Definition
What Is First Sale Valuation?
First sale valuation is a legal customs valuation method that lets US importers declare the factory price (the 'first sale' in a multi-tier transaction) as the dutiable value, rather than the higher price paid to a trading-company intermediary. It reduces ad valorem duties and the Merchandise Processing Fee proportionally.
The legal basis
First sale valuation is authorized by Treasury Decision T.D. 96-87 (1996), which codified the holding from Nissho Iwai American Corp. v. United States (9th Cir. 1992) and subsequent Court of International Trade decisions. No prior CBP approval is required. It's an importer election made at entry, supported by documentation.
The three requirements
Clearly destined for the United States: at the time of the factory's sale to the trading company, the goods must have been specifically intended for the US market, evidenced by US-importer purchase orders, letters of credit, or pro forma invoices that pre-date the factory sale. Bona fide arm's-length transaction: between unrelated parties, presumed. Between affiliated parties, must be affirmatively demonstrated. Standard valuation conditions: no excluded commissions, royalties, or unaccounted-for assists.
How much it can save
The savings equal the trading-company markup multiplied by the applicable duty rate, times volume. With Section 301 stacking on top of base rates, total duty rates of 30%+ are common on Chinese-origin goods. Every dollar removed from the dutiable value saves ~$0.30 in duty. For an importer with a $35-per-unit middleman markup at 200,000 units annually and a 31.5% combined rate, the recovery is roughly $2.2 million annually.
Documentation that has to be retained
Both invoices (factory-to-trading-company and trading-company-to-importer), proof of 'clearly destined' status (purchase orders, letters of credit, etc.), and arm's-length evidence for related-party transactions. Records must be retained for 5 years from the date of entry. CBP can audit first-sale claims years after liquidation. First sale attracts disproportionate CBP scrutiny because fabricated first-sale invoices are a known fraud vector.
Frequently asked questions
- Do I need CBP approval to use first sale valuation?
- No. First sale is an importer election. You instruct your customs broker, provide the factory invoice along with your trading-company invoice, and declare the first-sale value on entry. For high-volume programs, a binding ruling from CBP provides advance confirmation that the transaction structure qualifies.
- Does first sale work if I buy directly from the factory?
- No. First sale requires a multi-tier transaction with a genuine intermediary. If there is only one sale (factory-to-importer), the transaction value is that sale price by default. There is no earlier transaction to elect.
- Can I use first sale with a related-party trading company?
- Yes, but the arm's-length presumption does not apply. You must affirmatively demonstrate that the relationship did not influence the price, typically by showing that the first-sale price falls within an acceptable range of prices to unrelated buyers, or that it was negotiated using methods consistent with unrelated-party transactions. This is a more complex analysis and often requires legal review.
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