How US Customs Duty Is Calculated: A Guide for Importers

An electronics distributor in Houston ships $218,000 worth of industrial relay components from a South Korean supplier on a purchase order that's been running for three years. Same supplier, same product, same HTS code on every entry: 8536.49.0040, 2.7% MFN duty. In Q1 2025, the supplier reengineered the relay housing to meet a new IEC specification. The product changed. The HTS code didn't. CBP flagged the discrepancy during a routine audit eight months later. Back duties assessed: $47,000, plus interest from the original entry dates.

Nobody changed the code intentionally. Nobody noticed it needed changing.

What customs duty is and how it gets measured

Customs duty is a tax CBP collects on goods entering US commerce from abroad. The legal basis is the HTSUS under 19 U.S.C. § 1202. The tax is calculated on the customs value of the shipment, which is almost always the transaction value under 19 C.F.R. § 152.103: the price paid or payable for the goods when sold for export to the US.

That sounds simple. It isn't.

Transaction value includes certain additions: royalties paid as a condition of sale, assists (materials or tooling the US buyer supplied to the foreign manufacturer at reduced cost), and packing. It excludes separately invoiced international freight. Most importers assume customs value equals invoice value. It does, unless the invoice is wrong. We've seen manufacturers in Southeast Asia routinely overstate invoice values to satisfy local export documentation requirements. The importer copies the number onto the CBP entry. Duties get paid on an inflated basis, sometimes for years before anyone checks.

Going the other direction carries worse consequences. Deliberate undervaluation under 19 U.S.C. § 1592 carries civil penalties up to four times the unpaid duty for negligent violations, and up to the full domestic value of the merchandise for fraudulent ones. CBP doesn't need to prove intent. A wrong number on the entry is enough.

How HTS codes determine the duty rate

Every customs duty rate in the US system traces back to a 10-digit HTS code. Get the code wrong and everything downstream is wrong. Tariff classification is the first decision, and the one that drives every number that follows.

The first six digits follow the international Harmonized System administered by the World Customs Organization, shared across 200+ countries. The last four are US-specific and govern the actual duty rate, quota applicability, and import tracking. Two products that look identical on a customs declaration can sit in different HTS subheadings with rates 20 percentage points apart. We've watched importers shrug at the difference until one of them gets reclassified mid-year and the math stops working.

The HTSUS rate schedule has three columns. Column 1 General is the MFN rate, which applies to imports from any WTO member country in normal trade relations with the US. This is where most commercial shipments land. Column 1 Special lists reduced rates under FTA programs: USMCA for Canadian and Mexican-origin goods, KORUS for South Korea, CAFTA-DR for Central American goods. GSP preferences also appear here, though GSP expired and had not been renewed as of mid-2025. Column 2 applies to Cuba and North Korea, with rates that are punitive by design.

On top of those base rates, import tariffs under Section 301 on Chinese-origin goods add 7.5% to 25% depending on which product list applies, following the 2025 USTR review. Section 232 adds 25% on steel and 10% on aluminum from countries without negotiated exemptions. When a product falls under both a Section 301 list and a Section 232 schedule, both rates apply. The 2025 USTR review didn't reduce any of them. Product coverage expanded.

The actual calculation, step by step

The math itself takes about two minutes. Pulling together the right inputs is where teams actually spend their time: current HTS code, confirmed origin, applicable FTA status.

A Texas importer brings in 150 industrial pressure transmitters from Germany. HTS code: 9026.20.4000 (instruments for measuring pressure of liquids or gases). MFN duty rate: 1.7%. Invoice price: $640 per unit, total $96,000. International freight: $2,800, separately invoiced.

Step 1 — Customs value. Transaction value is $96,000. Freight excluded because it's separately invoiced per 19 C.F.R. § 152.103. Customs value = $96,000.

Step 2 — Base duty. 1.7% × $96,000 = $1,632.

Step 3 — Additional tariffs. German-origin goods are not subject to Section 301. Section 232 on steel and aluminum does not extend to pressure instruments under this HTS subheading. Additional duty = $0. Total duty = $1,632.

