The Lowdown on Duty-Free
For once, we are talking about DUTY and not DOODIE!
If you plan on traveling and purchasing anything outside of the country and bringing it back with you when you re-enter the U.S., then yes you need know. Economics has never been my strong suit but I knew the duty tax had something to do with importing and taxes and international trade and all of that other stuff that makes me nauseous to think about. After much research, complication, discussion, and condensation, here is the best way I can make sense of it all to tell you what you really need to know:
DUTY TAX is just another schmancy word for import tax, meaning a tax that gets tacked on to an item that is imported in from another country. Under normal circumstances, when you travel abroad and buy an item that has been imported in to that country, there is an import tax already included in the list price of that item. So when you travel to England and buy perfume that’s been imported in from France, you’re actually paying the import (duty) tax on that perfume when you buy it…
…unless you are shopping DUTY-FREE, and believe me you will know, just look for the big signs everywhere.
As a way of (hopefully) stimulating the economy, duty-free shops have worked out a deal with the government to sell goods without duty, or import tax, as long as the goods are sold to travelers who will take them out of the country. That’s why often times you’ll find duty-free shops where there are a lot of international travelers: cruise ships, cruise ports, airports, and train stations. Because the import tax doesn’t have to be included into the list price of these items, you can find some pretty cheap prices on items that are normally taxed at a higher rate, especially alcohol and cigarettes.
So is duty-free shopping actually a good bargain?
My simple not-so-simple answer is that it depends on the item. Typically you can find some impressive duty-free discounts on tobacco products and alcohol (beware of U.S. restrictions on these – more on this later). If you’re specifically looking to buy alcohol and tobacco products to bring back home, duty-free shopping will likely be a good deal for you.
You can find many other items in duty-free shops, like jewelry, purses, and perfumes, and for these items I recommend doing some research and comparison shopping before purchasing to make sure you’re getting a good deal. Sometimes you can find an item elsewhere for cheaper than the duty-free price. Let’s be real, we all have Amazon Prime bookmarked. No shame!
Does this mean you can bring home two suitcases full of really cheap tequila? (Girlfriend, I’m not going to judge, but what kind of family trip are you going on here?!) Not so fast. All good things have a catch, especially taxes. Just because you don’t pay the duty tax when you purchase the item in another country doesn’t necessarily mean you won’t pay it when you re-enter the U.S. with it. I told you…complicated.
Generally our government would prefer you spend your money in our country. It prefers you buy goods like alcohol, cigarettes, and higher-priced items like jewelry and designer handbags domestically because then sales tax can be collected on those items. Sneaky, huh? Don’t get me wrong though, sales tax is important and we want it and need it – it pays for things like education, roads, police departments, and many other things our communities require to function. But, to discourage you from going hog-wild buying a bunch of stuff internationally, like two suitcases of tequila, the U.S. put certain restrictions in place for goods purchased and transported into our country.
Unless you plan on shopping for alcohol or cigarettes or plan on doing some serious spending on other stuff across the border, like $800+ worth of stuff, these restrictions most likely won’t apply to you. But, if there’s a chance they might, or you’d just like some light reading, here’s what you really need to know:
Top 12 Things You Need to Know About Buying Crap and Bringing It Back,
- Each traveler has a personal exemption of $800. This means when you re-enter the country, you can bring $800 worth of duty-free goods back into the U.S. without paying taxes on those items. You will be taxed on anything over $800. There are exceptions to this (click here). Complicated.
- Family members who live in the same household and travel together can combine their exemptions, including infants and toddlers. That means for a family of four, your combined exemption would be $3200 before you have to pay the duty tax. Unless…
- You are buying alcohol. Restrictions are different for alcohol. The dollar amount doesn’t matter; you’ll have to pay duty taxes on any amount of alcohol greater than one American liter (33.8 fluid ounces). Unless…
- You’re on a cruise ship. If you’re cruising and purchase a 1 Liter bottle of alcohol on board that is the product of a Caribbean Basin Country (see list here), you are then entitled to a second 1 Liter bottle of alcohol before having to pay the duty tax.
- Restrictions are also different for tobacco products. The personal exemption for tobacco is no more than 200 cigarettes and no more than 100 cigars. You’ll have to pay the duty tax for any greater amount. You are NOT able to combine family member/household exceptions for tobacco products OR for alcohol. Boo hiss.
- Don’t drink all the tequila in the airport because part of the duty-free deal is you can only imbibe once you are back on U.S. soil.
- You can only claim your personal exemption every 31 days, and you must be out of the country for at least 48 hours, otherwise your personal exemption is reduced to $200.
- If you’re the lucky duck that’s returning from the U.S. Virgin Islands, Guam, or American Samoa, your personal exemption increases from $800 to $1600/person because these places are considered American territories. If returning from any of these territories, you will be allowed to re-enter the U.S. with up to 5 Liters of duty-free alcohol as part of your $1600 exemption, as long as at least 4 Liters were PURCHASED IN that territory and as long as at least 1 Liter is a PRODUCT OF that territory. Complicated. You better really want all that tequila.
- To complicate it some more, certain countries have negotiated deals with the U.S. government for free or reduced duty tax rates. Many products from Caribbean and Andean Countries (click here) are exempt from duty taxes. Many products from sub-Saharan African countries are also exempt, as well as most products from Jordan, Chile, Israel, and Singapore. If you are returning from Canada or Mexico, your goods are eligible for free or reduced duty rates if they were grown, manufactured, or produced in Canada or Mexico.
- The U.S. has imposed a much higher duty rate on products from certain countries. Currently, there is a 100% duty tax rate for certain products from Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the Ukraine. If you bring enough products back from any of these countries and exceed your personal exemption, you will pay as much in duty taxes as you paid for the items.
- Cuba, oh, Cuba. These are newer restrictions since travel from the U.S. to Cuba was just reauthorized in 2015. Generally, authorized travelers are now allowed to bring Cuban merchandise back into the U.S. for personal use and adhere to the standard $800 personal exemption and standard exemptions for alcohol and tobacco. Any amount over the standard exemptions will be taxed at a rate of 4% of the fair retail value of the goods purchased.
- Want to know if your item falls under the “certain products” or “most products” categories or think some of this applies to you and want to find out how much you’ll pay in duty taxes? There is a database (click here) that provides the duty rates for virtually every item that exists. Have fun with that one!
Now after all of that awesomeness, I know what you’re thinking: how will they know what I bring back with me?
One word: CUSTOMS. Anytime you cross U.S. borders and return, even if you’re visiting other countries on a cruise that leaves in and out of the U.S., you will be required to declare all of the items you’re bringing back with you that were purchased internationally on a special form before you’re allowed back into the country by U.S. Customs officials. You’ll even need to list your souvenirs and their approximate value, although you can chunk them together as just “souvenirs” and don’t have to list each t-shirt and keychain separately. No need to keep receipts for your items unless you’ve bought alcohol or tobacco or are flirting with your personal or family exemption with the rest of the stuff you’ve bought.
Remember, just because you declare an item doesn’t necessarily mean you will pay duty taxes on it. Customs just likes to keep tabs on what’s being brought back into our country. To a degree, declarations are left up to the honor system but know that U.S. Customs and TSA agents know what to look for, and I don’t think you should tangle with that. Lying to a Customs official is technically a crime, and although I can’t speak to your odds of getting caught or exactly what would happen if you were, let’s not find out. The tequila isn’t worth it!