Having an understanding of taxes on imported goods is critical to your success whether you’re a seasoned importer or just looking to bring back a souvenir from overseas. From types of import taxes, to where to find your tariff rate, and more, being aware of how import taxes work is of the utmost importance.
Taxes on imported goods consist of tariffs and customs duties. Every product is assigned an HTS code which determines the amount of duty owed on a product depending on its country of origin. Understanding import taxes is critical to calculating import costs and ensuring you’re able to successfully import your goods.
Check out our guide below to learn about how to find your tariff rate and which agency collects import taxes. Additionally, we’ll explain whether or not you’ll be required to pay import taxes under special circumstances like temporary imports and imports from U.S. territories.
Import taxes are fees imposed by a government on products imported into the country. Duties and tariffs are both considered import taxes. These are typically paid by the importer of record bringing goods into a country.
Taxes on imported goods can be direct (meaning that the cost is applied directly to the goods and services) or indirect (meaning that the cost is passed along to the consumer). Taxes are always binding and punishable if not paid. Some nations also impose consumption and value-added taxes (VAT) on goods imported into the country, however, the U.S. does not.
The de minimis value is the threshold at which taxes on imported goods will be charged. The U.S. has a de minimis value of $800, meaning that imports under $800 will not be charged import duty or tariffs.
Import duties, also known as customs duties, are indirect taxes enforced by Customs and Border Protection (CBP) on a consumer for importing goods.
Import duties are collected by the government of the country the goods are being imported into. The government collects duties in order to protect local industry and offset cheaper manufacturing practices overseas. Duties make it more expensive for Americans to purchase goods from abroad. In turn, this also reduces imports and supply of certain goods and increases domestic price and purchase of those goods.
Customs duty is often calculated as a duty rate, or percentage, of the value of the item being imported. Import duty varies by product and is determined based on a number of different factors, including:
Some products imported into the U.S. are exempt from duties. For example, most personal goods can be brought into the U.S. without paying duty or taxes. Household effects, like furniture, books, certain appliances, etc., can be imported duty-free.
Personal effects, like clothing, jewelry, vehicles, etc. are technically subject to import duties. However, duties on personal effects are usually waived on products owned for more than a year, with the exception of vehicles.
There are also some products, like alcohol and tobacco, that can be imported into the U.S. duty-free for personal use up to a certain amount. For example, importers are allowed to bring one liter of alcohol into the U.S. duty-free. Any more than that and taxes will be imposed on the import. The same goes for cigarettes and cigars, which can be imported duty-free up to a 200 cigarette and 100 cigar limit.
Import duties are not to be confused with excise duties, which are taxes imposed on manufacturers producing and selling goods domestically. Like import duties, excise duties are imposed indirectly. The cost of excise duties is often passed on to the end-user via increased cost of goods.
Depending on what you're planning on importing, your shipment may qualify for Section 321 status and duty-free entry. Check out our article on Section 321 shipments to see if your shipment qualifies.
There are several different types of customs duties that you may encounter when importing. Some are considered basic duties that are required on almost any general import. However, there are some duties that have been imposed specifically to counter international entities and protect domestic industry.
Types of Customs duties you may encounter include:
Basic duties encompass most of the information covered above. Basic duties refer to those placed on foreign items in order to offset the cost of purchasing an item that may also be produced in the U.S. When importing, customs duties are often used interchangeably with import tariffs when referring to the amount of tax owed on an imported product.
Countervailing duties are placed on specific imports from certain countries in an effort to counter the negative effect of export subsidies on domestic industries. For example, if a country is subsidizing exports of a certain product at $16 per unit, and the U.S. is selling that same product at $20, a countervailing duty of 25-percent may be placed on that product in order to even the playing field.
Countervailing duties are granted by the World Trade Organization (WTO) on a case-by-case basis. The WTO requires that the country calling for the duty complete a thorough investigation on the negative effect of the export subsidy.
Anti-dumping occurs when a foreign producer exports a product to the United States at a far lower cost than the domestic value of that product. If an exporter is found to be “dumping” products into the U.S., an anti-dumping duty will be imposed on that country by the U.S. International Trade Commission (USITC). The anti-dumping duty is often a far greater price than the value of the goods that the duty is placed on. This is done to discourage the import of goods from the dumping country and encourage consumers to purchase domestically.
Import tariffs are imposed directly on products imported into the country, as opposed to import duties which are charged indirectly. Import tariffs are enforced by customs authorities on specific classes of items used for import and export.
