Here is an example of the application of the deductive value method in customs valuation as tested on a previous Customs Broker License Exam.
October 1999 Test
Question 5
Wally’s Watermelons, a large agricultural market in Tucson, Arizona, imports, through the U.S. Customs port of Nogales, Arizona, 500 cartons of seedless watermelons on consignment from a grower in Mexico. Once placed for sale at the market, all of the cartons are sold to unrelated parties within two days. Based upon an examination of the merchandise, including identical or similar watermelons, the unit price sold in the greatest aggregate quantity is $15 per carton (300 cartons). The cartons of watermelons are appraised under deductive value. Wally’s Watermelons submits the following cost sheets:
-Profit & General Expenses:$1.50
-Commissions:$1.50
-Transportation & Insurance from Mexico to Nogales, Arizona:$1.00
-Transportation & Insurance from Nogales, Arizona, to Tucson, Arizona:$0.85
(not included as a general expense)
-Customs Duties:$1.14
What is the appraised value?
A. $ 9.01 per carton
B. $13.51 per carton
C. $15.00 per carton
D. $10.51 per carton
E. $11.51 per carton
Correct choice is: D
Explanation: 19 CFR 152.105
19 CFR § 152.105 – Deductive value.
(1) If the merchandise concerned is sold in the condition as imported at or about the date of importation of the merchandise being appraised, the price is the unit price at which the merchandise concerned is sold in the greatest aggregate quantity at or about such date.
(d) Deductions from price. The price determined under paragraph (c) of this section will be reduced by an amount equal to:
(1) Any commission usually paid or agreed to be paid, or the addition usually made for profit and general expenses, in connection with sales in the United States of imported merchandise that is of the same class or kind, regardless of the country of exportation, as the merchandise concerned;
(2) The actual costs and associated costs of transportation and insurance incurred with respect to international shipments of the merchandise concerned from the country of exportation to the United States;
(3) The usual costs and associated costs of transportation and insurance incurred with respect to shipments of the merchandise concerned from the place of importation to the place of delivery in the United States, if those costs are not included as a general expense under paragraph (d)(1) of this section;
(4) The customs duties and other Federal taxes currently payable on the merchandise concerned by reason of its importation, and any Federal excise tax on, or measured by the value of, the merchandise for which vendors in the United States ordinarily are liable; and
As per sub clause (1) you have to deduct either the commission or the addition for profit and general expenses after deducting components (2), (3), and (4).
$15 – $1.5 – $1 – $0.85 – $1.14 = $10.51 which is Answer choice D.
When two clauses are connected by the connector “or”, you have to apply one of the two clauses but not both. So here you can deduct either the commission or the addition for profit and general expenses, but you cannot deduct both to get a lower assessable value. Here both have the same value 1.5 so it does not matter which one you deduct, you will get the same answer 10.51. But under 19 CFR 152.105, Customs will not allow you to deduct both items to derive a lower assessable value and pay less customs duty.
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