Many warehouses have a dark corner with cartons piled high on pallets. It is the supply chain equivalent of the back of the pantry, where obsolete and damaged inventory awaits in near perpetuity to be carted off to a landfill or shipped off to downstream United States and foreign resellers.
What most companies don’t realize is that those pallets of obsolete or damaged inventory can have significant value.
When goods are imported into the United States and subsequently exported or destroyed, the exporter or owner of the goods can obtain a refund of up to 99% of the duties, fees, and taxes assessed at the time of importation. This provision of law is known as “duty drawback” and is widely used by companies engaged in international trade as a duty recovery strategy. This pattern is especially true for companies that have seen their landed cost increase since the imposition of the Section 301 tariffs on imported goods of Chinese origin starting in 2018, which has added a 7.5% or 25% ad valorem rate of duty.
Companies can clean out the dark corners in their warehouses and turn the effort into meaningful customs duty refunds. Here’s how:
Create an itemized list
Create an itemized list of what you intend to export or destroy. That list should contain information about the goods, including:
- Part numbers or SKUs
- Item descriptions
- Tariff numbers
- Countries of origin
- Item quantities
- Units of measure
- Unit values
- Extended values
Gather relevant data
Companies should gather import data and, in certain cases, export data to create the “inventory pools” that will be used to calculate the estimated duty recovery and will serve as the foundation of the duty drawback claim.
Crowe observation
Missing information might be able to be obtained from U.S. Customs and Border Protection’s (CBP) automated systems, the company’s enterprise resource planning system data, or reports from certain freight forwarders and customs brokers.
Collect documentation
Companies will need to have substantiation for claims using import and, when necessary, export documents, which could include:
| Import documents |
Export documents |
| CBP Form 7501, “Entry Summary” |
Automated export system transmittal |
| Commercial invoices |
Commercial invoices |
| Packing list |
Packing list |
| Bill of lading or air waybill |
Bill of lading or air waybill |
| Purchase orders |
Sales orders |
| Proof of receipt of inventory |
Proof of inventory withdrawal |
Establish export or destruction
Companies will need to have proof of export or destruction. This might require coordination with other departments at the company, freight forwarders, or local CBP port officials.
File the drawback claim
Companies will use the information they gathered to prepare and submit a duty drawback claim. It typically can take three to five months to receive the refund after filing the claim, depending on the completeness of the claim.
Looking ahead
Customs duties and the potential for increases in those duties have gotten significant attention during this election cycle. However, companies should be aware that opportunities for refunds of already paid for goods do exist, particularly in the case of obsolete and damaged goods. Companies should consult with their professional advisers to evaluate the potential for custom duty refunds.
