A decades-old customs rule used by retailers and other importers to reduce tariff costs is once again coming under pressure in Washington, as higher duties push more businesses to rely on the strategy.
Known as the First Sale rule, the method allows qualifying importers in multi-tier supply chains to declare customs value based on an earlier transaction price rather than the final sale price paid to a middleman. In simple terms, if a manufacturer sells a product to an intermediary for US$20 and that intermediary then sells it to the importer for US$80, duties may in some cases be assessed on the lower value.
The rule was established through a 1988 court case and reaffirmed in 1992. It has traditionally been used most heavily in apparel and footwear, sectors long exposed to higher tariff levels. More recently, it has gained greater attention as companies search for ways to soften the impact of trade volatility.
Target referenced the use of First Sale in its latest fiscal 2025 filing, noting that it applies permitted customs valuation methods, including First Sale, for certain qualifying direct imports. The retailer said it generally pays duties based on the price paid to vendors and later seeks refunds for eligible First Sale transactions, though those recovery cycles can last more than a year.
Supporters argue the approach is both legal and useful. Jonathan Gold of the National Retail Federation said the method is grounded in customs law and can improve transparency because businesses must identify and document costs throughout the supply chain to qualify.
Critics see it differently. Senators Sheldon Whitehouse and Bill Cassidy introduced bipartisan legislation in February aimed at replacing the practice with a “Last Sale” valuation standard. Supporters of the proposal, including the National Council of Textile Organizations, argue that First Sale gives importers an unfair advantage over domestic manufacturers and functions as a customs loophole.
Kim Glas, president and chief executive of NCTO, said the issue has become more prominent as tariff mitigation has moved higher up the agenda and argued that most countries use a last-sale method instead.
The debate is not new. CBP proposed a shift to last-sale valuation in 2008, but Congress pushed back and instead requested a study from the US International Trade Commission. At the time, CBP created a one-year tracking measure requiring importers to flag First Sale declarations with the letter “F” in entry data. That indicator was later dropped, though Gold said restoring such reporting could help identify misuse.
CBP has also confirmed it began surveying selected importers on 2 March to collect data on how the First Sale principle is being used in practice.
