VAL OT:RR:CTF:VS H189369 EE
John G. Jakubowski
FedEx Trade Networks
Transport & Brokerage (Canada), Inc.
7075 Ordan Drive
Mississaugo, ON L5T 1K6
RE: Transaction value; dutiability of commissions
Dear Mr. Jakubowski:
This is in reply to your letter, dated June 14, 2011, in which you request a ruling concerning the dutiability of certain commission payments for services provided by Norwex sales consultants.
FACTS:
You state that Norwex, located in Manitoba, Canada, is a non-resident importer of a variety of environmentally friendly cleaning and personal care products into the U.S. for sale to unrelated customers. Norwex primarily sells products to the buyers in the U.S. through home presentations organized by Norwex sales consultants who obtain orders, receive products, and arrange for payment from the customers and hosts/hostesses who help the selling process by hosting the party in their home. The products are sold to customers at the party based on the established catalogue price plus shipping and handling fees, and applicable taxes. When Norwex receives the order from the consultant, it invoices the consultant and then ships the product to the consultant, the hostess, or directly to the customer. The customers can make payments by cash, check, or credit card. For cash and check payments, the consultant deducts the commission and remits the balance to Norwex. If a customer makes a credit card payment, Norwex reimburses the commission to the sales consultant.
You state that the consultants and the hosts are not related to Norwex. You provided a copy of the Norwex Sales Consultant Information & Training Manual, the Norwex USA Independent Sales Consultant Application & Agreement, the Norwex Starter Kit Agreement – USA, the Norwex 4 Star Hosting Plan, the Norwex Compensation Plan, a USA Customer Order Form, and a sample invoice issued by Norwex.
ISSUE:
Whether the commissions at issue may be deducted from the price actually paid or payable for the imported merchandise.
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 (TAA; 19 U.S.C. § 1401a). The primary 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 five enumerated additions. 19 U.S.C. § 1401a(b)(1). The price actually paid or payable shall be increased by the amounts attributable to the five statutory additions enumerated in 19 U.S.C. § 1401a(b)(1)(A) through (E) only to the extent that each such amount is not otherwise included within the price actually paid or payable. 19 U.S.C. § 1401a(b)(1). The term “price actually paid or payable” is defined in pertinent part as “the total payment (whether direct or indirect…) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller. 19 U.S.C. § 1401a(b)(4).
The enumerated additions to the price actually paid or payable include the value of any selling commissions incurred by the buyer with respect to the imported merchandise. A “selling commission” is any commission paid to the seller’s agent, who is related to or controlled by, or works for or on behalf of, the manufacturer or the seller. 19 C.F.R. § 152.102(b). Bona fide buying commissions, however, are not included in transaction value as part of the price actually paid or payable or as an addition thereto. See Pier 1 Imports, Inc. v. United States¸13 Ct. Int’l Trade 161, 164, 708 F. Supp. 351, 354 (1989); Rosenthal-Netter, Inc. v. United States, 12 Ct. Int’l Trade 77, 78, 679 F. Supp. 21, 23 (1988), aff’d, 861 F.2d 261 (Fed. Cir. 1988); and Jay-Arr Slimwear, Inc. v. United States, 12 Ct. Int’l Trade 133, 136, 681 F. Supp. 875, 878 (1988). The existence of a bona fide buying commission depends upon the relevant factors of the individual case. J.C. Penney Purchasing Corp. v. United States, 80 Cust. Ct. 84, 95, C.D. 4741, 451 F. Supp. 973, 983 (1978). However, the importer has the burden of proving that a bona fide agency relationship exists and that payments to the agent constitute bona fide buying commissions. Pier 1 Imports, Inc., 13 Ct. Int’l Trade at 164; Rosenthal-Netter, Inc., 12 Ct. Int’l Trade at 78; and New Trends, Inc. v. United States, 10 Ct. Int’l Trade 637, 640, 645 F. Supp. 957, 960 (1986).
Although no single factor is determinative, the primary consideration in determining whether an agency relationship exists is the right of the principal to control the agent’s conduct with respect to those matters entrusted to the agent. Pier 1 Imports, Inc., 13 Ct. Int’l Trade at 164; Rosenthal-Netter, Inc., 12 Ct. Int’l Trade at 79; and Jay-Arr Slimwear, 12 Ct. Int’l Trade at 138. In addition, the courts have examined such factors as the existence of a buying agency agreement; whether the importer could have purchased directly from the manufacturers without employing an agent; whether the agent was financially detached from the manufacturer of the merchandise; and the transaction documents. See J.C. Penney Purchasing Corp., 80 Cust. Ct. at 95-98. The courts have also examined whether the purported agent's actions were primarily for the benefit of the principal; whether the agent bore the risk of loss for damaged, lost or defective merchandise; whether the agent was responsible for the shipping and handling and the costs thereof; and whether the intermediary was operating an independent business, primarily for its own benefit. See New Trends, Inc., 10 Ct. Int’l Trade 640-643.
In the instant case, Norwex sales consultants act on behalf of Norwex by soliciting sales at a home party, submitting orders to Norwex, and arranging for payment. At a typical party, the customer completes a Customer Order form, which indicates the price for the merchandise plus shipping and handling fees and applicable taxes. The consultant transfers the total orders from the Customer Order forms collected at the party to the Norwex Sales Summary form which indicates the total sales from the party, total shipping and handling fees, and applicable taxes. The consultant’s commission is deducted from the total amount of the merchandise. The sample Norwex invoice you submitted contains the total price for the merchandise plus shipping and handling fees and applicable taxes. The consultant’s commission is deducted from the total price. These transaction documents indicate that the consultants work on behalf of Norwex. Additionally, according to the Sales Consultant Information & Training Manual, Norwex assumes responsibility for quality related matters (Sales Consultant Information & Training Manual at 103-105) and the consultants are not responsible for the shipping and handling costs. The totality of the circumstances in this case indicates that the sales consultants act as Norwex’s selling agents. Accordingly, the consultants’ commissions are selling commissions which are included in the price actually paid or payable of the imported merchandise.
HOLDING:
Based on the information presented, the consultants’ commissions are selling commissions which are included in the price actually paid or payable of the imported merchandise.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect.
The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
Sincerely,
Monika R. Brenner
Chief
Valuation & Special Programs Branch