Retailers, along with other businesses, have adapted to trade volatility over the past year by utilizing a decades-old customs rule that can help minimize tariff costs — and it’s catching the attention of some senators.
Companies have moved to mitigate the impact of heightened tariff rates through a variety of tactics, such as moving production out of countries targeted with higher levies or negotiating costs with vendors. Experts say more businesses have increasingly leveraged what’s commonly known as the “First Sale rule” as part of their mitigation toolkit.
In select cases, the First Sale rule allows importers operating in a tiered supply chain — where middlemen are involved — to pay duties based on the price paid in the first or earlier sale of the good.
This can help lower the duties paid by importers who would normally declare the price they paid at the end of a multiple-sale supply chain system. The First Sale principle was first established through a 1988 federal court case and reaffirmed in 1992.
Mass retailer Target mentioned its use of First Sale as a mitigation tactic in its latest fiscal year 2025 filing with the U.S. Securities and Exchange Commission.
The retailer uses “permitted customs valuation methods, including the first sale methodology, for certain qualifying direct imports,” the company’s annual filing said. “We generally pay duties based on the price Target pays its vendors for the goods, and later seek refunds for qualifying transactions by filing first sale claims, a significant portion of which have processing and payment cycles that extend beyond one year.”
It’s historically been utilized by the apparel and footwear sectors that have usually faced higher tariff rates, according to a 2025 KPMG report.
“Essentially, you have a manufacturer who makes a product, sells it to a middleman for $20, but the middleman then sells it to the importer for, let's say, $80,” The National Retail Federation’s Vice President of Supply Chain and Customs Policy, Jonathan Gold, told Retail Dive. “That importer can use the $20 valuation for what they're declaring for customs for the tariff purposes.”
In the age of tariffs, the First Sale debate heats up
The usage of First Sale has caught the attention of Congress and has long been a focus for certain special interest groups focused on supporting U.S. production.
U.S. Sens. Sheldon Whitehouse and Bill Cassidy introduced bipartisan legislation in February, aiming to get rid of the First Sale “customs loophole,” as the February press release describes it.
The Last Sale Valuation Act would require that transaction values be determined based on “the last sale of the merchandise occurring before exportation to the United States,” per the release. It’s endorsed by several trade groups, including the National Council of Textile Organizations.
“We've actually had a long-standing position on First Sale,” NCTO President and CEO Kim Glas told Retail Dive. “And I think this has come much more to the forefront in this particular environment, with tariffs being levied globally.”
The use of First Sale gives an unfair advantage to the importing and retailing communities at the expense of domestic manufacturers, Glas believes. While it hasn’t been an issue that many have paid attention to in the last decade, it’s become an increasingly used tool to mitigate duty collections, she said.
“We think that virtually every other country in the world uses last sale,” she added. “We're one of the few countries who use First Sale.”
Not everyone would describe it as an unfair loophole, however.
“This is a legal program under Customs and Border Protection law that retailers and others have been using for decades,” NRF’s Gold said. “It has the support of law behind it.”
The requirements set out for utilizing the First Sale rule can also promote transparency in the supply chain, he added.
“You've got to make sure that you have identified all the costs and report all the costs throughout that transaction, throughout that supply chain, so you actually have more visibility and transparency into your supply chain as a result of those requirements,” Gold said, adding that it isn’t something everyone is using because of the proof requirements.
The proposed Last Sale Valuation Act would boost businesses that “play by the rules” and “crack down on illicit trade,” Whitehouse said in a statement in February.
Whitehouse’s office did not respond to Retail Dive’s inquiry about supporting data showing that usage of First Sale is connected to illicit trade.
The new bipartisan bill is not the first time First Sale came under pressure. In 2008, CBP proposed to switch to a last sale valuation method.
Congress, however, pushed back on this move. Instead, the United States International Trade Commission in 2008 was required to provide a report to Congress about the use of First Sale. It relied on data CBP developed, which had included a new data collecting method lasting one year where importers were required to use the letter “F” in an indicator field for each entry line where the First Sale valuation method was used.
The indicator was later removed as a requirement for importers, but re-introducing that type of reporting system could more easily identify and investigate any potential bad actors, NRF’s Gold said.
CBP has been conducting a survey of randomly selected importers since March 2 “to collect data on the use of the ‘first sale’ principle to determine the customs value of imported goods,” an agency spokesperson told Retail Dive in a statement.
“If the proponents of the bill think there's an issue with First Sale, had they had that button there, customs would know who's utilizing the program and can figure out how to target and go after the bad actors,” Gold said.