A product’s tariff classification finds its basis in the Harmonized Tariff Schedule (HTS) which sets the amount owed on all internationally imported commodities. In the U.S., Schedule B Codes are used for tariff classification of exports.
Like duties, tariffs result in increased prices of imported products sold domestically - hurting foreign exporters, helping domestic manufacturers, and giving the government a source of revenue.
Tariffs are also used during trade negotiations with other countries. Tariffs on certain goods may be raised or lowered in an effort to persuade the opposing country to do the same. A recent example is the Section 301 tariffs that raised import costs on nearly all Chinese imports in 2018.
Import tariffs can be charged as a percentage (ad valorem) or as a specific amount per item’s unit amount, weight, and a variety of other factors.
Trade-weighted tariff rates are used to determine how free or protectionist a country is considered in terms of international trade. While not a perfect system, as the total average could be dragged up or down by specific import categories, it gives a general sense of a country’s attitude toward free trade.
The most basic method of calculating a trade-weighted average tariff rate is by dividing the total tariff revenue collected by a country over a given year by the total value of its imports. According to data from CBP, the trade-weighted average tariff value of the United States in 2020 was 3.07-percent.
|Total Tariff Revenue||Total Value of Imports||Trade-Weighted Tariff Rate|
|74.4 billion||2.42 trillion||3.07%|
The lower a country’s trade-weighted average tariff rate, the more that country is considered to encourage free trade.
A duty is an indirect tax imposed on a consumer, while a tariff is a direct tax imposed on a product. While both tariffs and duties are charged on imports into the U.S., the manner in which they are administered is different.
In the eyes of CBP and most U.S. government agencies, however, import tariffs and duties are often used interchangeably in the context of general imports. Tariffs may refer to the percentage of tax owed on a product, while duty refers to the actual amount owed on said product. For example, if the tariff rate of a $100 dollar item was 10-percent, the duty owed would be $10. But in general, both terms can be used to describe the amount of tax owed on an imported product.
Tariff rates can vary depending on the product being imported and the country a product is being imported from. For U.S. imports, the best way to find the tariff rate owed on a particular product is to determine its HTS code.
An HTS code is assigned to every internationally traded commodity for the purposes of tariff and product classification. These codes are also used by governments for statistical analysis of goods imported into the country.
HTS codes are country-specific, 7-to-10 digit codes that find their basis in the International Harmonized System (HS). HS codes are 6 digits and are used as a universal classification system for worldwide trade.
The HTS code of the United States is referred to as an HTSUS code, which is 10 digits and denotes the specific tariff rate of goods imported into the U.S. Another country may only have a 7-digit code that notes the specific tariff rate of goods imported into that country.
The best way to find an HTS code for a product yourself is to use an HTS code lookup tool, like the ones offered by USA Customs Clearance and the USITC. These tools allow you to enter a specific code or keyword. The ensuing results will include a variety of products that match those descriptions. From there, you should be able to determine which classification fits the product you plan to import.
Once you determine the proper classification and HTS code for the product you want to import, there are two other key details you’ll need to find in order to determine your product’s tariff rate. The first is the unit of quantity the product will be measured in. This can be the actual number of units of product being imported (numbers), the weight of the product (kilograms, tons, etc.), the product’s dimensions (meters, square inches, etc.), or a combination of those factors.
The second detail you’ll need is the trade relationship the U.S. has with the product’s country of origin. Trade relationships are broken up into three categories and a separate tariff rate will be listed under each category for that product. The three categories of trade relationships are:
Once you know the unit of measurement that your product will be imported in and the type of trade relationship the U.S. has with the country you’re importing from, you have the information you need to determine your tariff rate.
You can calculate your import costs by identifying the correct HTS code of your product, the unit of measurement your product will be imported in, and the rate of duty owed on your product.
For example, let’s say you wanted to import sunglasses. The HTS code for sunglasses is 9004.10.0000. A search for this HTS code indicates that sunglasses are measured by the dozen. The tariff rates for sunglasses are as follows:
Let’s say that you plan to import 2400 pairs of sunglasses at $5 per dozen. This import is coming from Brazil, a country that falls under the general category of tariff rates. That means that you will owe 2-percent of the total value of the import. 2400 pairs of sunglasses at $5 per dozen comes out to $1,000 — 2-percent of which is $20.
