Customs Clearance Stories from the Gallagher Archives

The Value of a Penny! Lessons in HTSUS Classification.

(Or, why the importer volunteered to pay more for his bottles)

A client recently asked his vendor to charge him 1 cent more for the glass bottles he imports.  This rather odd behavior was actually a very astute business move on his behalf.

The Harmonized Tariff Schedules of the United States (HTSUS) lists every product under the sun and states the rate of duty for each product.  This very large book has its own rules for interpretation to aid in determining the proper classification for any given product.  Duty rates, of course, can vary from zero to very high rates (38% to even 110% from certain countries). You can read more about HTSUS on our previous blog here. Wondering about re-classifing your HTS due to the change in tariffts?  Read this blog before you do that.

Now to our client:  the HTSUS reads as follows for certain glassware:

“Glassware of a kind used for table, kitchen, toilet, office, indoor decoration or similar purposes” with the following subheadings:

–of glass-ceramics (the bottles didn’t fit here)

–drinking glasses (the bottles didn’t fit here)

–glassware of a kind used for table or kitchen purposes (not here)

–other glassware (the is where they go, but there are more subheadings

–of lead crystal (the bottles didn’t fit here)

–other (here is where they go, but again more subheadings)

–glassware decorated with metal flecking, etc. (not here)

–pressed and toughened (not here)

–other (here we go, but still more subheadings)

–smokers articles, etc. (not here)

–votive-candle holders (not here)

–other (this is it, but again more subheadings)

–valued not over $0.30 each (duty = 38%) (not here)

–valued over $0.30 each but not over $3.00 each (duty = 30%)

–valued over $3.00 each (more subheadings)

–cut or engraved (not here)

–other (more subheadings)

–valued over $3.00 each but not over $5.00 each (duty =11.3%)

–valued over $5.00 each (duty = 7.2%)

It so happens that the importer was paying $3.00 each for the bottles he was importing.  That gave him a duty rate of 30%.  When he realized that the duty rate would be 11.3% if the cost of the bottles was $3.01, he promptly contacted his vendor and re-negotiated the price.  So, by raising his cost by a penny (which equals one-third of a percent) he reduced his duty rate by 18.7 percentage points from 30% to 11.3%.  Smart move!

Now the question is:  was his action legal?  Of course!  Every importer has the right to negotiate for the best price for his product.  In this case it so happens that the best price is a penny higher!  But was what he did ethical?  Again, yes of course!  Just as with income taxes there is nothing unethical about engineering your taxable income to achieve the most favorable tax rate, so the same is true about importing.  What is both illegal and unethical would be to declare a purchase price different than what was actually paid.  It would be fraudulent if the importer were to call his vendor and say, “I know I am paying you $3.00 per bottle, but would you state on your invoice that the price is $3.01?”  That’s what people go to jail for!  So, just be sure that the documents presented to Customs accurately reflect the true transaction.

P.S.:  This illustration also shows how complex the HTSUS can be!  Need help figuring out your HTSUS codes?  Call 303-365-1000 or email us anytime. We are always happy to help.