Retailers rely on this tariff mitigation tactic. Congress has noticed.
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.”
