Have you ever wondered how duty and tax rates are determined? Ever been asked for an HTS code? Let’s walk through what exactly an HTS Code is and why should you care.
Thanks to the good ol’ Harmonized Tariff System (HTS) governmental entities, customs brokers, companies, and people like you and I all have access to the tax rates being charged to import goods. It is VERY important to understand the HTS and codes for any goods you are importing or exporting because misclassifications often lead to legal penalties or significant shipping/border delays!
The Harmonized Tariff System, also referred to as Harmonized Commodity Description and Coding System, is a standardized international system of names and numbers that classify traded products.
The HTS is the primary resource for determining “tariffs” (or tax) on goods. The HTS classification system is based on a good’s name, usage, material, along with other qualifications that then determine an assigned classification code number. It has been around since the late ’80s and is maintained by the 200+ member countries that make up the World Customs Organization.
There are a set of general rules for the interpretation of the Harmonized System, but often times goods are classified by form or function. An example of form would be classifying fresh corn on a husk vs. frozen corn; or bar soap vs. liquid soap. An example of function would be an item classified based on what it’s made of—wooden table vs. plastic table. Classifications get very, very specific, and over 98% of all traded goods can be found in this all-encompassing guide.
So How Do I Calculate my Tariff?
Calculating your exact Tariff can be a complex process (beyond the scope of this blog post). However, one extremely helpful resource you can use the US International Trade Commission’s search function to search for HTS codes here: https://hts.usitc.gov/. While there are lots of different ways to search this site, the best is if you already have the HTS code identified. In most cases, your manufacturer or customs broker will be able to help provide this for you.
Know your HTS codes up front, and make sure you stay on top of potential Duty/Tax rates before you get hit. Many Supply Chains have been butchered due to mis-aligned HTS Codes so don’t get caught yourself!