No Duty on Domestic Status Goods Returned to FTZ, CBP Says on TFTEA 9801 Provisions

Goods stored in a foreign-trade zone that are sold to customers in Canada and subsequently returned in the same condition don't require duty payments if duties were already paid, CBP said in a Dec. 16 ruling. Long Tall Sally Limited asked CBP about how changes under the Trade Facilitation and Trade Enforcement Act to the provisions for returned goods in subheading 9801.00.10 apply. The statute doesn't specifically differentiate between “previously imported and entered with duty paid (i.e., domestic status), or imported without duty paid (i.e., foreign privileged status),” CBP said.

The company warehouses its goods in an Atlanta FTZ and distributes them directly to customers in the U.S. and Canada through online sales, it said. “The merchandise enters the FTZ as either domestic status (previously imported, duty paid) or privileged foreign status (imported, but not entered for consumption, i.e., no duty paid),” the company said. Refunds are allowed “if the consumer returns the merchandise in the condition received, along with the order documentation within 30 days,” it said. “Canadian returns are forwarded to a third-party logistics provider who will identify returned merchandise by SKU and original order number, and consign these goods in weekly shipments from Canada to the Atlanta facility adjacent to the FTZ warehouse.” LTS asked CBP whether the returns from Canada qualify for duty-free treatment under subheading 9801.00.10.

Changes under TFTEA allow for duty-free treatment of all goods returned to the U.S. and not just U.S. goods, as was the case prior to TFTEA, CBP said. While TFTEA doesn't mention FTZ status, the legislative history “indicates an expectation that duties are paid once on 'any other products' imported and entered for consumption in the United States,” CBP said.

That means if the returned goods were previously entered into the FTZ duty paid “and then merely stored in an FTZ prior to exportation to Canada, the merchandise may be returned to the United States duty-free to the Atlanta facility adjacent to the FTZ warehouse,” CBP said. Assessing duties upon return in that case would mean assessing duties a second time, which is against the intent of the TFTEA changes, it said. Goods returned that were entered into the FTZ in privileged foreign status and thus without paying duty do not qualify for the duty-free treatment, CBP said.