CRUISE VESSEL'S WORKERS EXEMPT FROM FUTA TAX.

Index Number: 3121.02-00; 3306.03-00

[2] Taxpayer owns and operates a vessel that provides entertainment and gaming on "cruises to nowhere" and international cruises. Taxpayer is a * * * corporation. The vessel is registered under the laws of Country A. The vessel operates from a port in State A. It has a crew of between 150 to 200 people, the majority of whom are non-citizens of the United States.

[3] The vessel generally conducts two "cruises to nowhere" per day. Taxpayer represents that these cruises involve sailing outside the territorial waters of State A, but staying within the territorial waters of the United States. The vessel has a restaurant on board which serves meals to passengers, as well as several bars where liquor, beverages, and snacks are served. Gaming activities are available on board when the vessel is outside State A waters. Entertainment is also available on board.

[4] At least once per month, the vessel sails to Country B and provides the identical services and entertainment activities outside State A waters. Passengers are not allowed to disembark the vessel until it returns to State A.

[5] Specifically, you request the following rulings:

     1. The services performed on the vessel by individuals who are

[6] Sections 3101 and 3111 impose FICA taxes upon the employee and employer, respectively, and section 3301 imposes FUTA tax upon the employer with respect to wages received by the employee from the employer for employment.

[7] Section 3121(b)(4) of the Code excludes from "employment," for FICA purposes, services performed on or in connection with a vessel that is not an American vessel, provided that (1) the individual is employed on and in connection with such vessel when it is outside the United States, and (2)(a) such individual is not a citizen of the United States or (b) the employer is not an American employer." ¹

[8] Treas. Reg. section 31.3121(b)(4)-1(b) explains that the performance of services on and in connection with a vessel includes services performed by employees as officers or members of the crew.

[9] Treas. Reg. section 31.3121(b)(4)-1(d) provides, in relevant part, that:

     [s]ervices performed within the United States on or in

[10] Section 3306(c)(4) of the Code provides a similar exclusion from "employment" for FUTA purposes, by excluding from employment "services performed on or in connection with a vessel . . . not an American vessel . . . if the employee is employed on and in connection with such vessel . . . when outside the United States."

[11] Unlike section 3121(b)(4) of the Code, however, section 3306(c)(4) of the Code does not require an employee to be a non- citizen for the services to be exempt from inclusion as "employment." Rather, both citizens and non-citizens are included in the scope of application, so long as they perform services on and in connection with a non-American vessel outside the United States.

[12] Treas. Reg. 31.3306(c)(4)-1(a) further explains that services performed within the United States on or in connection with a non-American vessel are excepted from employment if the employee is employed by the employer on and in connection with the vessel when it is outside the United States.

[13] The term "American vessel" is defined in sections 3121(f) and 3306(m) of the Code. Both sections define the term identically:

     For purposes of this chapter, the term "American vessel" means

[15] The Taxpayer represents that the vessel generally makes two daily "cruises to nowhere" which involve sailing outside the territorial waters of State A, but staying within the territorial waters of the United States. The Taxpayer also represents that the vessel makes at least one trip per month to Country B.

[16] Accordingly, based on the information submitted and the representations made, we rule that:

     1. The services performed on the vessel by individuals who are

[18] In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative.

[19] The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination.

                                   Sincerely,