Potential Duty Savings for E-Commerce Shipments

A modification of existing law resulting from the Trade Facilitation and Trade Enforcement Act recently signed into law on February 24, 2016 significantly expands duty saving opportunities in the direct internet sales sector as it increases the dollar limits of shipments that qualify for duty free importation.

This increase should be of particular interest to the fashion and luxury goods sector because their duty rates are high and the increased exemption level may make the provision of law a more viable tool for e-commerce shipments at their price points.

Under Section 321 of the Tariff Act of 1930, as amended, the Secretary of the Treasury had historically been authorized to:

“admit articles free of duty and of any tax imposed on or by reason of importation, but the aggregate fair retail value in the country of shipment of articles imported by one person on one day and exempted from the payment of duty shall not exceed . . . $200 . . .”

This exemption allowed companies to ship goods into the United States duty free as long as the goods were valued at $200 or less and delivered directly to the customer. One shipment per person per day is permitted. The provision of law was used widely by mass merchandisers as their average e-sale was well under $200. Many mass merchandisers established Canadian distribution/fulfillment centers under procedures the qualified product imported into Canada but intended for export exempt from Canadian tax and duty. At that sale level, the provision was of little use to luxury goods companies. Things have changed.

Under the Trade Facilitation and Trade Enforcement Act, the special exemption for duty and processing fees has now been increased from $200 to $800, thereby making the provision more viable and attractive to luxury companies.

A company could organize its e-commerce by shipping products from fulfillment centers outside of the U.S. and deliver shipments valued at $800 or less directly to the individual ultimate consignees in the U.S. without the payment of duty or merchandise processing fees. Again, this statutory exemption may be used for one shipment to one person per day.

Accordingly, it can be used for luxury goods companies for smaller ticket items such as ties, socks, underwear, tee shirts, sleepwear, etc. If one analyzes the average value e-commerce sale, one can better determine how useful this increased exemption may be.

Regrettably and inexplicably, this exemption has not been interpreted to apply to shipments exiting bonded warehouses or Foreign Trade Zones located within the United States.  Based on the current interpretation of the Customs regulations, in order to apply this provision, the goods must be shipped from an offshore location.

In a political environment where U.S. job protection is a critical issue, Congress and Customs might well be receptive to the notion that extending the benefits to products exiting U.S. bonded facilities or Foreign Trade Zones would provide a major benefit to the economy and employment. Such a change would, however, likely result only from lobbying and statutory revision.

Companies currently involved in internet sales should consider the available options and
evaluate the long-term benefits of this adjustment to the law.

Please feel free to contact EACCNY member, Frank J. Desiderio, Esq, at 212.973.7740,
if you have any questions.

© Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP – a member of the EACCNY