Luxury Resins, a Japanese producer of plastic materials, sold resin to Phone Cases Plus, an unrelated U.S. manufacturer, for $20,000. Later, Phone Cases Plus decides to pay a $2,000 royalty to Disney for the right to manufacture and sell Disney-branded phone cases. It makes these phone cases out of the resin purchased from Luxury Resins. What is the transaction value of the transaction between Luxury Resins and Phone Cases Plus?
How to get there
19 CFR 152.103(f): Royalties or license fees… Royalties or license fees paid to third parties for use, in the United States, of copyrights and trademarks related to the imported merchandise generally will be considered selling expenses of the buyer and not dutiable. The dutiable status of royalties … will depend on (1) whether the buyer was required to pay them as a condition of sale of the merchandise for exportation to the United States, and (2) to whom and under what circumstances they were paid. …
Apply both tests:
- Condition of sale? No. Phone Cases Plus decided "later" to license Disney. Luxury Resins sold the resin with no such requirement.
- To whom? To Disney, a third party unrelated to the resin seller, for using Disney's trademarks on the finished U.S. products.
The royalty isn't added. Transaction value is the $20,000 price: B.
Why the other choices are wrong
A) $18,000: subtracts the royalty from the price. Nothing in the resin price relates to the royalty, so there's nothing to deduct.
C) $22,000: adds the royalty. It isn't a condition of the resin sale and isn't paid to the seller.
D) $2,000: the royalty alone, which isn't the value of the resin at all.
Tip
Royalty checklist: paid as a condition of sale? paid to the seller (or a related party)? related to the imported goods rather than a later product made from them? If the answers are mostly no, it's a non-dutiable selling expense. Patent royalties for manufacturing processes are the usual exception: generally dutiable.
Source: 19 CFR 152.103(f) (eCFR).
CBP answer key: Answer B · 19 CFR 152.103(f)Source: CBP past exams ↗