vance payment, monthly passes, or automatic card readers. In no case would traffic be delayed or hindered. Assuming that all of the fees can be assessed and collected as currently envisioned, approximately $550 million can be realized by the government, all of that coming from the persons or businesses who either benefit from customs services or cause the need for those services to be performed. Collection could begin within 2 to 3 months following authorizing legislation. I would like to mention again the most salient points of the processing fee proposal. One, the fees will be assessed directly to the persons or businesses which use customs services. Two, the fees only cover processing services and not customs enforcement activities from which everyone benefits. Three, there is precedent for the collection of special fees and we currently have limited statutory authority to do so in specialized areas. Four, the fees would be equitably formulated and not onerous on either the traveling public or commercial interests. When considering the value of merchandise imported or the cost of international travel, the fees we believe are quite small. Five, the fees can be easily collected with no increase in the bureaucracy to collect the fees. Minor modifications to some existing automated systems may be required. The collection process will not impede either commerce or travel. Six, the General Agreement on Tariffs and Trade permits the collection of fees which cover the costs of service rendered and we believe would not be violated. Seven, costs for some businesses, especially commercial carriers may actually decline under the user fee proposal. Eight, the proposal would contribute to the overall budget deficit reduction effort. I would now like to turn to the second proposal currently under consideration within the administration. Customs has for many years maintained a presence at smaller ports of entry which we believe do not warrant the level of resources required to staff and maintain the facilities. These locations have port of entry status as a convenience for the municipalities or local governments. We are considering a move toward a reimbursable services concept for those ports where minimum work load standards are not met whether they be interior, seaport, northern or southern land border ports. We believe it is not good business for Customs to continue to devote resources to those ports where workload is low. Yet, it is important for some of the smaller ports to have port of entry status. The reimbursable port concept permits the local community government or commercial interests to pay the cost of putting resources into new ports. The cost are very small in terms of the perceived benefits received and it obviates the need for Customs to reallocate positions from smaller ports to larger ports. In conclusion, we at Customs believe that everyone benefits from both proposals. The traveling and importing public benefit through better service. The taxpayers gain by not all having to support services from which only a small fraction of the population benefit. Small ports can continue to function as ports of entry without competition from larger ports for resources, and Customs benefits by being able to respond to an ever increasing work load in locations where the work load is the greatest. I appreciate the opportunity to present our view to you today and welcome any questions you may have. [The prepared statement follows:1 STATEMENT OF ROBERT P. SCHAFFER, ASSISTANT COMMISSIONER, OPERATIONS, U.S. CUSTOMS SERVICE COMMERCIAL I am Robert P. Schaffer, Assistant Commissioner for Commercial Operations of the United States Customs Service. I am pleased to be able to appear before you today to discuss one of the most important issues for the Customs Service. The two proposals which we have made and which are being reviewed within the Administration are a means for us to provide better and more equitable service but to have that service paid for by the people who either benefit from the provision of that service or create the need for the service to be performed. This is in consonance with Administration policy and would contribute to the deficit reduction efforts. The user, or processing fee, proposal covers all of Customs non-enforcement activities. While less than 10 percent of all Americans benefit directly from Customs services, all taxpayers are contributing to the daily operating costs of Customs of $1,500,000 for non-enforcement services. Just as an example of how selective segments of American society and business benefit from these services: approximately half of the passengers arriving in the United States by air are U.S. citizens; 19 international airports account for 98 percent of the total air passengers processed; 40 land border posts service 80 percent of the land border traffic; 40 seaports account for over 90 percent of the arriving cargo; and 50 airlines account for over 90 percent of air passenger traffic. Importers are an equally select group with the top 500 American importers or firms accounting for over 90 percent of the imported cargo while the 300 top import brokers handle over 70 percent of all imports. This select group creates the need for Customs services and benefits from those services. To recoup the costs of providing those services, we have looked at the types of services provided and analyzed the FY 1986 budget request to fix the costs for providing those services. The result is a proposal for fees which vary from one quarter to $393 per transaction. The fees being proposed are: Equitable to the persons or businesses who will pay; easy to collect with no corresponding increase in the bureaucracy to collect the fees; of little economic impact on the businesses or persons who will pay; designed to only cover actual costs; not in violation of the General Agreement on Tariffs and Trade; and, similar to those imposed by several other countries. The legislation which will be sent forward will authorize the Secretary of the Treasury to prescribe and collect the Customs processing fees. The fee schedule will be established administratively on an annual basis so that fluctuations in workload and collections can be compensated for. I would like to give you some details on the proposed fee structure. I should emphasize that because the fee schedule would be established by regulation, this discussion merely represents our current thinking and is subject to change in light of the comments we receive, further analysis, and workload