RR:IT:VA 547210 DWS
Jeffrey Wilson
Logistics & Compliance Specialist
Spiegel, Inc.
3500 Lacey Road
Downers Grove, Illinois 60515-5432
RE: Discounts
Dear Mr. Wilson:
This is in response to your letter dated October 14, 1998, requesting a prospective ruling on behalf of Spiegel, Inc. (“Spiegel”), concerning the proper appraisement of merchandise involving a volume discount program entered into between Spiegel and its foreign vendors. We regret the delay in responding.
FACTS:
As of January, 1998, Spiegel has been operating under a volume discount program with its vendors of direct import merchandise. Although this program has been in operation since 1998, please note that this ruling is limited to prospective transactions only. The volume discount program assists Spiegel with obtaining better pricing due to the large volume of orders placed with its vendors. Accordingly, the merchandise which Spiegel purchases has a volume discount deducted from the FOB price, and Spiegel submits duty based upon the discounted FOB price.
Under the terms of this volume discount program, Spiegel and its vendors agree to a 4% volume discount for softlines merchandise (wearing apparel) and 2% volume discount for hardlines merchandise (home textiles and hard goods). According to your submission, this volume discount program is designed in accordance with the examples set forth in section 152.103(a), Customs Regulations [19 CFR 152.103(a)]. Furthermore, you state that Spiegel and its vendors agree to these discounts prior to the merchandise being sold for exportation.
ISSUE:
Whether the discounted price, which Spiegel and its vendors agree to prior to importation of the merchandise, constitutes the price actually paid or payable for the imported merchandise.
LAW AND ANALYSIS:
Merchandise imported into the United States is appraised in accordance with §402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. 1401a. The preferred method of appraisement is transaction value, which is defined in §402(b) of the TAA as the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus certain enumerated additions not relevant here. For purposes of this ruling, we assume transaction value applies.
The term “price actually paid or payable” is more specifically defined in §402(b)(4)(A) of the TAA as “the total payment (whether direct or indirect. . . ) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller.” The Customs Regulations further provide that the price actually paid or payable “will be considered without regard to its method of derivation. It may be the result of discounts, or negotiations, or may be arrived at by the application of a formula ***” 19 CFR 152.103(a)(1). Thus, where a seller discounts its price for certain merchandise to a buyer, and the discount is agreed to and effected prior to importation of the merchandise, the discounted price constitutes the “price actually paid or payable” for the merchandise. See, Allied International v. United States, 16 CIT 545, 795 F.Supp. 449 (1992) and Headquarters Ruling Letters HQ 545659 (October 25, 1995) and HQ 543302 (November 1, 1984). Consequently, based upon the information you have provided, the discounted price, which Spiegel and its vendors agree to prior to importation of the merchandise, constitutes the price actually paid or payable for the imported merchandise.
HOLDING:
The discounted price, which Spiegel and its vendors agree to prior to importation of the merchandise, constitutes the price actually paid or payable for the imported merchandise.
Sincerely,
Thomas L. Lobred
Chief, Value Branch