H303275

90 K Street, N.E., Washington, D.C. 20229-1177 U.S. Customs and Border Protection HQ H303275 October 12, 2021 ENT 1-03 OT:RR:CTF:ER H303275 ABH Rolando Jocson Drawback Specialist U.S. Customs and Border Protection Port of San Francisco, Drawback Branch 555 Battery Street San Francisco, CA 94111 Re: Request for Internal Advice Request; Recycling of packaging materials in drawback claim under either 19 U.S.C. 1313(j) or 26 U.S.C. 5062(c). Dear Mr. Jocson: This letter is in response to your Request for Internal Advice, dated September 20, 2018. The Request for Internal Advice seeks clarification regarding whether destruction for drawback purposes is permitted where the distilled spirits, wine, and beer are destroyed in their entirety, but the packaging material of the imported goods is salvaged and recycled. FACTS: Parallel Environmental Services Corporation, dba Parallel Products (“Parallel”), is based in Louisville, Kentucky. The company offers liquid waste disposal and recycling services to beverages, ethanol, health and beauty, plastics, and transportation industries. Parallel also provides destruction and tax/duty recovery services to the alcoholic beverage industry. Parallel itself does not have a drawback program and has not filed a drawback claim with U.S. Customs and Border Protection (“CBP”). It provided services to clients, however, that were priced based on potential drawback claims. For example, Parallel charged $3.25 per case for destruction under 19 U.S.C. § 1313(j) claims, with no recycling and all materials are sent to a landfill. Parallel charged $1.25-$2.50 per case for destruction under a 26 U.S.C. § 5026(c) claims, where alcoholic content is emptied down the drain or sent to a landfill and the packaging materials (e.g., aluminum, glass, plastic, cardboard, stretch wrap) were salvaged and recycled. The recycling fees earned were credited against the fee and the fee charged to the customer was reduced accordingly. Finally, for destruction services where the client was not going to seek any drawback, Parallel charged $.065 per case. According to Parallel, the Port of Louisville approved their destruction processes and tax/duty services in 2007. In 2017, however, CBP officers sought further information from Parallel about their destruction processing services and ultimately advised Parallel that the destruction of imported goods that involved drawback and recycling of packaging materials was not permitted. The CBP Officers suggested that Parallel contact a drawback center to determine if their tax/duty recovery services were allowed. In October 2017, Parallel contacted the San Francisco Drawback Office for advice and the Drawback Office advised Parallel that no materials may be recycled if a request for drawback was going to be filed. As a result of this advice, Parallel stopped offering services which allowed for the recycling of packaging materials and continued to dispose of all materials on a full destruction basis, such that all materials, including the liquids with alcoholic content and the packaging are sent to the landfill with no recycling. In its Internal Advice request, Parallel limited its request to the destruction of distilled spirits, wine, and beer. Parallel stated that its customers are not seeking a duty drawback refund of any duty, tax, or fee paid on packaging material pursuant to 19 U.S.C. § 1313(q). Parallel also stated that its clients would not be seeking drawback for any applicable harbor maintenance taxes (“HMTs”) or merchandise processing fees (“MPFs”). ISSUE: Whether in the context of duty drawback claims of distilled spirits, wine, and beer (pursuant to 19 U.S.C. § 1313(j) and 26 U.S.C. § 5062(c)), destruction in lieu of exportation is permitted when the imported merchandise is destroyed, but the containers within which the imported good is contained is salvaged and recycled. LAW AND ANALYSIS: Parallel seeks this Internal Advice regarding two statutory provisions – 19 U.S.C. 1313(j) and 26 U.S.C. 5062(c). Section 1313(j) addresses unused merchandise drawback pursuant to Customs laws under Title 19. Section 5062(c) addresses drawback of excise taxes pursuant to the Internal Revenue Code under Title 26. Because the statutory provisions and the authorities differ, each will be addressed in turn. 19 U.S.C. § 1313(j) Drawback is a refund or remission, in whole or in part, of a Customs duty, internal revenue tax, or fee. There are a number of different kinds of drawback authorized under law, but the one at issue is unused merchandise drawback pursuant to 19 U.S.C. § 1313(j). The implementing Customs regulations have recently been modernized pursuant to the Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”) (Pub. L. 114-125, 130 Stat. 122), which was signed into law on February 24, 2016. Accordingly, Title 19, U.S. Code of Federal Regulations, Part 191, applies to drawback claims filed before or on February 23, 2019, whereas Part 190 applies to drawback