The first sale must be a real sale between independent parties dealing at arms length, or priced as if they were. The goods must be clearly destined for the United States at the time of that first sale, not diverted there later from general stock. And the price must be a complete, documented price, with any additions to value, assists, royalties, accounted for on top of it. Each condition sounds simple and each fails on paper more often than on facts.
Clearly destined is the condition that surprises people. Purchase orders referencing the US programme, markings, specifications unique to the US order, and shipping documents that trace the goods from factory toward the US buyer are the evidence. Goods bought into a middlemans general inventory and later allocated to a US order were not clearly destined at first sale, however genuine the sale itself was, and the rule does not stretch to cover them.
A first sale claim lives on a complete chain: factory invoice to the middleman, middleman invoice to the importer, both purchase order sets, payment records for both sales, and transport documents that connect them into one journey for the same goods. Breaks in the chain, quantities that shift, descriptions that change language between invoices, payments that do not match either invoice, are where claims die, usually years later in an audit the importer had forgotten was possible.
Confidentiality is the operational hurdle: the importer needs the factory price, which the middleman regards as its crown jewels. The standard solutions are known: disclosure under confidentiality arrangements, a broker or counsel held file, or audited summaries, agreed before the programme starts. A middleman who will not support the documentation in any form is telling you the saving is theoretical, and entries should be made on the second sale price from day one rather than on a claim nobody can defend.
First sale is an architecture, not a deduction. Contracts must create and record the two sales distinctly, titles and risks allocated as the documents describe, and the entry process must declare on the first sale basis consistently, with the additions analysis done for that price. Retrofitting it onto a year of shipments made and documented as single sales invites the conclusion that the paperwork was rearranged for duty, which is the conclusion the conditions exist to test.
Model the saving honestly before building any of this: the mark up in the chain, the duty rate, the volume, against the legal, broker, and administration cost of maintaining the file on every shipment. On low duty or low mark up chains the saving can be smaller than the cost of proving it, and a well advised no is a perfectly good outcome of the analysis.
The first sale principle rests on case law and longstanding customs practice in the United States, and it has been the subject of periodic legislative and regulatory proposals to restrict or end it. Its availability, and the treatment of any given structure, must be confirmed as current at the time it is used. A programme built on a summary, including this one, without current advice is a programme built on a photograph of the law.
Use a customs counsel or broker experienced in first sale programmes for the setup and an annual review. The rule rewards importers who treat it as a compliance discipline with a duty benefit attached, and it punishes, with reassessments and interest, importers who treat it as a benefit with some compliance attached.
Keep reading: When should an importer file a prior disclosure with CBP?, How do customs broker errors happen, and who pays when an entry is wrong?.
A US valuation principle allowing, under strict conditions, an import bought through a middleman to be valued on the factory to middleman price instead of the middleman to importer price, removing the mark up from the dutiable base where the first sale was bona fide and the goods were clearly destined for the US.
Contemporaneous evidence from the first sale: US specific purchase orders, specifications or markings for the US order, and transport documents tracing the goods toward the US. Goods allocated to a US order later from general stock do not meet the condition.
Both invoices, both order sets, payment records for both sales, and transport documents linking them, plus the additions to value analysis. The chain must be complete and consistent. A break in the paper is a break in the claim.
It is designed as a structure set up in advance and used consistently at entry. Retrofitting it onto shipments documented as single sales is difficult and risky. Take counsel advice on any historical position rather than assuming a claim can be rebuilt.