First Sale Valuation: Paying Duty on the Factory Price

First sale valuation lets an importer declare customs value based on the price the factory charged a middleman, instead of the higher price the importer paid the middleman. Because ad valorem duty is a percentage of value, a lower value means lower duty, including Section 301 and other Chapter 99 duties calculated on value. It applies when goods pass through more than one sale before reaching the U.S., and it requires strong documentation.

How it works

Picture a factory that sells goods to a trading company for $80, and the trading company sells them to a U.S. importer for $100. Normally duty is assessed on $100. Under the first sale rule, if the factory sale meets the requirements, duty can be assessed on $80. The rule comes from the Federal Circuit's 1992 decision in Nissho Iwai American Corp. v. United States.

The requirements

• A bona fide sale: The factory-to-middleman transaction has to be a real sale, with title and risk passing.
• Clearly destined for the U.S.: At the time of the first sale, the goods have to be intended for export to the United States.
• Arm's length: The price must not be influenced by a relationship between the parties, or the relationship must not affect the price.

The records you need

• The factory invoice to the middleman, and proof of payment.
• Contracts and purchase orders showing the U.S. destination.
• Shipping documents tying the goods to the first sale.
• Cooperation from the middleman, which often has to share pricing it would rather keep private.

Frequently asked questions

Do I tell CBP I am using first sale? Yes. Entries using first sale are flagged when they are filed.

Can it be applied to past entries? Through a Post-Summary Correction on unliquidated entries, if the records support it.

Does it reduce Section 301 duty? Section 301 duty is calculated on value, so a lower value lowers it too.

Where Caspian fits

Caspian's advisory team reviews multi-tier supply chains for first sale eligibility and the documentation it needs. See our trade compliance advisory. This article is general information, not legal advice.

Works Cited:

• 19 U.S.C. 1401a, Value
• 19 CFR 152.103, Transaction value