CBP Allows Importer to Use Modified Deductive Value for Tools Sold More Than 90 Days After Importation

An importer of woodworking and garden tools that stores the tools with a related U.S. company before they are sold to the consumer may use a modified form of deductive value that relies on the price of sales more than 90 days after importation to appraise the merchandise, CBP said in ruling HQ H304125, issued Aug. 2.

Lee Valley Tools mostly sells directly to U.S. consumers, but in seven states it sells through its U.S. affiliate, Lee Valley Tools USA, which acts as a warehousing facility for Lee Valley Canada. When a U.S. customer located in one of those seven states places an order, Lee Valley USA picks and packs the tools, which are already in the U.S. affiliate’s warehouse, and ships them to the consumer. Lee Valley Canada then pays Lee Valley USA a per transaction “pick/pack fee,” CBP said.

Lee Valley Canada retains full ownership of the product throughout this process, CBP said. “The average turn rate for product warehoused with LV USA is two times per year,” the agency said. But the value of the tool when warehoused is usually the same as the value when first imported, because Lee Valley Canada only changes its prices about once per year.

As no sale for exportation takes place between Lee Valley Canada and Lee Valley USA, transaction value can’t be used as a method of appraisement. Nor is the transaction value of identical or similar merchandise, because the commercial level and quantity of transactions through Lee Valley USA is different than that of direct sales, and Lee Valley Canada doesn’t have “sufficient information” to adjust the price.

Deductive value is only available if the product is sold within 90 days of its date of importation, and here the average turn rate for the tools imported into the U.S. is twice per year. Computed value is also out because Lee Valley Canada doesn’t have the required cost information from its unrelated suppliers.

That leaves the fallback method, CBP said. Under 19 USC 1401a(f), imported merchandise may be appraised “on the basis of a value derived from the normal methods of valuation, reasonably adjusted to the extent necessary to arrive at a value.” CBP’s regulations on the fallback method at 19 CFR 152.107(c) specifically say that “the '90 days’ requirement for the sale of merchandise” under deductive value “may be administered flexibly.”

According to Lee Valley, “because the retail price of the goods changes only once a year, the 90 day requirement should be eased to arrive at a deductive value reasonably adjusted,” CBP said. The agency agreed. “Because the sales of the merchandise in the United States generally occur over 90 days after importation, the most appropriate way to appraise the imported tools would be to use a modified deductive value … where the time restrictions … are relaxed. The value should be based on the price the goods will be sold for, the retail price, minus the allowable deductions,” CBP said.

CBP noted that it has accepted a similar method of valuation in the past. In HQ 546312, issued in 1997, CBP relaxed the 90 day rule for deductive value for “merchandise [that] was consigned to the importer from its related party supplier and was often sold in the United States 6 to 9 months after the goods were imported,” it said.