6 tax and tariff terms metals leaders should know

Dan Swartz
| 8/28/2023
6 tax and tariff terms metals leaders should know

As metals companies in the United States engage in international trade, metals leaders are encountering the challenges of increasingly complex trade barriers that make importing and exporting products riskier. Meeting reporting requirements, understanding and properly applying tax laws, and complying with various tariff regulations can be time consuming, overwhelming, and difficult to get right – especially in the metals industry.

Metals companies that don’t keep up with the dynamic changes in trade policy and regulations can face financial penalties, customs delays or denial of import, investigations, audits, and legal consequences – not to mention the added time and frustration of having to fix the problem.

When metals leaders have a better understanding of what needs to be in place, they can avoid potential legal, financial, and production ramifications.

Insights in your inbox
Discover how metals businesses are stepping into the future of the industry by subscribing to Metals 4.0.

Following are six important tax and tariff terms metals leaders should know to help them avoid problems with customs.

1. Tariff classification

Tariff classification is the process of determining the amount of tariff that needs to be paid when a product is imported or exported. In the tariff classification process, products are given a 10-digit numeric code that establishes the rate of duty on a product, whether a product is eligible for special tax and tariff benefits, and whether a product is subject to additional import requirements or restrictions, such as reporting to other participating government agencies or quota restrictions.

Metals product classifications can be difficult to accurately identify, which puts metals leaders at risk of misclassifying products, paying the wrong amount, and other repercussions.

One way metals companies can alleviate the burden is by using an enterprise resource planning (ERP) system to track product classification. Metals leaders can configure the item master feature on their ERP platforms to make sure tariff classifications are applied consistently and accurately across their supply chains. Such classification makes it easier for metals companies to trace, audit, and reference data.

2. Country of origin

Because the United States has various trade agreements with different countries, it’s critical for metals companies to declare the correct country of origin for a product at its time of entry to make sure the right amount of tax or tariff is paid. Stating the correct country of origin is especially important when dealing with nuances such as punitive tariffs (such as Section 232), free trade agreements, and special trade programs.

Determining the country of origin for metals inventory and products can be as complex as tariff classification. If a product is created in one country and undergoes a minimal process in an intermediate country, the country of origin is the country it was created in – unless the process changes the product substantially enough. However, once the country of origin is determined, an ERP system can help manage the data more seamlessly. For example, item numbers for products can be assigned suffixes that help identify country of origin in a clear and consistent way.

3. Duty

A duty refers to a tax applied to imported goods and products. For metals companies, this general category includes normal tariffs, Section 232 tariffs, and antidumping and countervailing duties. It’s an intricate system that can be overwhelming and difficult to understand and apply.

Metals companies that use ERP solutions to help calculate landed cost must have systems in place to make sure the right duties are being applied and the amounts are up to date. While an ERP application can be helpful to quickly calculate landed cost amounts, it’s important to have the right duty rate input to produce the correct amount.

4. Quota management

Trade regulations might include restrictions on the volume of product that can be imported during a certain period of time. Metals leaders that want to manage inventory levels to meet demand without experiencing extended delays or incurring excess inventory must be strategic about how much and when product is being shipped to different locations.

An ERP system can help calculate shipment amounts from different source countries, but being aware of regulations, understanding the restrictions, and knowing how limitations affect inventory and order levels for metals companies might require additional support from a specialist.

5. Free trade agreements and special trade programs

Free trade agreements and special trade programs offer preferential duty benefits on imported goods, but metals companies must follow specific rules to qualify for those benefits. For example, specific tariff change rules or regional value content requirements must be met, and a certificate of origin is usually required.

6. Valuation of merchandise

In most cases, the amount of duty owed to customs depends on the rate of duty and the value of the merchandise at the time it is imported. The customs value is determined by a complicated process that addresses the types of transactions that might occur on an import. Regulations also require additional costs to be included in the declared value of merchandise. These additional costs can include selling commissions, certain royalties and licensing fees, packaging, and proceeds made to the seller.

After identifying the additional costs in a journal ledger, systemic reports should be generated and supplied to the customs broker to declare the additional costs through the reconciliation program.

Ask Crowe your tax and tariff questions

This list serves as a starting point for you and your metals business to gain a deeper understanding of how to apply tariffs to metals products you’re importing and exporting. While knowing what to look for is key, it’s important to have a guide you can consult along the way.

Our tax and tariff team at Crowe has extensive knowledge of international tax laws and deep expertise in the metals industry. If you have questions or need additional guidance, we’re here to help. Don’t hesitate to contact us and learn how we can help your metals company safely navigate international trade.

Contact us

Dan Swartz
Dan Swartz
Principal, Tax