for the panels included a separate amount for the state
sales tax owed on the merchandise.  However, in the contract between Artex Systems and
Tishman dated February 8, 1990, and revised on August 28, 1990, the price of stone faced precast
concrete is shown as $5,428,000.  The contract also indicates that tax of $265,000 and duty of
$122,000 are due on the merchandise.  The total amount shown on the contract that is to be paid
to Artex is $5,815,000.  We also understand that there are addendums to the contract which
resulted in additional payments.

ISSUE:

     Based on the evidence presented, whether the amount of state sales tax incurred on the
imported panels used in a construction project should be deducted from the price actually paid or
payable to determine the transaction value of  the merchandise?

LAW AND ANALYSIS:

     All parties are in agreement that the proper method of appraisement is transaction value
which is defined by 402(b)(1) of the Tariff Act of 1930, as amended by the Trade Agreements Act
of 1979 (TAA, 19 U.S.C. 1401a(b)) as "the price actually paid or payable for the merchandise
when sold for exportation to the United States..." plus certain additions specified in 402(b)(1)(A)
through (E).  The term "price actually paid or payable" is defined in TAA 402(b)(4)(A) as:

     ...the total payment (whether direct or indirect and exclusive of any costs, charges or
     expenses incurred for transportation, insurance, and related services incident to
     international shipment of the merchandise from the country of exportation to place of
     importation in the United States made, or to be made, for imported merchandise by the
     buyer to, or for the benefit of , the seller. 
     
     The only issue in contention is the dutiable status of  the New York State sales tax that
was paid on the imported panels.   The protestant contends that these payments are non-dutiable
and that it should be allowed to deduct the amount of the sales tax payments from the price
actually paid or payable to determine the dutiable value of  the merchandise. 

     Section 402(b)(3), the relevant portion of the TAA provides that:

     (3)  The transaction value of imported merchandise does not include any of the
          following, if identified separately from the price actually paid or payable and from
          any cost or other item referred to in Paragraph (1):

     (A)  Any reasonable cost or charge that is incurred for - (i) the construction, erection,
          assembly or maintenance of, or the technical assistance provided with respect to
          the, merchandise after its importation into the United States; or ... 
        
     In HRL 542451, TAA 27, June 4, 1981,  Customs ruled on the dutiable status of a state
sales tax incurred on imported precast concrete panels.   According to the facts presented,
construction projects which are not state supported or state sponsored are subjected to a sales tax
on the value of  the material, including the precast concrete.  Customs indicated that where the
shipper is responsible for erection or installation of construction panels and pays the sales tax and
then incorporates this cost in the contracted sales price, the state sales taxes were, "in reality
erection and installation costs that are properly to be deducted from a completed transaction
value."  We further iterated that to the extent that sales taxes are included in the price, such may
be deducted from the total payment in order to determine the proper transaction value in
accordance with section 402(b).   In HRL 543263, Customs affirmed this position by holding that
a 6 percent California State sales tax was a nondutiable construction or erection cost under
section 402(b)(3) of the TAA.   In that case, the importer's U.S. division  was responsible for
installation and erection.  We noted that the relevant fact in this determination is that the tax in
question is not levied as a condition of importation into the United States, but subsequent to
importation and only after the merchandise has been erected or installed.   HRL 543263 also
noted that the U.S. inland freight, Customs duties and the California sales tax of the Canadian
engineering work and materials were included in the delivered price so that these items could be
clearly deducted from transaction value.  

      In the present case, the sales tax in question appears to be similar to the taxes levied in the
above cases.  Based on the above rulings, to the extent that the protestant has separately 
identified the sales tax  from the price of the imported panels , this amount should not be included
in the transaction value of the imported merchandise.  In this case, evidence in the form of  the
contract between Artex and Tishman has been been presented that establishes that the New York
State sales tax was included in the total  payment made to Artex.   The contract separately
identifies the sales tax costs in the amount of $265,000, from the price actually paid or payable for
the imported merchandise.   In accordance with  HRL 543263 and HRL 542451, we find that the
New York State sales tax should be considered erection or construction costs, and it should be
deducted from the price actually paid or payable to determine transaction value for the imported
merchandise.   Accordingly, we find that $265,000 should not be included to the transaction value
of the imported merchandise.

     With respect to the $332,053.02 in additional sales tax that the protestant also seeks to
deduct from the price actually paid or payable, the protestant has not sufficiently documented that
this amount was included in the price actually paid or payable for the imported panels.   The only
evidence that $332,053.02 in sales tax was incurred was a notice from the New York State
Department of  Taxation and Finance.  However, the notice does not specifically indicate how the
amount was determined or if  it specifically  relates to the same transactions that are involved in
this case.   More significantly, neither the contract nor the invoices submitted to Customs
separately identifies this amount from the price actually paid or payable for the imported panels.  
Therefore, we find that the additional $332,053.02 in sales tax should not be deducted from the
contract price to arrive at the transaction value for the imported merchandise. 

HOLDING:

     Because the contract between Artex and Tishman  separately identifies the New York
State sales tax from the price actually paid or payable for the imported panels, and evidence was
presented indicating that Artex paid this amount in sales taxes to New York State, the amount of
sales tax amount shown in the contract, $265,000, should be deducted from the price actually
paid or payable to determine the transaction value of imported merchandise.

     You are directed to grant the protest in part.  A copy of this decision with the Form 19
should be sent to the protestant.  In accordance with Section 3A(11)(b) of Customs Directive 099
3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be
mailed by your office to the protestant no later than 60 days from the date of this letter.  Any
reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of
the decision.  Sixty days from the date of the decision, the office of Regulations and Rulings will
take steps to make the decision available to Customs personnel via the Customs Rulings Module
in ACS, and to the public via the Diskette Subscription Service, Lexis, the Freedom of 
Information Act and other public access channels

                         Sincerely,




                         John Durant, Director
                         Commercial Rulings, Division