Congress Considering Ending All Commercial de Minimis in 2027
A bill being considered in the House Ways and Means Committee that would extend Trump tax cuts that would otherwise expire at the end of the year is looking to international trade to pay for part of the cost of income tax reductions. The bill also adds new tax breaks, such as on overtime pay and tips.
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In a section Republicans called "Working Families Over Elites," the bill would end de minimis eligibility for all commercial low-value shipments, no matter what country of origin, beginning July 1, 2027. Only purchases up to $200 brought back after traveling outside the country, and gifts of either $100, or $200, from American island territories, would still be able to enter duty-free.
Before that change, the bill would authorize CBP to impose a civil penalty of "up to $5,000 for the first violation and up to $10,000 for each subsequent violation" if an importer brings a good in under de minimis that breaks any other law. Trade counsel Josh Snead noted that the penalty was the same as in a bill from former Rep. Earl Blumenauer, D-Ore., and a bill from Rep. Greg Murphy, R-N.C.. Those bills didn't end all de minimis for commercial shipments, but carved out either Chinese goods or goods subject to Section 301 tariffs. The penalty change would begin 30 days after enactment.
The National Council of Textile Manufacturers, the loudest voice calling for an end to de minimis, thanked the committee for terminating commercial de minimis. The group added, "As the bill makes its way through the legislative process, we strongly support a more aggressive timeline to implement a permanent ban on de minimis globally given its significant harm to manufacturers, retailers, and the fight against fentanyl and other illegal products. Express shippers have already transitioned to processing all Chinese imports through sophisticated logistics systems, demonstrating their ability to comply with the president’s executive orders and pivot quickly."
The Joint Committee on Taxation didn't make an estimate of how much revenue would result from the change, saying the Congressional Budget Office would later provide that estimate.
The bill also limits drawback for excise taxes paid on tobacco products when claimants are using substitution drawback. The committee's explanation says that currently, "importers can claim a refund of excise taxes on imported tobacco products upon exportation of substitutable goods, even if excise tax was never paid on those substitute goods." With this change, drawback of excise tax would only be allowed if the exported goods that are the basis for the drawback claim also paid that excise tax.
The Joint Committee on Taxation estimated that the curtailment of drawback for tobacco products would add $12.1 billion in revenue to the treasury through the end of fiscal year 2034, and $879 million in the first full year of the restriction.
During the Biden administration, lawmakers also sought to limit substitution drawback for excise taxes for tobacco products (see 2109130038). However, that provision didn't end up in a legislative package.
The Treasury Department and CBP previously promulgated a regulation on "double drawback," but the Court of International Trade, and a federal appeals court, ruled that the regulation conflicted with congressional intent on drawback (see 2108230021). That regulation, however, limited exporters' use of substitution drawback on alcoholic beverages, not just tobacco.
A customs broker interviewed about this provision criticized the characterization of receiving a refund of 99% of the excise taxes paid when exporting like goods as double claiming.
"It’s not double-dipping, it’s not getting money back to which you’ve never paid," he said. He said claiming drawback of excise taxes is no different from when a company imports Ray-Ban sunglasses from Asia, pays duties on them, and then exports domestically made Oakley sunglasses, and uses the Oakley sunglasses for substitution drawback.
"It looks like they’re trying to carve out quite literally tobacco from being drawback eligible," he said.
In the first two-and-a-half hours of debate over the bill in the House Ways and Means Committee, only two members talked about the trade provisions. Rep. Tom Suozzi, D-N.Y., said he supports the de minimis provision, but said it should start before 2027.
Trade Subcommittee Chairman Adrian Smith, R-Neb., asked if the de minimis provision conflicts with Trump's actions. Snead said that this provision would offer "long-term certainty," given that there is litigation about the president's reliance on the International Emergency Economic Powers Act to levy tariffs.
He said, "This approach ensures that de minimis does go away for shipments from all countries in just two years."