Determining the appropriate value for merchandise that you import can be a tricky task. In general, you need to start by determining the basis of appraisement that is appropriate for your situation. I’ll list them below but note that you should try to use the first one. If that doesn’t apply to your merchandise or situation, try the second one, and so on. These should be applied in the order in which they are presented below.
- Transaction Value – This is by far the most common method of appraisement. In this method, the price actually paid or payable is used. In other words, if I am importing a widget to be sold to my customer for $3.00, I would value the widget that I import at $3.00, even if my cost to make them is only $2.00. In the case that I am importing a widget that I am going to give to my customer for free, either as a sample or a matter of customer service, I would still value the widget at $3.00 since this is the fair market value of the item. We’ll do a deeper dive on this one below.
- Transaction Value of Identical Merchandise – You can only use this in the case that you know the value of an import of identical merchandise that is exported to the United States at about the same time as your merchandise. Minor differences in appearance between your merchandise and the identical merchandise is okay if you’re using this basis of appraisement. For this basis of appraisement, you would use the imported value of the identical merchandise and apply it to your merchandise.
- Transaction Value of Similar Merchandise – This is basically the same as the last one except in this case the merchandise doesn’t have to be identical. For similar merchandise, the quality, its reputation, and the existence of a trademark will be considered to determine whether the items are similar.
- Deductive Value – This basis of appraisement depends on the condition of the merchandise when it is sold versus when it is imported, and when the merchandise will be sold:
- If the merchandise is going to be sold in the same condition it was in when it was imported AND will be sold right after import, the value of the goods is the price at which the merchandise is sold in the greatest aggregate quantity around the date of import.
- If the merchandise is going to be sold in the same condition it was in when it was imported, but will NOT be sold right after being imported, the value of the goods is the price at which the merchandise is sold in the greatest aggregate quantity after the date of importation, but before 90 days after being imported.
- If the merchandise is NOT going to be sold in the condition it was in when it was imported, AND not sold before 90 days after being imported, the price is the unit price at which the merchandise, after further processing, is sold in the greatest aggregate quantity before 180 days after being imported.
- Computed Value – To determine computed value, add up the following:
- Cost or value of the materials and the fabrication and other processing employed in the production of the merchandise
- Profit and general expenses
- Packing Costs
- Fallback Method – This one should very rarely be used. As a reminder, it should only be used if you’re not able to use methods 1 – 5 above. For this method of appraisement, the imported merchandise will be reasonably adjusted to arrive at a value after using the methods of appraisement above.
Since transaction value is by far the most common method of appraisement used, let’s dig a little deeper into that one. There are certain additions to the price actually paid or payable that should be added to your value:
- Packing Costs incurred by the buyer.
- Selling Commission incurred by the buyer.
- The value of any assist.
- Royalty or License fees that the buyer is required to pay.
- Proceeds of any subsequent resale, disposal, or use of the merchandise that accrue to the seller.
John Metrich, with Deleon Trade LLC, has come up with a really good way to remember this: PAPP + CRAPP.
Price Actually Paid or Payable = PAPP
Commissions, Royalties, Assists, Packing, and Proceeds = CRAPP
Valuation is a topic that could be discussed for days. There are a lot of other aspects involved including issues surrounding related parties, transfer pricing, reconciliation, etc., but this article is meant to just be an introduction to what can be an otherwise confusing topic. For more information on valuation, feel free to pick up 19 CFR and start reading at 152.101, not exactly what I would call a “light read,” or check out my upcoming webinars on Customs Valuation. Feel free to follow me on Linked In for more information on those or subscribe to Braumiller Law Group’s newsletter if you haven’t already.