Harmonized Tariff Schedules of the United States, HTSUS, duty rates
Why the Importer Checked the HTSUS
A client recently asked his vendor to charge him one cent more for the glass bottles he imports. This rather odd request was actually a very astute business move.
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).
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:
1. of glass-ceramics (our bottles didn’t fit here)
2. drinking glasses (our bottles didn’t fit here)
3. glassware of a kind used for table or kitchen purposes (not here)
4. other glassware (here is where they go, but note more subheadings)
5. of lead crystal (our bottles didn’t fit here)
6. other (here is where they go, but again more subheadings)
7. glassware decorated with metal flecking, etc. (not here)
8. pressed and toughened (not here)
9. other (here we go, but still more subheadings)
10. smokers articles, etc. (not here)
11. votive-candle holders (not here)
12. other (this is it, but again more subheadings)
13. valued not over $0.30 each (duty = 38%)
14. valued over $0.30 each but not over $3.00 each (duty = 30%) - valued over $3.00 each (more subheadings)
15. cut or engraved (not here)
16. other (more subheadings)
17. valued over $3.00 each but not over $5.00 each (duty =11.3%) - valued over $5.00 each (duty = 7.2%)
Why the Importer Volunteered to Pay More for His Bottles!
It so happens that the importer paid $3.00 each for the imported bottles. That gave him a duty rate of 30%. When he realized that the duty rate would change to 11.3% if the cost of the bottles increased to $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% 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 was a penny higher! But was his action 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; the same is true for importing.
What is both illegal and unethical is to declare a purchase price different than the amount actually paid. It would be fraudulent if the importer called his vendor and said, “I know I am paying you $3.00 per bottle, but would you state on your invoice that the price as $3.01?” That’s what people go to jail for! Be sure the documents presented to Customs accurately reflect the true transaction.
This illustration also shows how complex the HTSUS can be!
Contributed by Patrick Gallagher
© 2006 Patrick Gallagher
Used by permission from "More Bankers' Insights on International Trade: 101 Practical Lessions."