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On Feb. 11, U.S. Sens. Bill Cassidy (R-LA) and Sheldon Whitehouse (D-RI) introduced the Last Sale Valuation Act (the Act), a bipartisan bill that would eliminate valuation of imports pursuant to “first sale,” which has been an accepted valuation methodology in the United States for decades. First sale provides that in a multi-tier transaction, importers can pay duties on the factory or first sale invoice, plus any dutiable assists, rather than on the higher second sale middleman price. If the proposed bill goes into effect, importers would be limited to using the middleman invoice, the last sale, for entry purposes, which would result in higher duty payments.
First sale valuation between the middleman and manufacturer is based on the Treasury Decision 96-87, dated Jan. 2, 1997, and includes diligence requirements of demonstrating two bona fide sales, such as purchase orders, invoices, proof of payment, and other documentation supporting the arm’s length transactions and exportation of the merchandise to the United States. The middleman and factory may be either related or unrelated parties. In determining whether property or ownership has transferred, U.S. Customs and Border Protection considers the “totality of evidence” and whether the potential buyer assumed the risk of loss (i.e., is liable for goods when lost or damaged during shipment) and acquired title to (i.e., legally possesses or owns) the goods and paid for the merchandise. Importers may be considered to have exercised reasonable care when entering its merchandise and declaring a value based on the first sale price between the first sale factory seller and the middleman when the transactions involve three parties, two arm’s length sales, and the goods are clearly destined for export to the United States.
If not doing so already, importers who engage in multi-tiered transactions, or who have the ability to establish a multi-tiered transaction structure (such as through related or unrelated “middleman” entities), may be eligible to participate in a first sale program under the current legal regime.
The elimination of first sale valuation would be challenging to the myriad of importers, manufacturers, wholesalers, and retailers currently using the duty mitigation strategy. Importers should assess the potential negative impact of the bill.
The legislation has been referred to the Senate Finance Committee, where both Sens. Cassidy and Whitehouse are members. The bill may be the subject of a Senate hearing or may be considered in the context of broader trade legislation later in the year. No companion legislation has been introduced in the U.S. House of Representatives.
Special thanks to Law Clerk/JD Henry Scherck ˘ for contributing to this GT Alert.
˘ Not admitted to the practice of law.
* Greenberg Traurig is working with importers and other interested parties on a legislative strategy.