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 is 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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