What’s the 411 on HTS codes?

When goods are sold across borders, governments are usually waiting, ready to collect taxes. Anyone who’s made an international purchase has likely noticed the import or export fees charged on top of shipping and sales taxes.

It’s especially “fun” when a seller ships your package DAP and you find out about high customs duties on delivery.

So what’s the deal with these charges and how do you handle them when importing goods to the United States? Welcome to the exciting world of HTS codes.

In this blog post, we’ll cover:

Common import terms

Anatomy of an HTS code

Determining HTS codes

HTS code pitfalls

Before we get into detail about the codes you’ll need when importing goods, let’s start off with some cross-border vocabulary terms:

HS codes — Harmonized System (HS) codes are the common six-digit import/export codes assigned to every product. They’re common, or harmonized, because they’re the same across nearly all countries, covering 98% of world exports.

HTS codes — Harmonized Tariff Schedule (HTS) codes are the extended codes assigned to goods entering the United States. They consist of a product’s HS code with an additional four-digit import assignment unique to the U.S. See below for a detailed breakdown of HTS codes.

Schedule B codes — Schedule B codes are the export counterpart of HTS codes. When U.S. companies ship goods overseas, they’re responsible for assigning a Schedule B code, which consists of an HS code and a four-digit export code the United States Census Bureau uses to monitor exports.

Commodity codes — Commodity codes are the European equivalent of HTS codes. The EU and other European countries have unique commodity codes for imports into their territories.

Tariffs — Tariffs are a direct tax the government collects on imports, based on the characteristics of the goods.

Customs duties — Duties are indirect taxes the government applies to consumers for goods produced in or imported to a country.

Importer of record — The importer of record is the person or company receiving goods shipped into a country. They’re ultimately responsible for assigning the proper HTS codes.

Now that you know what an HTS code is, let’s review how they’re determined.

Each code consists of the six digits that make up the HS code:

A two-digit chapter
A two-digit heading
A two-digit subheading

Followed by a U.S.-specific subhead and statistical suffix, further refining the product classification.

For example, a standard white undershirt would be 6109.10.0004

• 61 is the chapter for articles of apparel and clothing accessories, knitted or crocheted
• 09 is the heading for T-shirts, singlets, tank tops, and similar garments
• 10 is the subheading for cotton
• 00 is the U.S. subheading for T-shirts
• 04 is the U.S. statistical suffix for all white, short hemmed sleeves, hemmed bottom, crew or round neckline, or V-neck with a mitered seam at the center of the V, without pockets, trim, or embroidery

There’s a literal book defining tariff codes for the United States; luckily, it’s also digitized. When determining the HTS codes to use on your imports, we recommend a search tool from a reputable source, like say, the U.S. International Trade Commission.

If you have more than a few items to classify, we recommend automating classification with a tool like Avalara Item Classification.

Many carriers also offer code determination as a service. But unless you have a dedicated service manager, relying on supplied codes can be dicey. As the importer of record, you’re ultimately responsible for the accuracy of the codes on the goods you import. The government does not consider “I was given the wrong code” a valid excuse.

U.S. Customs and Border Protection wrote the book on tariff classification in 2004, then updated it in 2020. The publication outlines consequences for assigning improper codes.

The short of it is: The wrong codes can lead to:

• Shipping delays
• Increased inspection
• Seizure of goods
• Fees or fines
• Civil or criminal penalties

Three of the most common mistakes when assigning codes are:

1. Using inaccurate codes
   As mentioned, it can be difficult or time-consuming to determine HTS codes. However, it’s important to be as accurate as possible. Choose the code that most closely aligns to what you’re importing to help prevent delays or added taxes and fees. If you’re unsure, it’s a good idea to work with a trade specialist to help you determine the proper codes.
2. Not accounting for trade agreements
   Different countries have different trade agreements and they can change fairly often. Be sure to verify the specific rules in place for the country of origin for your goods, at the time of shipping. Using outdated rules can lead to improper classification, causing issues with customs.
3. Intentionally using the wrong codes
   Oftentimes, similar products can have vastly different taxability rates. It may be tempting to fudge the description of your imports to get a more favorable rate, but doing so constitutes tax fraud and can have severe consequences. Rather than simply delaying shipments or collecting the difference in taxes, intentionally assigning the wrong HTS codes can lead to stiffer penalties — even criminal ones.

HTS codes can be intimidating at first, but knowing more about them makes them easier to manage. It’s important to stay up to date on the rules and regulations affecting the products you import and their countries of origin. But there are plenty of tools and professionals to help you stay accurate.

For more information on how Avalara can help, take a look at our cross-border solutions.