If your supply chain runs factory to middleman to you, the price you actually pay is not necessarily the price you owe duty on. First sale for export lets an importer value goods at an earlier, lower price in the chain, provided that earlier sale meets a specific legal test. It is a fully lawful valuation method with four decades of case law behind it, not a grey area, but it is also the subject of a live 2026 legislative push to abolish it, so this is not a settled corner of customs law to assume will stay put.
What problem it solves
Under ordinary transaction value, US Customs and Border Protection appraises imported goods on "the price actually paid or payable for the merchandise when sold for exportation to the United States," under 19 U.S.C. 1401a(b)(1). The statute does not say which sale counts when there is more than one, and in a chain like factory to trading company to US importer, there are at least two candidates: the factory's price to the middleman, and the middleman's price to you. Left alone, CBP defaults to the last one, which is usually the highest, because it already includes the middleman's markup, financing cost and profit.
The legal test
The foundational case is Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992), which concerned rapid-transit railcars manufactured by Kawasaki Heavy Industries in Japan, sold to a Japanese trading company at roughly $500,000 per car, then resold to the US importer at $844,500 per car for delivery to New York's MTA. Customs had valued some cars on the manufacturer's price and others on the resale price. The Federal Circuit held that the manufacturer's price is a viable transaction value, and must be used, where the earlier sale meets three conditions:
- A bona fide sale genuinely occurred between the factory and the middleman, not a bookkeeping fiction.
- The goods were clearly destined for export to the United States at the time of that sale, not merely by the time they shipped.
- The sale was conducted at arm's length, free of non-market influences that would distort the price.
An earlier Federal Circuit decision, E.C. McAfee Co. v. United States, 842 F.2d 314 (Fed. Cir. 1988), had already established the underlying principle that the sale used for valuation need not be the last one, so long as it is a genuine sale for export to the United States. Nissho Iwai turned that principle into the working test importers use today.
A worked example
Suppose a factory sells a shipment to a trading company for $70,000, goods already earmarked for a named US buyer, and the trading company resells the identical shipment to the US importer for $100,000, the difference covering financing, sourcing services and margin. Under last-sale valuation, duty is assessed on $100,000. If the importer can document that the factory-to-trading-company sale meets all three Nissho Iwai conditions, duty is instead assessed on $70,000. At a combined ad valorem rate of 25 percent, that is the difference between a $25,000 duty bill and a $17,500 one, on this shipment alone. This example is illustrative, built to show the mechanism; it is not drawn from a published CBP figure, because neither CBP nor the courts publish a standard worked calculation.
What CBP actually requires as proof
CBP's own Informed Compliance Publication on bona fide sales, dated August 2005, states plainly that the presumption runs against you: "Customs presumes that the price paid by the importer is the basis of transaction value and the burden is on the importer to rebut this presumption." The documentation standard traces to Treasury Decision 96-87, which requires a description of each party's role in the multi-tiered transaction and a complete paper trail showing the transaction's actual structure.
In practice that means, at every tier: purchase orders, invoices and proof of payment, with consistent pricing, dates, parties and merchandise descriptions across the whole set. Inconsistency between the two sets of documents is treated as a red flag on sight.
The single most common way this fails is that title and risk of loss never genuinely pass to the middleman. A back-to-back structure where Incoterms have title and risk running from the factory directly, or "simultaneously," through to the US consignee, with the middleman never actually bearing risk, is not a bona fide sale between factory and middleman no matter what the invoices say. CBP looks past the labelling to the substance of who actually carried the risk.
A recent ruling shows exactly how this plays out. In CBP ruling H337689, decided 6 October 2025, an apparel importer's protest was denied because purchase orders from its middlemen to their factories were untranslated, several factory invoices were untranslated, no inland freight documentation was presented, and it was consequently unclear which entity ever assumed the risk of loss. CBP held the importer had failed to establish the complete paper trail T.D. 96-87 requires. None of the individual failures was exotic. Together they were enough to lose the claim.
Also confirm the goods were clearly destined for the US at the time of the first sale, not merely by the time of shipment, and where the factory and middleman are related parties, satisfy the separate related-party test in 19 U.S.C. 1401a(b)(2)(B): did the relationship influence the price, tested either by comparing the pricing against the parties' normal pricing practices or against test values for comparable unrelated transactions.
China, non-market economies, and a myth worth killing outright
There is no statutory carve-out barring first sale for goods from China or any other non-market economy, and the case law has settled this decisively after a period of real uncertainty. In Meyer Corp., U.S. v. United States, involving cookware manufactured in Thailand and China and sold through related Hong Kong and Macau distributors, the Court of International Trade initially denied first sale in 2021, reasoning in part from China's non-market-economy status and requiring Meyer to disprove all "distortive nonmarket influences" broadly. The Federal Circuit vacated that decision in August 2022, holding in terms: "There is no basis in the statute for Customs or the court to consider the effects of a nonmarket economy on the transaction value and require a party to show the absence of all 'distortive nonmarket influences.'" The only statutory test for a related-party transaction is the ordinary arm's-length inquiry, applied transaction by transaction, not a freestanding non-market-economy exclusion.
