Sales within FTZ for Export Don't Negate Duty-Free Treatment, Says CBP

Sales of samples classified under a duty-free HTS subheading will maintain the tariff treatment as long as the transaction is completed while within a Foreign Trade Zone, CBP said in a Jan. 7 ruling (here). CBP's ruling follows a similar ruling request from the importer, J. Jill, in which CBP found (here) a slightly different sale wouldn't be eligible for duty-free treatment. While J. Jill requested a reconsideration of the previous ruling, due to a changed circumstances of the proposed transaction and the draft contract between J. Jill and the buyer CBP issued a "new ruling based on the changed facts," it said.

J. Jill, a women's clothing importer, sought CBP input on the tariff treatment on a transaction involving samples from its foreign suppliers and potential suppliers that are entered duty-free under subheading 9811.00.60. Subheading 9811.00.60 provides for the duty-free entry of a sample that is either “valued at less than $1 each, or marked, torn, perforated, or otherwise treated so that it is unsuitable for sale or for use otherwise than as a sample, to be used in the U.S. only for soliciting orders for products of foreign countries.” The company proposed to dispose of the samples by selling them to an unrelated buyer who would assume risk of loss and title to the samples. Initially, the proposed sale would occur prior to entry into a FTZ, but CBP ruled on Sept. 14 that in that scenario the samples would lose the duty-free treatment because the "buyer will assume risk of loss for the samples before they are exported from the U.S."

Among the problems with that scenario was that the buy would move the samples into the FTZ in "zone restricted status," allowed for goods being exported or destroyed said CBP. It's unclear "how the goods will be admitted into the FTZ if the buyer is not the owner," the agency said. The "arrangement contemplated also raises questions about what would happen if the goods were damaged before arrival at the FTZ, as title is related to who has an insurable interest, and whether the buyer would continue to pay J. Jill for the goods," CBP said to J. Jill.

Subsequent to CBP's Sept. 14 ruling, J. Jill revised the proposed transaction. J. Jill said it would instead structure the deal so that the unrelated buyer "would assume risk of loss and title to the samples after their admission into a Foreign Trade Zone with 'zone-restricted' status." The buyer would also agree to provide a Customs Form 214 and support documentation following admission to the FTZ, said CBP. "Provided that the Buyer supplies Jill with copies of the Customs Forms 214 and supporting documentation after admission to the FTZ, prior to passage of title and risk to the Buyer" and as long as the sale of the samples occurs in the FTZ, "such sale will not preclude the imported samples from duty-free treatment under subheading 9811.00.60," CBP ruled.