claims filed after February 23, 2019. Section 906(q)(3) of TFTEA, however, provided for a transition period, beginning February 24, 2018, and ending February 23, 2019, during which claimants were permitted to file claims under the drawback process and regulations detailed in part 191 (and under section 313 of the Tariff Act of 1930 as in effect on the day before TFTEA was signed into law) or under the amended statute and the implementing regulations (Part 190). Historically, drawback dating back to the Tariff Act of July 4, 1789, only permitted drawback of ninety-nine (99) percent of duties paid on imported merchandise (except distilled spirits) if the merchandise was exported within a year. Drawback expanded over time, however, to provide, among other things, refunds under certain circumstances for taxes and fees in addition to duties and to allow for merchandise to be destroyed as an alternative to exportation. Indeed, the concept of destruction in lieu of exportation has also evolved over time. Prior to 2000, destruction required that the merchandise be rendered valueless and if the merchandise retained any value as an article of U.S. commerce it was not sufficiently destroyed for purposes of seeking drawback. Historically, in interpreting the term destruction, as used in the drawback law when merchandise or articles are alleged to be destroyed in lieu of exportation, Customs followed the Customs Court case American Gas Accumulator Co. v. United States, Treasury Decision (T.D.) 43642 (Cust. Ct., 3rd Div. 1929). In that case, the Court defined destruction as, destruction as an article of commerce. In other words, if articles were destroyed to such an extent that they were only valuable in commerce as old scrap they still would be articles of commerce to which duty attached upon importation, and therefore could not be said to have been destroyed. 56 T.D. 368, 370. Accordingly, striking machine parts with a heavy, solid ball and then dismantling the parts for scrap iron, did not amount to destruction for purposes of drawback under 19 U.S.C. § 1313(j), HQ 222975 (Sept. 4, 1991), but scrap metal buried in a public landfill whereby recovery would be economically infeasible was considered destroyed for drawback purposes, Customs Service Decision (C.S.D.) 79-419 (cited in HQ 222742 (Dec. 11, 1991). Following this definition of destruction, CBP looked at the issue of recycling and determined that recycling merchandise in the Customs territory did not constitute destruction for purposes of drawback because it resulted in articles of Commerce. HQ 224110 (Mar. 17, 1993). In one ruling, recycling was permitted to satisfy the destruction requirement of 19 U.S.C. § 1313(j)(2) only upon proof that local laws required it and that the cost of the recycling exceeded the value of the goods recycled. HQ 224742 (Dec. 11, 1991). In 1998, when implementing the North American Free Trade Agreement Implementation Act, Public Law 103-182 (Dec. 8, 1993), popularly known as the 

Parallel seeks this Internal Advice regarding two statutory provisions – 19 U.S.C. 1313(j) and 26 U.S.C. 5062(c). Section 1313(j) addresses unused merchandise drawback pursuant to Customs laws under Title 19. Section 5062(c) addresses drawback of excise taxes pursuant to the Internal Revenue Code under Title 26. Because the statutory provisions and the authorities differ, each will be addressed in turn.19 U.S.C. § 1313(j) Drawback is a refund or remission, in whole or in part, of a Customs duty, internal revenue tax, or fee. There are a number of different kinds of drawback authorized under law, but the one at issue is unused merchandise drawback pursuant to 19 U.S.C. § 1313(j). The implementing Customs regulations have recently been modernized pursuant to the Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”) (Pub. L. 114-125, 130 Stat. 122), which was signed into law on February 24, 2016. Accordingly, Title 19, U.S. Code of Federal Regulations, Part 191, applies to drawback claims filed before or on February 23, 2019, whereas Part 190 applies to drawback claims filed after February 23, 2019. Section 906(q)(3) of TFTEA, however, provided for a transition period, beginning February 24, 2018, and ending February 23, 2019, during which claimants were permitted to file claims under the drawback process and regulations detailed in part 191 (and under section 313 of the Tariff Act of 1930 as in effect on the day before TFTEA was signed into law) or under the amended statute and the implementing regulations (Part 190). Historically, drawback dating back to the Tariff Act of July 4, 1789, only permitted drawback of ninety-nine (99) percent of duties paid on imported merchandise (except distilled spirits) if the merchandise was exported within a year. Drawback expanded over time, however, to provide, among other things, refunds under certain circumstances for taxes and fees in addition to duties and to allow for merchandise to be destroyed as an alternative to e