Step 4 — Merchandise Processing Fee. MPF is 0.3464% of cargo value under 19 U.S.C. § 58c, with a floor of $29.66 and a ceiling of $575.35 per entry. 0.3464% × $96,000 = $332.54.

Step 5 — Harbor Maintenance Fee. HMF is 0.125% for ocean cargo only. If this shipment moved by air, no HMF applies. If ocean: 0.125% × $96,000 = $120.00.

Total customs cost (ocean): $2,084.54 on $96,000 of goods.

Change the origin to China and add Section 301 List 3 at 25%. Duty jumps to $25,632. A 15x increase on identical goods at the same price. An import duty calculator helps pressure-test these scenarios before a purchase order is placed. Origin decisions locked in at sourcing cannot be undone at the port.

Who is legally responsible for paying

The importer of record pays. Not the freight forwarder, not the customs broker, not the foreign supplier even under DDP terms.

This is a legal designation, not a commercial one. The importer of record is whoever CBP recognizes as having imported the goods into US commerce. That entity carries full liability for all duty assessments and penalties regardless of what any purchase agreement says. We've talked to operations managers who were certain their logistics provider "handled customs." What that meant in practice: the broker filed the entry on their behalf using their EIN. The importer of record was still them.

Customs brokers, licensed under 19 C.F.R. Part 111, prepare and file the entry. They carry no duty liability. If the broker classifies a product at 2.7% when the correct rate is 7.5%, CBP comes after the importer for the difference plus interest under the four-year statute of limitations for negligence. Broker error is a defense against broker fees. It's not a defense against back-duty assessments.

DDP incoterms don't automatically make the foreign seller the importer of record. Whether they do depends on how the entry is filed and which entity holds the continuous entry bond. Importers who assume their supplier took on IOR status under DDP and discover otherwise during a CBP audit face retroactive liability going back to the first shipment.

What qualifies for reduced or zero duty

Most importers focus on whether an exemption applies. The part that actually bites is whether the underlying HTS classification supports the claim in the first place.

The $800 de minimis exemption under 19 U.S.C. § 1321 allows goods valued at $800 or less per shipment per day from the same consignor to enter duty-free. The threshold applies per day, per consignor. Not per shipping label. A $2,400 order split into three same-day shipments from the same supplier doesn't produce three qualifying entries. CBP sees the pattern.

Section 301-covered goods from China are not exempt from additional tariffs even when the shipment value is under $800. CBP expanded enforcement of this in 2025, specifically targeting Chinese-origin goods routed through third-country fulfillment centers to exploit the exemption. That approach stopped working, and importers who built sourcing models around it are now reclassifying.

FTA preference programs reduce or eliminate the MFN rate for goods meeting the rules of origin. Under USMCA, "originating" status requires meeting regional value content thresholds or tariff shift rules specific to each product category. CBP can audit the preference claim up to five years after entry. We've seen companies claim USMCA preference on goods where the Mexican supplier was repackaging Chinese components. The goods didn't qualify, the claim was invalid, back duties came with interest. Three years of preference claims, all unwound.

Products at 0% MFN enter duty-free under Column 1 General without any application or program. A significant share of industrial machinery and capital equipment falls here. Most importers don't check this systematically. They classify, look up the import duties rate, and pay it. Whether that rate is 0% or 4.5% depends entirely on which 10-digit code applies.

How to determine whether a specific shipment owes duty

Most shipments above $800 from non-FTA origins with a positive MFN rate owe duty. The question is what that rate actually is, and whether it matches what the entry has been using.

The HTS code lookup is the starting point: the USITC publishes the full HTSUS schedule online, searchable by product description or code. Check Column 1 General for the MFN rate, confirm origin, check for applicable FTA preference, then check the USTR Section 301 product lists and the Federal Register for Section 232 coverage. CBP's Automated Commercial Environment (ACE) consolidates most of this, but ACE reflects rates at the time you check. It doesn't tell you that the rate changed on a code you last verified two years ago.

