A First Sale Doctrine Checklist: Six Phases For Successful Tariff Reduction

The First Sale Doctrine Checklist: Six Phases for Successful Tariff Reduction

Our recent blog post, The First Sale Doctrine: A Strategic Tool for Reducing Tariffs—But Only If You Do It Right, generated a lot of questions. Many companies, eager to explore potential tariff savings, reached out asking for more granular detail on how to implement a First Sale program. Others, after initial discussions, realized their purchasing volume simply wasn't high enough to justify the substantial cost and complexity of building a compliant First Sale system.

This feedback underscores a critical point: while the First Sale Doctrine can be a powerful cost-saving tool, it demands surgical precision and a deep understanding of its intricacies. U.S. Customs and Border Protection (CBP) scrutinizes First Sale valuation claims closely, and the burden of proof lies squarely with the importer. To successfully claim First Sale and withstand a CBP audit, you need airtight documentation, a compliant supply chain structure, and unwavering commitment to compliance.

The following checklist breaks down what our international trade law team views as the six key phases of First Sale implementation—from pre-assessment to audit preparedness. It's designed to help legal teams, trade compliance officers, and supply chain professionals determine whether First Sale is viable for their specific business context and avoid missteps.

Phase 1: Pre-Implementation Assessment

Handled by: Legal and Trade Compliance Teams

• Confirm a multi-tier supply chain exists (e.g., Manufacturer → Middleman → U.S. Importer)
• Verify that the middleman is independent—or that related-party pricing is demonstrably arm's length
• Assess the middleman's willingness to share upstream documentation
• Map the full supply chain, including parties, locations, and transaction points
• Confirm that goods move physically through the chain (not just on paper)
• Engage qualified customs counsel or a trade compliance consultant
• Review supply agreements for First Sale compatibility
• Examine past CBP audits or valuation disputes
• Evaluate risk tolerance for CBP scrutiny
• Budget for compliance-related costs (legal, documentation, audits)

Phase 2: Documentation Collection & Verification

Handled by: Legal, Customs Broker, and Trade Ops Teams

Manufacturer-to-Middleman

• Secure the first sale contract with clear export intent language
• Obtain factory commercial invoices showing price and terms
• Collect the middleman's purchase orders to the factory
• Verify payment via wire transfers or bank documentation
• Show evidence that goods were intended for the U.S. at time of first sale
• Ensure sale occurred before export date

Middleman-to-Importer

• Gather sales contracts, invoices, and purchase orders
• Verify payment and shipping documentation
• Review consistency across documentation and parties

Supply Chain Integrity

• Trace product flow from origin to U.S. entry point
• Confirm matching quantities across all transactions
• Validate that product specs remain unchanged
• Document any services performed by the middleman
• Ensure unbroken chain of custody

Phase 3: Arm's Length Transaction Analysis

Handled by: Legal and Transfer Pricing Advisors

For Related Parties

• Document ownership and corporate structure of all entities
• Perform transfer pricing analysis
• Compare first sale pricing to third-party transactions
• Justify pricing method (e.g., cost-plus, resale minus)
• Create a formal arm's length justification file

Pricing Verification

• Benchmark factory pricing against market comparables
• Disclose any discounts, rebates, or credits
• Reconcile payment timing and exchange rates
• Identify and document any side agreements or payment conditions

Phase 4: CBP Submission Preparation

Handled by: Legal, Customs Broker, and Compliance Teams

Documentation Package

• Draft a First Sale justification letter
• Compile a full transaction file per shipment
• Create a visual flowchart of the supply chain
• Include a timeline showing export intent
• Anticipate and pre-answer likely CBP questions

Entry Process Adjustments

• Align customs entry procedures with First Sale valuation
• Update ACE filing practices accordingly
• Train brokers on revised protocols
• Implement internal shipment tracking for First Sale entries
• Maintain a long-term audit trail

Phase 5: Implementation & Monitoring

Handled by: Trade Compliance, Legal, and Operations

Launch

• File your initial First Sale entry with full documentation
• Monitor CBP feedback and respond promptly
• Record and analyze any CBP communications

Oversight

• Continuously update and verify documentation
• Monitor for any supply chain or sourcing changes
• Conduct regular internal audits
• Track cost savings vs. compliance spend
• Stay current on regulatory developments

Phase 6: Audit Preparedness

Handled by: Legal, Trade Compliance, Executive Leadership

Preparation

• Designate an audit response team
• Centralize documentation in a secure, accessible system
• Develop an audit communication and response timeline
• Pre-load standard audit materials
• Retain outside counsel with First Sale audit experience, if needed

Ongoing Monitoring

• Track CBP enforcement trends and legal developments
• Re-evaluate eligibility with each supply chain change
• Maintain internal justifications for continued use
• Allocate compliance budget for ongoing legal support

Red Flags: Pause or Abandon First Sale if...

• The middleman won't provide full upstream documentation
• You cannot clearly demonstrate U.S. export intent
• Related-party pricing cannot be proven arm's length
• Supply chain documentation is incomplete or inconsistent
• Product movement lacks transparency or traceability
• Your company has prior customs red flags or enforcement issues
• Projected savings don't justify the cost of implementation

Metrics for Measuring Success

• Duty/Tariff savings per shipment
• Annualized cost of compliance
• CBP processing times for First Sale entries
• Audit frequency and results
• Quality and completeness of documentation
• ROI tracking based on duty savings vs. expenses

Final Word of Caution

This checklist is meant to be a practical framework—not a substitute for tailored legal advice. Every company's supply chain, risk profile, and documentation capacity are different. CBP enforcement expectations are constantly evolving, and even well-intentioned First Sale claims can backfire without expert oversight.

Don't go it alone. Attempting First Sale valuation without comprehensive documentation, supply chain control, and legal counsel can expose your business to audits, penalties, and lasting compliance headaches.

We've helped clients across industries reduce their tariff burden through First Sale and other strategies. Contact our international trade and customs team to schedule a consultation.