VAL OT:RR:CTF:VS H086246 KSG
Joel G. McClure
Director, Customs and International Trade Compliance
Restoration Hardware
15 Koch Road, Suite J
Corte Madera, California 94925
Dear Mr. McClure:
This is in response to your letter dated November 23, 2009, requesting a ruling on your proposed method of apportioning assists to certain imported upholstered furniture.
FACTS:
We assume for the purposes of this ruling that Restoration Hardware (“RH”) uses transaction value as a basis of appraisement. RH provides bulk upholstered fabric and leather free of charge to Chinese furniture producers. Each Chinese furniture producer will be sent separate supplies of fabric and leather. The material will be used exclusively for RH’s furniture. All finished furniture will be imported into the U.S. by RH. The furniture will be sold to RH at a mutually agreed FOB China price basis. The purchase price on the invoices will not include the cost of the fabric or leather material or the associated transportation cost to deliver the material to the manufacturer in China. All other costs to produce the furniture will be included in the FOB price on the purchase order agreements and the commercial invoice. RH acknowledges that the cost of the fabric or leather and the associated transportation costs to ship it to China is an assist and should be included in the price actually paid or payable.
Prices of the upholstery material will vary by fabric or leather type and based on market factors. Therefore, RH does not want to report assist costs on an item by item basis or an entry by entry basis. RH proposes to track all assist costs in a single dedicated general ledger account (“GL”). This GL will be used exclusively to book all purchase amounts for raw material going to furniture production and all transportation costs to ship the material. RH proposes to close the GL at the end of each fiscal month. RH requires 1-2 weeks from the last day of the fiscal month to close. RH then proposes to report and apply all assist costs from the prior month to the first shipment from each separate furniture supplier/vendor which is imported after the prior month’s closing period. RH states that this proposal is in accordance with generally accepted accounting principles.
ISSUE:
Whether apportioning the value of assists described above is an acceptable method for CBP appraisement purposes.
LAW AND ANALYSIS:
Merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. 1401a). The preferred method of appraisement is transaction value, which is defined as the ”price actually paid or payable for the merchandise when sold for exportation to the United States,” plus certain enumerated additions, including the value apportioned as appropriate, of any assist. 19 U.S.C. 1401a(b)(1)(C). For the purposes of this decision, we assume that transaction value is the proper basis of appraisement.
In this case, there is no dispute over the fact that the fabric and leather provided by the company are assists and it is conceded that the assist must be added the price actually paid or payable. The only question is whether RH’s proposed method of apportionment is acceptable.
CBP has authority under section 152.103(e)(1) of the Customs Regulations (19 CFR 152.103(e)(1)) to accept a method of apportionment that is:
…made in a reasonable manner appropriate to the circumstances and in accordance with generally accepted accounting principles. The method of apportionment actually accepted by Customs will depend upon the documentation submitted by the importer. If the entire anticipated production using the assist is for exportation to the United States, the total value may be apportioned over (i) the first shipment, if the importer wishes to pay duty on the entire value at once, (ii) the number of units produced up to the time of the first shipment, or (iii) the entire anticipated production. In addition to these three methods, the importer may request some other method of apportionment in accordance with generally accepted accounting principles.
As provided above, the apportionment of assists must be made in a reasonable manner appropriate to the circumstances and in accordance with generally accepted accounting principles. This proposal is similar to what was proposed in Headquarters Ruling Letter (“HRL”) H015975, dated September13, 2007. In HRL H015975, CBP stated that the apportionment of material assist costs from a given month on the first entry of the following month was acceptable provided that it was in accordance with generally accepted accounting principles. Upon consideration, we find that RH may apportion its assists and report and apply all assist costs from the prior month to the first shipment from each separate furniture supplier/vendor which is imported after the prior month’s closing period provided that the apportionment is in accordance with generally accepted accounting principles.
HOLDING:
We find that the apportionment proposed by RH in this case to apply all assist costs from the prior month to the first shipment from each separate furniture supplier/vendor which is imported after the prior month’s closing period is an acceptable method for CBP appraisement purposes provided that the apportionment is in accordance with generally accepted accounting principles.
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP official handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch