"First sale: paying duty on the factory price"

When goods pass through a middleman before reaching you, US customs value can lawfully be declared on the factory's price to that middleman rather than on the price you pay. This is called first sale valuation. It is settled law, it has been available since 1992, and most importers who could use it do not.

The saving equals your duty rate applied to the middleman's margin. On a high duty rate with a normal trading margin, that is often larger than what the middleman charges you.

When it applies

You need a transaction with at least two sales before the goods reach the United States. Typically the factory sells to a trading company, and the trading company sells to you.

If you buy directly from the factory there is only one sale, and first sale does not apply. There is nothing to choose between.

The three conditions

The rule comes from Nissho Iwai American Corp. v. United States, decided by the Federal Circuit in 1992. Three conditions must all be met.

1. The first sale must be a bona fide sale. Title and risk of loss must actually pass from the factory to the middleman. This is not satisfied by paperwork alone. If the middleman never takes ownership and simply arranges the transaction for a commission, it is an agency relationship and there is no first sale to value.

2. The goods must be clearly destined for export to the United States at the time of the first sale. The factory must be producing them for the US market, not making general stock that later happens to be sold to a US buyer. Evidence is usually found in purchase orders, production records, or US-specific requirements built into the goods, such as US labelling, US voltage, or US certification marks.

3. The first sale must be at arm's length, or if the parties are related, the relationship must not have influenced the price. Where the factory and the middleman are unrelated companies negotiating normally, this is straightforward. Where they are related, you need to demonstrate that the price would have been the same between unrelated parties.

All three. Meeting two is not enough.

What you need to have, and when

The burden of proof sits with the importer. Customs and Border Protection does not have to disprove your valuation. You have to substantiate it.

You need, at minimum:

• The factory's invoice to the middleman
• Proof that the middleman paid that invoice
• The purchase order or contract between factory and middleman
• Documents showing the goods were destined for the United States when that first sale occurred
• Evidence supporting the arm's length nature of the price, particularly if the parties are related
• A clear record of the middleman's role, showing they took title and bore risk

The timing matters more than the list. These documents have to exist at the time of the transaction. You cannot build a first sale record after the goods have shipped, and you certainly cannot build one after CBP asks a question.

This is why first sale is a decision made before the first order, not a saving discovered afterwards.

Why the supply chain has to be open

First sale requires you to see and hold the factory's invoice to your supplier. That is the whole mechanism. You are declaring a price to customs, so you must be able to produce the document that proves it.

Most sourcing intermediaries will not do this. Their margin is the difference between the two prices, and showing you the first one shows you the margin.

So the arrangement only works where the middleman prices openly. If your supplier will not show you what they paid, first sale is not available to you, whatever else they offer.

Confidentiality toward your own customers is a separate question and is not affected. Your customers do not see your customs entries.

What it is worth

The calculation is simple. Take the middleman's margin, multiply by your total duty rate, and that is your annual saving on that volume.

The duty rate is where this becomes significant. On goods carrying only a low general rate, the saving may not justify the administrative work. On goods carrying a high rate, or several layers of duty stacked together, the same margin produces a much larger number.

Work it out on your actual products before deciding. It is one line of arithmetic.

What to be careful about

Do not treat it as automatic. First sale is claimed entry by entry, and it is one of the areas CBP examines during focused assessments. An importer claiming it without records is in a worse position than one who never claimed it.

Do not confuse it with an agency arrangement. If your supplier acts as your buying agent and charges a commission, the correct treatment is different. Buying commissions are generally not dutiable, which is its own saving, but it is a separate rule with separate conditions. The two are sometimes muddled by people selling one or the other.

Do not assume it survives a change in the chain. If you change trading companies, or the factory changes, the analysis restarts.

Get it reviewed before the first entry. A licensed customs broker or a customs attorney should look at the structure and the document set once, before you file. The cost of that review is small compared with a valuation dispute.

How to start

1. Confirm your goods pass through a middleman who takes title.
2. Ask that middleman whether they will provide the factory invoice and supporting documents on every shipment. If the answer is no, stop here.
3. Calculate the likely saving using your actual duty rate and the margin.
4. Have a customs professional review the structure and the documentation package.
5. Build the document collection into the ordering process, so the records are created with each order rather than assembled later.

The short version

First sale is legitimate, long-established, and underused. It requires a real two-sale structure, documents created at the time, and a supplier willing to show you what they paid.

That last requirement is what stops most importers, and it is a question you can ask a supplier today.

Verified August 2026. Next review February 2027. Customs valuation is fact-specific. Have your structure and documentation reviewed by a licensed customs broker or customs attorney before filing an entry on this basis.