The classification that gets importers in trouble isn't usually wrong from the start. It's a code assigned when the product was first sourced, on a spec that's since been modified, filed by a broker who's no longer with the company. The shipments keep clearing because nobody's looking. Then the product moves into a different HTS subheading or a Section 301 update covers it, and the error accumulates silently. Exactly what happened to that Houston distributor in Q1 2025: $47,000 in back duties on a code nobody had touched in three years.

Lenzo tracks HTS classification against current tariff schedules and flags when a classification may have drifted from the actual product spec, which is how teams catch that exposure before it becomes a demand letter.

FAQ

What is a custom duty?

A federal tax CBP collects on goods imported into the United States. The rate depends on the product's HTS classification and country of origin. The base for calculation is the customs value of the shipment, not the invoice total.

How is customs duty calculated?

Multiply the customs value by the applicable HTS duty rate. Add the Merchandise Processing Fee (0.3464% of cargo value, min $29.66, max $575.35 per entry) and Harbor Maintenance Fee (0.125% for ocean shipments only). If Section 301 or Section 232 additional tariffs apply, those stack on top of the MFN base rate. The five-step worked example above covers the full arithmetic for a specific shipment.

How much is the custom duty in the USA?

Column 1 General (MFN) rates run from 0% to over 35%, with a trade-weighted average of approximately 3.3%, a number that's nearly useless in practice because it averages together 0% industrial machinery rates with 32% textile rates. Section 301 surcharges on Chinese-origin goods add 7.5–25% on top of whatever the base rate is, depending on the product list.

Who pays US customs duties?

The importer of record, designated on CBP Form 7501. Full stop. The commercial contract with the supplier doesn't change that.

Who is liable to pay custom duty?

Legal liability rests solely with the importer of record under 19 U.S.C. § 1485. It cannot be transferred to a freight forwarder or customs broker by contract. Those parties are agents; liability stays with the principal.

How can I avoid custom duties?

Avoiding duties on dutiable goods isn't a strategy. It's a CBP enforcement trigger. What does work: FTA preference claims when origin genuinely qualifies and the paperwork supports it; correctly identifying products with 0% MFN rates, which more importers miss than you'd think; and the $800 de minimis threshold for genuinely low-value shipments. We've watched companies pay 25% Section 301 tariffs for over a year on products that qualified for USMCA preference because no one confirmed the rules-of-origin documentation at supplier onboarding.

What items are exempt from import duty?

Products with a 0% Column 1 General rate enter duty-free without any application. FTA-qualifying goods from partner countries enter at reduced or zero rates under the applicable program. Goods at or below $800 from a single consignor per day qualify for informal entry without duty collection. The Section 301 carve-out for covered Chinese-origin goods applies regardless of shipment value.

What is the $800 rule?

The de minimis provision under 19 U.S.C. § 1321: goods valued at $800 or less per shipment per consignor per day enter duty-free as informal entries. It does not exempt Section 301-covered goods from China from additional tariffs. CBP enforced this actively in 2025 against third-country routing schemes.

What is the US import duty rate?

No single rate. MFN rates vary from 0% to 35%+ by HTS subheading. Section 301 adds 7.5–25% for covered Chinese-origin goods. Section 232 adds 25% on steel and 10% on aluminum from non-exempt countries. All of these can apply simultaneously to the same shipment.

How do I know if I have to pay import duty?

Confirm the 10-digit HTS code, identify origin, check Column 1 General on the HTSUS, then check Section 301 and 232 lists. If the value is $800 or below and the goods aren't Section 301-covered Chinese-origin merchandise, informal duty-free entry may apply.

How much can you import to the US without paying duty?

$800 per shipment per consignor per day. For Section 301-listed goods from China, CBP applies additional tariffs regardless of shipment value.

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Closing

Most duty errors don't start as errors. They start as a correct classification on a product that has since changed, filed by a broker who's no longer with the company. The entry keeps clearing. Nobody flags it. Then CBP liquidates (typically within 314 days of filing under 19 U.S.C. § 1504) and the 180-day protest window under 19 U.S.C. § 1514 starts running. Miss that window and the overpayment is gone permanently. CBP doesn't send notices. The importer paying 6.5% on a product that classifies at 1.7% has one shot to recover the difference, and that shot has an expiration date nobody told them about.