The case did not end there. On remand the trial court again denied first sale, this time because Meyer had not produced its parent holding company's financial documents, and the Federal Circuit vacated a second time in December 2024, holding the trial court had improperly applied an evidentiary presumption against Meyer. The practical lesson survives regardless of where the case eventually lands: origin in a non-market economy is not disqualifying by itself, but a related-party structure invites exactly the kind of scrutiny Meyer has been fighting since 2021, and the financial documentation to support arm's-length pricing needs to exist before you claim it, not after CBP asks.
Why this matters more in 2026 than it did a year ago
Ad valorem duties are assessed on the customs value, so a lower first-sale value mechanically lowers the dollar tariff bill by the same proportion, and 2026 has raised the stakes on both sides of that equation.
On 20 February 2026, the Supreme Court held that the President's IEEPA-based tariffs, both the broad "reciprocal" tariffs and the fentanyl-related tariffs on China, Canada and Mexico, were unlawful, and CBP halted collection on entries from that decision onward. Section 301 tariffs were unaffected and have separately expanded: several 2025 and 2026 Section 301 actions now reach roughly 86 countries, representing close to the entirety of US import value by trade-industry estimates. First sale's value did not disappear with the IEEPA ruling. It shifted: it no longer offsets a tariff layer that no longer exists, but it remains fully relevant everywhere Section 301, ordinary MFN duties, or antidumping and countervailing duties apply, which by 2026 is nearly every import.
That relevance shows up in the disclosures. Target's most recent SEC filing states the retailer "uses permitted customs valuation methods, including the first sale methodology, for certain qualifying direct imports," typically paying duty at the higher price at entry and later filing first-sale claims to recover the difference. CBP itself has been running a randomised importer survey since March 2026 specifically to collect data on first-sale usage, alongside issuing first-sale valuation questionnaires covering 2023 to 2025 entries to individual importers.
And Congress is trying to end it. The Last Sale Valuation Act, introduced 11 February 2026 by Senators Bill Cassidy and Sheldon Whitehouse, would amend the Tariff Act of 1930 to require transaction value be based on the last sale before US export, eliminating first sale by statute. It has industry backing from domestic manufacturing groups and is framed by its sponsors as closing a customs loophole. As of writing it is introduced and referred, not enacted.
This is not the first time this fight has happened. In January 2008, CBP itself proposed reinterpreting the statute to mean the last sale only, which would have eliminated first sale by regulatory reinterpretation rather than legislation. Congress responded with a provision in the 2008 Farm Bill directing CBP to hold off and commissioning a year of data collection. The resulting US International Trade Commission study found that over a twelve-month period, 23,520 unique importers, about 8.5 percent of all US importers, used first sale, covering $38.5 billion of $1.63 trillion in imports, about 2.4 percent by value. Facing that data and industry pushback, CBP withdrew its proposal in 2010. Whether the 2026 legislative effort ends the same way is not something this article can predict, but the pattern of "eliminate the loophole" recurring on roughly a tariff-shock cycle is itself worth knowing if you rely on the method.
One procedural point that already exists and is easy to miss: since the 2008 Farm Bill, an importer using first sale must affirmatively flag it at entry, the "F" indicator on CBP Form 7501 or the equivalent ACE entry summary field, called the First Sale Declaration. It is not an optional disclosure.
Not available everywhere
The European Union abolished its own equivalent of first sale when the Union Customs Code took effect on 1 May 2016. Under Article 128(1) of the UCC Implementing Act, the dutiable transaction is now defined as the sale occurring immediately before the goods entered EU customs territory, a mandatory last-sale rule, the opposite direction from where the current US legislative push is aimed. A transitional exception preserved earlier-sale valuation only for contracts concluded before 18 January 2016, and only through the end of 2017; nothing remains of it now. If your supply chain also serves EU customers, do not assume a valuation strategy that works on US entries will do anything for you there.
Before you claim it
Four checks, in order, before treating first sale as available on a given transaction:
- Confirm the middleman genuinely took title and risk. Check the actual Incoterms and shipping structure, not just what the contract says. If risk ran straight through from factory to you, there is no first sale to claim.
- Build the paper trail before you need it. Matching purchase orders, invoices and proof of payment at both tiers, translated where necessary, with consistent parties, prices, dates and descriptions.
- Confirm destination was fixed at the first sale, and if the factory and middleman are related, gather the pricing evidence the related-party test requires now, not after a CBP request.
- File the First Sale Declaration on entry. Claiming the benefit without the disclosure is its own compliance problem.
Getting the customs value right is only one input into what a shipment actually costs to land; our guides to customs valuation, finding the correct HS code and duty drawback cover the rest of that picture, and whether you need a customs broker is worth reading before you attempt a first-sale claim without one.
A forwarder or broker experienced in multi-tier sourcing structures is the difference between a first-sale claim that survives an audit and one that does not. You can search more than 29,300 logistics companies by country and service in the CargoLinked directory, or post your shipment and let forwarders with the right experience come to you.
This article explains a valuation method in general terms and is not a substitute for advice on a specific import structure. First sale claims are document-intensive and the burden of proof sits entirely with the importer, so get advice before you rely on one.
