Motor Fuels Tax Minute, Episode 68: Foreign Trade Zones

In this week’s episode of Motor Fuels Tax Minute, our hosts talk about foreign trade zones.

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Detailed Description of Weaver’s Motor Fuels Tax Minute, Episode 68

00:00:00
Kelly: Welcome to our Motor Fuels Tax Minute where we talk all things motor fuel. Today we’re going to be talking about foreign trade zones, also known as FTZ. We’ve been getting a lot of inquiries about this and there’s a lot of misunderstanding around it. I think companies sometimes apply that definition a little broadly. So, Leanne is going to fill us in and give us some additional information.

00:00:19
Leanne: Yeah, that’s right, Kelly. I’ve recently seen an uptick in inquiries about bringing merchandise into a foreign trade zone, particularly some feedstocks for fuel products and potentially doing some processing in the foreign trade zone. And I’m not going to get into the weeds of that. It’s most likely got to do with questions of origin and more customs questions on duty rates. Maybe that’s a topic for another day.

Some things that we need to know about foreign trade zones. So broadly, they enable you to bring products in from outside the United States free of customs duties. So, if you are doing some manufacturing, you may be able to end up with a more favorable duty if certain parameters — again, too complicated and too long for this particular Motor Fuels Tax Minute — but, if there’s some changes to it, it can sometimes shift the origin and change the duty rates, make it even potentially U.S. origin. If you’re manufacturing and then taking it out, or you just need to store it for a while and take it out, it eliminates a lot of the complicated customs duties and processing that go along with actually importing merchandise into the United States, but it doesn’t eliminate everything. When you bring product into a foreign trade zone, there are customs paperwork that need to be filed in order to enter it into a foreign trade zone. And then there’s some paperwork that needs to be filed to take it out of the foreign trade zone at the other end. So, you can’t just bring it in like you might with a terminal.

The other thing to know is while there’s probably no taxes in a foreign trade zone, and again, not an absolute rule, there might be registrations. While you may not have to pay excise tax, the state may want you to be registered so they can still track the fuel. That’s something we see particularly in Texas for the transporters. They want those transporters that are bringing fuel products, that’s our world, in and out of foreign trade zones to have those transporter licenses so they know where that fuel is going. So, something to bear in mind if you are thinking about a foreign trade zone. It’s not the most difficult thing in the world, but it’s not just a case of signing a contract and you can go and store your products.

00:02:33
Kelly: Well, Leanne, that was a lot of good information. And you do know I like taking it back to the basics.

00:02:39
Leanne: I don’t know how basic that one is.

00:02:41
Kelly: Well, what I was thinking is, could you tell our listeners what a foreign trade zone even is?

00:02:47
Leanne: Well, a foreign trade zone is an area that has been designated as outside of customs jurisdiction. So, it’s a tax-free duty-free area. It can be a large area all of its own, or it can be certain tanks within a bigger, broader facility. So, you may have FTZ tanks, in a broader U.S. terminal. That’s why they have the paperwork requirements, because particularly for something like an FTZ tank, sometimes known as bonded fuel, you need to make sure that what is going in there is going for export. You cannot put domestic product in there.

00:03:28
Kelly: Excellent. And you’re right, even the definition is not back to the basics. It is pretty detailed. Well, thank you for all that great information.

Once again, just to remind our listeners, if you want to get some free Weaver swag, go ahead and drop some ideas over to us. You can send us messages, emails or just put in the comments.

Thank you everyone for joining us for this week’s Motor Fuels Tax Minute.

00:03:49
Leanne: Thank you.