As an importer, you’re responsible for ensuring your imported products are correctly classified with an HTS (Harmonized Tariff Schedule) code. This code ensures that the importing country knows what products are coming into the country and what tax and duties to charge for those products. At the very least, if you don’t use the right HTS import codes, you’ll end up paying the incorrect amount for taxes and duties. At the very worst, you could end up paying a lot more.
HTS Codes are Serious Business
The world of international trade is generally a well-oiled machine. Yes, there are always issues with individual imports and exports, but overall, the world’s shipments move very well. One main reason for this efficiency is the Harmonized System (HS) that the World Customs Organization developed to classify imported and exported goods around the world. The HS is the foundation for the entire classification system and HTS codes are a critical component of that system.
The HS was first developed in 1988 and it is updated every five years to include new products and new classifications. The first six digits of an HTS code are used universally, but individual countries can add up to four additional digits for further classification. The United States, for example, uses a 10-digit code to ensure every product is identified and taxed properly. Not using the right codes can cause the entire system to break down.
Incorrectly Classifying Goods is a Crime
Really, that’s the long and the short of why it’s important to you as an importer to use the correct HTS codes when importing goods. You don’t want to break the law. Section 484 of the 1930 Tariff Act states that importers are responsible for “using reasonable care to enter, classify, and determine the value of their imported goods.” Now, they didn’t have the HTS in 1930, but those codes make it easier for you to enter, classify, and determine the value of your imported goods.
The Customs and Border Protection (CBP) agency uses the HTS codes to properly assess taxes and duties of all imported items and ensure that all legal requirements have been met. It also allows them to collect accurate data of what products are being imported. If you use the incorrect code, you are committing a customs violation that can lead to fines, customs delays, product seizure, and other penalties.
Penalties Determined by CBP
The CBP determines the penalty for customs violations by assessing the importer’s level of culpability in committing the violation. There are three levels of culpability, which are:
- Negligence – failure to exercise reasonable care when assigning an HTS code (or other violation)
- Gross negligence – knowingly committing a customs violation or ignoring customs regulations
- Fraud – intentionally and voluntarily committing a customs violation for purposes of deceit
Typically, a negligence violation penalty will be between 5% and 20% of the domestic value of the products, a gross negligence violation penalty will be between 25% and 40% of the domestic value of the products, and a fraud violation penalty will be between 50% and 80% of the domestic value of the products. A fraud violation can lead to the forfeiture of the entire value of your products.
Conclusion
As you can see from the potential penalties you can get for violating customs regulations, it’s really not worth it to use the wrong HTS code, either intentionally or unintentionally. Be sure you know your code before you start importing goods and you’ll be in the clear.
