As seasons change, so does the make-up of your product line. If you are an apparel company, last season’s shorts and tee shirts can turn into next season's flannel underwear and parkas. Maybe you work for a technology company and the cases you make for last season’s hot phone have become less in demand since the new model came out.
So, what happens to all that unsold merchandise? Do you recycle it? Do you throw it in the dumpster in the warehouse? Does it get used for kindling at your company’s annual fall cookout? Bottom line, are you recovering any import duty on that unused merchandise that you are destroying? There’s an ‘app’ for that. Apply for Duty Drawback privileges on destroyed merchandise.
U.S. Customs and Border Protection recently changed the drawback regulations to allow duty drawback privileges on unused merchandise that is destroyed. Drawback is the recovery of 99% of duties and fees on imported merchandise that is unused in the United States, then destroyed.
Before this regulation change, companies had to notify CBP in writing of their intention to destroy unused merchandise and include it on a drawback claim. CBP had the right to come and witness the product being destroyed. This is all still true, but companies can circumvent this requirement by applying for drawback privileges. These privileges allow companies to destroy their product at will, then include it on a drawback claim. Companies can even go back up to three years from the drawback claim date on previously destroyed merchandise. And it gets even better. Rather than waiting 12-18 months to receive payment on your drawback claim, privileges allow you to get your check in 3-6 weeks.
So what transactions qualify?
- The merchandise has to be imported with duty paid.
- The product must be unused in the U.S., meaning it has not been sold at retail or used for its intended purpose. Merchandise that was defective at the time of import may also qualify.
- The destruction process must render the product with no commercial value. If you’re selling the product to a recycling center, that’s not going to cut it.
- The destruction must be completed and certified by a disinterested third party. As fun as it sounds to start whacking away at inventory with a hammer (à la Office Space), this has to be completed and documented by the pros who can provide you with a full inventory list.
Of course, if you don’t destroy product but instead import and export unused merchandise, or import components used in the manufacture of exported finished goods, old fashioned Drawback may be the right thing for you.
If you want to start taking advantage of duty drawback, reach out to Tradewin. We can help.