From the desk of: Dave Corn

Over the course of the last few years, the extreme weather in the United States has intensified. Tornadoes, hurricanes, earthquakes, flooding and wildfires appear to be more widespread than ever before. I remember tornado warnings as a kid and hearing the sirens in my hometown in Ohio, but never to the extent that we observe today. As these natural disasters grow in size and frequency, more American companies are impacted by the unforeseen effects of these disasters. In these scenarios that are out of human control, does a company have the option to obtain a drawback refund for duties, taxes and fees on their imported merchandise that was destroyed?

The answer is complicated. The first of two special circumstances where drawback was historically allowed, was the 1989 Loma Prieta Earthquake that struck before Game 3 of the World Series at Candlestick Park in San Francisco. As the pre-game was starting, I remember watching the background of the booth shaking on the television! Thousands of businesses were destroyed, along with bridges, freeways, roads, and transit systems (not to mention a postponement of Game 3). The Customs Service set up a specific situation allowing for claimants affected by this federal disaster to claim drawback for merchandise that had been destroyed.

For Hurricane Sandy in 2012, the damage along the East Coast of the country was significant, touching 24 states, with 11 states and the District of Columbia considered federal disaster areas by President Obama. From this disaster, the destruction totaled more than 70 billion dollars and impacted many companies that import and/or export merchandise. In December of 2012, just 4 weeks after the Hurricane, Customs and Border Protection released CSMS #12-000535 for “Drawback Claims on Merchandise Destroyed by Hurricane Sandy”. Within this announcement, CBP waived specific requirements for CBP Forms that are normally required for destroyed merchandise; required proof that the insurance coverage for each company did not include the duties and taxes on imported merchandise; and required proof that the merchandise was destroyed without any future commercial use.

While drawback was historically allowed in these two situations (under what is now 19 U.S.C § 1313(c)), there were a special set of circumstances in each case that permitted claiming. Could other natural disasters be considered for drawback? Earlier this calendar year, one of our clients had a facility completely demolished by a tornado in the Southern part of the country. The tornado ripped through the state for more than an hour and was considerable in size and strength. There was widespread destruction through the town where our client’s facility once stood. While this tornado was considered a disaster for the state and for our client, it did not extend to greater surrounding areas that would allow it to be declared a federal disaster area, as the previous situations had been. Thankfully, our client had insured their imported merchandise to include their duties, taxes and fees. If our client had not been insured, we could have posed the question to CBP to determine without question, if their specific situation would have allowed for drawback claims on the destroyed merchandise.  Each natural disaster situation is unique and would require interpretation from CBP, so there isn’t a definitive answer to our earlier question. The real question is, what will CBP consider a disaster in order for you to be able to claim drawback refunds on merchandise that is destroyed?