November 1, 2011

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Article

In the Zone

Untapped Potential Resides in Salt Lake’s Foreign Trade Zone

Gaylen Webb

November 1, 2011

Businesses within the zone can expedite the flow of goods in and out of the country, facilitating just-in-time delivery. Merchandise can be delivered directly from the port of arrival to the Salt Lake City Foreign Trade Zone, explains Loftis. The zone is located next to the Union Pacific Intermodal Hub, one of the largest in the Union Pacific system and an inland port, which means containers can be offloaded from ships at port, put on rail cars and shipped to the Foreign Trade Zone without having to pass through Customs.

Farrington adds that businesses located within the Foreign Trade Zone or a sub-zone may benefit, depending on their specific circumstances, from reduced duties, deferral or possible elimination of duties, improved cash flow, lower inventory costs and streamlined customs procedures.

For example, a manufacturing company that imports components for its products might be able to defer payment of duties on those components until the complete products are assembled and distributed. This means an imported component with a higher rate of duty can be classified and appraised in its finished product form, with a potentially lower rate of duty.

An Example

World Trade Center Utah Executive Vice President and Chief Operating Officer Elizabeth Goryunova offers an example of how a Foreign Trade Zone-located manufacturer could save money:

Suppose, she says, a chemical plant that manufactures hydroxywidgets (which carry a 15 percent duty rate), annually imports $10 million of the raw material oxyo-stuff (which also carries a 15 percent duty rate). Part of the production process consists of bringing the imported oxyo-stuff to extreme temperatures. During this process, 30 percent of the oxyo-stuff is lost as heat. If the manufacturer is not in the Foreign Trade Zone program, it will pay $1.5 million in duties as soon as the raw material enters the United States.

However, if the same company locates within a Foreign Trade Zone or sub-zone, it may bring the oxyo-stuff into the zone duty-free. After processing the oxyo-stuff into hydroxywidgets—and losing 30 percent of the oxyo-stuff in the process—the Customs duty totals only $1,050,000, saving the manufacturer $450,000. Essentially, the company would not have to pay duty on the oxyo-stuff that was lost as waste.

By locating in the Foreign Trade Zone, manufacturing companies are able to achieve significant savings by deferring or possibly eliminating customs duty and federal excise taxes, since goods may be imported into and destroyed in the Foreign Trade Zone without payment of duty or excise taxes. Furthermore, a manufacturing company operating within the zone may also be able to reduce the dutiable tariff on imported parts that will be assembled into finished products through what is called “Inverted Tariff Relief.”

Tax Exemption

Another benefit of operating within the Foreign Trade Zone is the opportunity to receive an exemption from state and local ad valorem taxes, which are based on the assessed value of property. Merchandise is exempt from such taxes if it is imported from outside the United States and held in the Foreign Trade Zone for the purpose of storage, sale, exhibition, repackaging, assembly, distribution, sorting, grading, cleaning, mixing, display, manufacturing or processing. The exemption also applies to merchandise produced in the United States and held in the Foreign Trade Zone for exportation, either in its original form or altered by any of the foregoing methods.

Farrington explains that there are no time constraints on storage of merchandise within a Foreign Trade Zone—it can remain in a Foreign Trade Zone indefinitely, whether or not it is subject to duty.

Businesses interested in learning more about Salt Lake City’s Foreign Trade Zone are invited to contact any one of the city’s strategic partners, says Farrington. “We will hold their hands through the process of making sure the Foreign Trade Zone is a good fit and give them data to make informed analyses.”

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