fluctuations. These fees are subject to change prior to implementation. The majority of the collections resulting from processing fees would be in the commercial importations area. For formal entries, those entries with a value of over $2,500 the average fee would be $39 per entry. In order to be equitable to the importing community, a fee scale has been developed based on the value of the merchandise being imported. For example, an entry with a value of less than $5,000 with entry made through our automated commercial system would have a fee of $27 while the fee for an entry valued at from $5,000 to $15,000 would be assessed a fee of $42. Those entries over $15,000 processed through the automated system would have a fee of $52. The fees would be collected as part of the normal duty collection process or through automated billing. The value of the average commercial entry is $50,000 so the fee of $52 is approximately one tenth of one percent. It costs more to service commercial entries which are physically delivered as opposed to being delivered through automated means. To recover these additional costs and to encourage more businesses to use automated processing, the fees for manual entries would be higher. For those entries valued at less than $5,000 the fee would be $50; for those valued at between $5,000 and $15,000 the fee would be $65; and, for those valued over $15,000 the fee would be $75. For informal entries, or those valued at $2,500 or less, the fee would be $5 for each entry automatically processed and $10 for each entry manually presented. The fee would be collected as part of the duty collection process. Drawback is a procedure under which duty paid on importation of merchandise is refunded on exportation of that same merchandise. Currently 1 percent of the duty collected is retained to cover the costs of handling the transaction. The retained duty is deposited in the general treasury. Under the new proposal, Customs would retain 3 percent of the duty paid. The average duty retained and credited as a fee would be $110 per drawback transaction. One of the most significant benefits to importers is the capability to enter goods in bond. This procedure allows for good to be entered at one port, transferred under bond to another port where the entry would be processed. This means that Customs must maintain inland ports and provide services at multiple locations for a single entry. The fee for in bond entries would be $15 payable at the port of arrival along with applications for in bond shipment status for the entry. There would also be a fee for each entry made into a bonded warehouse. Once again, the fee would depend on the method used for making the entry. If using the automated procedures, the cost would be $52 but, if making a manual entry, the fee would be $75 payable as part of established revenue collection processes at the time of withdrawal of the merchandise from the warehouse. For each entry of goods into a Duty Free Zone, the fee for processing the transaction would be $50. Brokers would be assessed $125 annually for a license due on the annual renewal date and payable at any Customhouse. Commercial carriers would be assessed fees for processing; however, these fees should ultimately reduce the amount carriers are now paying, especially for services performed outside of normal duty hours. If, for example, a plane lands one hour behind schedule and that hour difference would have forced the carrier to pay for overtime, no overtime would be charged under the fee formula since the fees include a projection of all non-appropriated overtime. Each arriving commercial carrier aircraft would be assessed a fee of $33. The fee for commercial vessels would be $393 per initial arrival from overseas. That fee includes all of the fees currently being assessed commercial vessels. For commercial truck entries, the charge would be $3 per arrival and a charge of $2 per rail car is anticipated. All collections would be made from the commercial carrier on arrival or as part of established billing procedures. An annual fee would be established for private yachts and vessels. The fee of $50 per year can be paid at any Customhouse. Private aircraft arrivals would be covered by a fee of $66. For passengers, the fees are quite small when compared to the average ticket price paid for international travel. The fees would use the already required carrier supplied passenger counts and would be collected from carriers through monthly billings. The charge for each rail passenger would be 25 cents, for each air passenger $2, and for each vessel passenger $2.50. The last category of fees under consideration is for private vehicles. The $1 fee would be added to existing tolls for bridges or tunnels which are located at several of the large land border ports. At small border crossings, the charge would be collected by Inspectors as part of the routine vehicle clearance procedures. At other land border ports, toll booths or gates would be installed which would be the only capital investment to collect the fees. Special provisions would be made for commuters or frequent travelers to allow for advance payment, monthly passes, or automatic card readers. In no case would traffic be delayed or hindered. Assuming that all of the fees can be assessed and collected as currently envisioned, approximately $550 million can be realized by the government, all of that coming from the persons or businesses who either benefit from Customs services or cause the need for those services to be performed. Collection could begin within 2 to 3 months following authorizing legislation. al. I would like to mention again the most salient points of the processing fee propos 1. The fees will be assessed directly to the persons or businesses which use Customs services. 2. The fees only cover processing services and not Customs enforcement activities from which everyone benefits. 3. There is precedent for the collection of special fees and we currently have limited statutory authority to do so in specialized areas. 4. The fees would be equitably formulated and not onerous on either the traveling public or commercial interests. When considering the value of merchandise imported or the cost of international travel, the fees are quite small. 5. The fees can be easily collected with no increase in the bureaucracy to collect the fees. Minor modifications to existing automated systems may be required; however, current billing procedures for duty owed or overtime charges can be used. The collection process will not impede either commerce or travel. 