The First Sale Rule: A Powerful Tool with a Heavy Compliance Burden

When structured and documented properly, the First Sale Rule can be a powerful cost-saving tool for U.S. importers. But with U.S. Customs and Border Protection (CBP) applying increased scrutiny in recent years, importers must understand both the opportunity and the obligation.

At Richard G. Fleischer Customs Brokers, we believe in empowering importers with clear, compliant strategies. Here’s what you need to know.

What Is the First Sale Rule?

Under standard customs valuation, duty is calculated based on the transaction value — typically the price paid by the U.S. buyer to the foreign seller. But in a multi-tiered supply chain (e.g., Manufacturer → Middleman → U.S. Importer), the First Sale Rule allows the importer to use the price paid by the middleman to the manufacturer — if specific conditions are met.

This valuation strategy is grounded in 19 CFR § 152.103(l), which provides that if a sale is:

• A bona fide sale,

• For export to the U.S., and

• Conducted at arm’s length,

... then the importer may use the first transaction as the basis for declared value.

Why It Matters

Using the First Sale Rule can result in significant duty savings — especially on high-volume or high-duty-rate merchandise. But these savings come with a compliance burden. If an importer fails to properly support the claim, it may result in penalties, reappraisals, and loss of eligibility.

CBP has clearly signaled through audit trends and informed compliance publications that First Sale claims are not to be taken lightly.

What Does CBP Require?

To satisfy CBP’s expectations, you must provide a complete and transparent record of the transactional chain. This includes:

1. Proof That the First Sale Was for Export to the U.S.

• CBP must see clear intent at the time of the first sale that the goods were destined for the U.S.

• This includes shipping instructions, markings, contracts, and any export references that prove U.S. destination was contemplated from the outset.

2. Proof That the Sale Was Bona Fide and at Arm’s Length

• If any parties are related, the importer must demonstrate that the price was not influenced by the relationship (see 19 CFR § 152.103(j)).

• CBP will look at how price is negotiated, whether the buyer bears risk, and whether real commercial terms are involved.

3. Complete Documentation of the Transaction Chain

For each shipment, you should maintain the following records:

• Purchase Orders

  • U.S. Buyer → Foreign Seller

  • Foreign Seller → Manufacturer

• Sales Contracts (if distinct from POs)

  • Same parties as above

• Commercial Invoices

  • Manufacturer → Foreign Seller

  • Foreign Seller → U.S. Importer

• Proof of Payment

  • Wire transfers, bank remittances, or letters of credit

• Affidavits or Declarations

  • Certifying sales terms, parties’ relationships, and export intent

• Corporate Relationship Disclosures

  • Identify if any parties are under common ownership or control

CBP may request any of the above, especially during audits or focused reviews.

Common Pitfalls

Even well-meaning importers can fall short. Common reasons for denial of First Sale claims include:

• Lack of consistent documentation (especially where terms differ between documents)

• No clear evidence of U.S. export intent at the first sale stage

• Use of nominal or pro forma invoices without real financial transactions

• Related-party pricing without arm’s-length substantiation

Is First Sale Right for You?

The First Sale Rule is not a one-size-fits-all solution. It requires:

• Transparent and cooperative suppliers,

• Robust supply chain records,

• Legal analysis if related parties are involved, and

• Willingness to undergo greater CBP scrutiny.

For some importers, the compliance effort outweighs the savings. For others, it becomes a long-term strategic advantage — if properly managed.

Our Role as Your Customs Broker

At Richard G. Fleischer Customs Brokers, we assist clients in:

• Assessing First Sale eligibility

• Reviewing supplier documentation

• Preparing for CBP audit inquiries

• Creating First Sale declarations and affidavits

• Implementing compliance programs across vendor networks

Good recordkeeping isn’t optional — it’s your defense. We ensure your First Sale strategy stands up to legal and regulatory review.

Have questions about whether your transactions qualify? Contact us for a compliance review or to establish a First Sale program that saves money and holds up under scrutiny.

Effective Logistics: Upholding a Legacy of Excellence.

Richard G. Fleischer Customs Brokers