The first major piece of legislation in the United States was the Tariff Act of 1789. This act established duties on imported goods. In 2022 alone, U.S. Customs and Border Protection collected over $111 billion in duties, taxes, and fees.
However, under certain circumstances, businesses can qualify for a refund called a duty drawback— this refund can be up to 99% of their duties. However, the intricacy of the duty drawback process prevents many businesses from taking full advantage of it.
In this guide we’ll define duty drawbacks, explore the most common types of duty drawbacks, and explain how businesses can use duty drawbacks to maximize their refunds.
Americans import $3.8 trillion in goods and services each year and export another $3 trillion. Each time goods enter or leave the country, U.S. Customs and Border Protection levies a tax called a tariff, custom, or duty.
Duties protect domestic manufacturers by raising the cost of imports. They also establish a source of funding for the federal government.
Rather than using a flat rate for duties and tariffs, U.S. Customs and Border Protection uses the Harmonized Tariff Schedule (HTS).
The HTS categorizes goods and sets rates based on these categories.
For example, hairbrushes valued under 40 cents each (HTS code 9603.29.40) are taxed at 0.2 cents each + 7%. Hairbrushes valued over 40 cents (HTS code 9603.29.80) are taxed at 0.3 cents each + 3.6%.
The HTS includes 21 sections, broken into 99 chapters and over 11,000 8-digit categories. Duties range widely between categories. To make matters more complex, the duty also depends on the country of origin. Special trade agreements make tariffs higher in some countries, like Russia and Cuba, and lower in others. Some goods have no tariff at all from certain countries, such as crabmeat from countries like Australia with special trade agreements or smoke detectors from anywhere in the world.
Source: https://hts.usitc.gov/ 
A customs duty drawback is a refund of a portion of the duty payment—up to 99%—usually when imported goods are exported or destroyed. Duties are meant to encourage domestic commerce by making imports more expensive. However, if the importer exports those goods again, it neutralizes their impact on the economy. Duty drawbacks correspondingly neutralize the cost of duties to importers and exporters.
For example, a retailer pays a 6.5% duty on glassware imported from China. If they sell the glassware in local retail stores, they won’t be eligible for a refund. However, if they sell it to buyers in Spain, they could apply for a refund of up to 99% of their original duty.
Many importers miss out on this significant refund simply because they do not know about it. Duty drawback rules are convoluted and opaque, so navigating the system and filing drawbacks takes time. Duty drawback service providers help importers and exporters take advantage of this confusing process.
Duty drawbacks provide financial relief to businesses by refunding a portion of the duties paid on imported goods that are later exported or destroyed. This helps mitigate the cost burden of duties when the imports do not impact the domestic market.
Specific duty drawbacks include:
When a company exports a good in essentially the same condition in which it was imported, that good could qualify as unused merchandise, making it eligible for a duty drawback. Companies can make modifications (such as painting or cleaning), but to receive the drawback they can’t use the merchandise for its intended purpose before exporting it.
Under duty drawback rules, companies can also destroy unused merchandise under the supervision of U.S. Customs and Border Protection. As long as the merchandise is destroyed in compliance with U.S. Customs and Border Protection rules, the destroyed merchandise is eligible for the same unused merchandise drawback
Companies may also be able to substitute similar goods that share the same 8-digit HTS code. This means the goods they export or destroy aren’t required to be the exact objects they imported but can be equivalent substitutions. There are some restrictions to this, and with over 11,000 HTS numbers to distinguish between, and some with lengthy descriptions, a duty drawback service can be invaluable in navigating this complexity.
The same logic of substitutions applies to manufactured goods. If a company uses an imported good to manufacture a product that’s subsequently exported or destroyed, they may beare eligible for manufacturing drawbacks at the time of export.
In other words, companies must pay a duty on goods used for manufacturing when they receive them as imports. However, they may receive a duty drawback of up to 99% once they export the manufactured product.
In keeping with the spirit of duties—to prevent cheap imports from replacing domestic production—imports that fail to meet quality standards or are shipped without the consignee’s consent may beare eligible for rejected merchandise drawbacks.
This protects importers from paying duties on defective, damaged, or unauthorized goods. Like the other types of drawbacks, companies can either re-export the rejected merchandise or destroy it under U.S. Customs and Border Protection supervision.
U.S. Customs and Border Protection calls duty drawbacks “the most complex commercial program U.S. Customs and Border Protection (CBP) administers.” Here are some examples to clarify the duty drawback rules:
A company imports a fragrance and pays a duty. It sells the fragrance at its local retail storefront.
In this situation, the retailer is not eligible for a duty drawback because the product was sold locally. The duty served its purpose.
A company imports a dining set from Norway and pays a duty. It sells a similar dining set to buyers in Brazil. Even though the dining set it exported is different from the set it imported, as long as they are similar enough to share an 8-digit HTS code, they are eligible for a duty drawback. Since an equivalent product left the country, they can recoup up to 99% of their duties.
A company imports steel from another country. They use the steel to manufacture wooden dining sets with steel legs, which they then export. The company may be eligible for a refund of up to 99% of the duties paid for the steel, but only in proportion to the cost of the steel within the dining sets.
When manufacturers use multiple goods, companies can only obtain duty drawbacks for the portion of the export’s cost attributed to the import—in this case, the portion of the dining set’s cost that comes from the steel.
Getting a quote is easy. Simply tell us what you want, and a Livingston representative will be in contact to advise you on the most efficient way to accomplish your requirements.
We are available 24 hours,
7 days a week.