6. The General Agreement on Tariffs and Trade permits the collection of fees which cover the costs of service rendered and would not be violated. 7. Costs for some businesses, especially commercial carriers may actually decline under the user fee proposal. 8. The proposal would contribute to the overall budget deficit reduction effort. I would now like to turn to the second proposal currently under consideration within the Administration. Customs has for many years maintained a presence at smaller ports of entry which do not warrant the level of resources required to staff and maintain the facilities. These locations have port of entry status as a convenience for the municipalities or local governments. We are considering a move toward a reimbursable services concept for those ports where minimum workload standards are not met whether they be interior, seaport, northern or southern land border ports. The workload standards were published in the Federal Register on March 9, 1982. These standards include: For seaports-less than 2,500 entries per year or less than 250 cargo vessel arrivals per year. For interior ports or airports-Less than 2,500 formal entries per year, less than 15,000 air passengers or 2,000 scheduled international arrivals per year. For Northern Border ports-less than 2,500 formal entries or less than 150,000 vehicles per year. For Southern Border ports the criteria is based on minimal workload compared to other locations and approximate 50 mile radius to alternate 16 or 24 hour ports. It is not good business for Customs to continue to devote resources to those ports where workload is low. Yet it is important for some of the smaller ports to have port of entry status. The reimbursable port concept permits the local community government or commercial interests to pay the cost of putting resources into new ports, for which the above criteria would apply, or into keeping resources at the smaller ports. The costs are very small in terms of the perceived benefits received and it obviates the need for Customs to reallocate positions from smaller ports to larger ports. Under the reimbursable ports proposal, 120 of all the current 190 seaports would convert to reimbursable ports. Forty interior ports or airports would be converted to reimbursable ports and 35 would be unchanged. Along the Northern Border, 60 ports of entry would become reimbursable as would 5 on the Southern Border. Fiftythree locations on the Northern Border and 23 on the Southern Border would remain unchanged. If all of the ports now designated for conversion to reimbursable status opted to do so, as much as ten million dollars could be collected annually. User fees would be charged in reimbursable ports since the user fees are calculated on total Customs costs regardless of location. In conclusion, we, at Customs, believe that everyone benefits from both proposals. The traveling and importing public benefit through better service. The taxpayers gain by not all having to support services from which only a small fraction of the population benefit. Small ports can continue to function as ports of entry without competition from larger ports for resources. And Customs benefits by being able to respond to an ever increasing workload in locations where the workload is the greatest. I appreciate the opportunity to present our view to you today and welcome any questions you may have. Mr. GIBBONS. Thank you. Let me ask the rest of the witnesses, before we go on, do you all have long statements, short statements? Mr. Schaffer, far too long, but I don't know how much controversy there is in those and I am trying to figure out what is the will of the committee. Do they want to take each witness one at a time or would you like to take them en banc? Mr. DUNCAN. Mr. Chairman, I would suggest that we hear all the witnesses. Mr. GIBBONS. We will go to the rest of them. I suggest that we follow the 5-minute rule and summarize. Mr. Owens-excuse me. Mr. Lane, do you have a statement? Mr. GIBBONS. You have saved some time there. Mr. Owens. STATEMENT OF JAMES I. OWENS, DEPUTY COMMISSIONER, INTERNAL REVENUE SERVICE Mr. OWENS. Thank you, Mr. Chairman. I will be as brief as possible and I ask that the full statement be submitted for the record. Mr. GIBBONS. Are you substituting for Mr. Morgan? Mr. OWENS. That is correct. The administration has proposed that the Service institute a user fee of $100 on requests for letter rulings and determination letters. A letter ruling is a written statement issued to a taxpayer which interprets and applies the tax law to a specific statement of facts. Letter rulings are generally issued by the national office and concern prospective taxpayer transactions. Letter rulings are interpretations of the law only with respect to the specific facts presented in the ruling request and associated material. Consequently, letter rulings-previously referred to as private letter rulings-have no precedential value. A determination letter is a written statement issued by one of 10 key districts that applies principles and precedents established by the National Office to a particular statement of facts as submitted by an individual or organization. It differs from a letter ruling only in its place of origin. These letters generally involve the exempt status of organizations. An opinion letter, issued by the national office's Employee Plans Division, expresses the Service's view on the acceptability of a master or prototype plan concerning employee benefits or individual retirement accounts. We estimate that in fiscal year 1986, the Service will receive approximately 14,000 requests for letter rulings in the employee plans and exempt organizations areas and 26,000 requests in the corporate and individual issue areas of which about 19,000 will be mandatory requests for changes in accounting methods or periods. Also, a total of 475,000 determination and opinion letter requests are expected in the employee plans and exempt organizations areas. Overall, we will be asked to respond to more than 500,000 requests. A published revenue ruling is an interpretation of the tax law published by the Service in the Internal Revenue Bulletin, for the information and guidance of Service employees and taxpayers. While letter rulings affect only the taxpayers that request them, the revenue ruling program has a national impact because it provides widely applicable general guidance and may be relied on by other taxpayers. |