That means that you would owe $1,020, including tariff fees, on your import. It’s worth noting, this number does not include other import fees like Merchandise Processing Fees (MPF), Harbor Maintenance Fees (HMF), or any shipping and logistics costs.
|Product||Product Cost||Tariff Rate||Import Cost (without tariff)||Tariff Cost||Total Import Cost|
|2400 pairs of sunglasses||$5/dozen||2%||$1,000||$20||$1,020|
In the U.S., CBP enforces the duties and tariffs owed on goods imported into the country, including taxes and fees owed on behalf of other government agencies. Import costs are due from the importer of record at the point of entry. CBP also handles the collection of other import fees, such as HMF, MPF and excise taxes.
Failing to pay import taxes is considered a federal crime and treated as such. Penalties for not paying proper import taxes can range from delays (until taxes are paid) to fines, seizure of goods, or even prison time.
Punishments and fines are enforced by CBP and are determined by an importer’s level of culpability. The three levels of culpability are negligence, gross negligence and fraud. Each level of culpability is defined as follows:
Most punishments enforced by CBP are a result of an importer classifying items incorrectly - or using the wrong HTS code. In those cases, fines are typically handed out depending on the amount of duty lost and the importer’s level of culpability.
If an importer attempts to evade import taxes by failing to declare imports, misrepresenting their imports, or attempting to smuggle items, those attempts will be met with harsh penalties. Goods will almost certainly be seized from the importer and held by CBP. Depending on the importer’s level of culpability, prison time is a potential punishment as well.
In addition to tariffs outlined in the Harmonized Tariff Schedule, the U.S. has placed additional tariffs on specific products and imports from specific countries — most notably steel and aluminum imports and imports from China.
The tariffs on steel and aluminum imports are based on Section 232 of the Trade Expansion Act of 1962. This law puts a 25-percent tariff on steel and a 10-percent tariff on aluminum, worldwide. The U.S. has agreed to some exceptions, including lifting the tariff on imports from Canada and Mexico, and granting exceptions to Australia and South Korea.
The tariffs on imports from China were signed under Section 301 of the Trade Act of 1974. These tariffs are broken down into four lists affecting roughly $550 billion worth of goods imported annually. Currently, the tariff rates applied to imports from each list are as follows:
|Tariff List||Number of Imports Affected||Value of Imports Affected||Tariff Rate|
|List 1||818||$34 billion||25%|
|List 2||279||$16 billion||25%|
|List 3||5,733||$200 billion||25%|
|List 4||3,805||$300 billion||7.5%|
There are several other product imports that have had recent additional tariffs placed on them. In 2018, a four-year tariff was placed on solar panels, with the exception of 2.5-gigawatt models. A three-year tariff was placed on washing machines the same year.
Import duties are owed on all products entered into the U.S. from outside the customs territory of the United States. The Customs Territory of the United States is defined as the 50 U.S. states, the District of Columbia, and Puerto Rico.
All other U.S. territories, or insular possessions of the United States, are subject to the duty rates set forth in Column 1 (General and Special) of the Harmonized Tariff Schedule. Exceptions include items laid out in Title 19, Section 7.3 of the Code of Federal Regulations.
The principal U.S. territories described include:
While import duties are required on products shipped from outside of the customs territory of the United States, shipments from the U.S. to U.S. territories are not considered exports and are not subject to export duties. They may, however, be subject to other fees and excise taxes.
You can avoid paying import duties and taxes on temporary imports by purchasing either an ATA Carnet or a Temporary Import Bond (TIB).
An ATA Carnet allows an importer to temporarily enter goods and equipment used for commercial purposes, duty-free. Often referred to as a passport for goods, an ATA Carnet allows goods to be imported and exported out of any country simply and easily, as many times as necessary for 12 months.
Another option for importers is to purchase a Temporary Import Bond. TIBs are one-time use and must be repurchased for any subsequent imports. TIBs also require the importer to file CBP Form 3461 (Entry/Immediate Delivery) or CBP Form 7501 (Entry Summary) and secure a customs bond.
Understanding the ins and outs of international trade, like tariff classification and taxes on imported goods, can be overwhelming no matter how experienced you are. That’s why it’s so important to work with a Licensed Customs Broker to make sure your taxes are paid and your imports are entered the right way every time.
Our expert team of customs brokers is knowledgeable about every aspect of the import process, including tariff classification, import duties and customs clearance. You can schedule a 1-on-1 consultation to help find your HTS code, calculate your import costs or find out any other aspect of the import process that you may be unsure about.
If you need help becoming a registered importer, we can help. If you need to secure a customs bond for your import, we can offer that too. We even have bundles for new importers! With USA Customs Clearance, powered by AFC International, you can find all the help you need to navigate the world of international trade and gain a better understanding of taxes on imported goods.