The Port of San Francisco operates and maintains Foreign Trade Zone (FTZ) #3. The geographic scope of FTZ #3 has since expanded to include all of San Francisco, San Mateo, Marin, Contra Costa, and Solano Counties, and most of Napa and Sonoma Counties.
A Foreign Trade Zone (FTZ) is a specially designated area in or near a U.S. Customs Port of Entry, but outside of any U.S. Customs Territory.
In these specially designated areas, foreign and domestic merchandise can be stored and manipulated together. Goods can be brought into a zone without formal Customs entry or without incurring Customs duties or excise taxes until they are entered into American commerce. FTZ(s) were created by the Foreign Trade Zones Act of 1934 in an attempt to promote U.S. participation in trade and commerce by reducing or eliminating the unintended costs or obstacles associated with U.S. trade laws. Employment that might normally be shifted to a foreign country is thereby encouraged to remain in the U.S.
On May 18, 2000 the Trade and Development Act of 2000 was passed and signed by President Clinton. This Act had a provision in it that allowed the use of the Weekly Entry procedures for all manufacturing and distribution in foreign trade zones.
Weekly Entries (allowed only to Foreign Trade Zone users): provide economies for both Customs and Foreign Trade Zone users. Under Weekly Entry procedures, the zone user files only one Customs entry per week, rather than filing one Customs entry per shipment. Customs no longer has to process an entry for each and every shipment being imported into the zone, and the Foreign Trade Zone community no longer has to pay for the processing of each and every entry.
Companies located outside Foreign-Trade Zones pay a 0.3464% merchandise processing for each and every formal entry processed by U.S. Customs. There is a minimum $25 to a maximum $485 processing fee per Entry, regardless of the duty rate on the imported merchandise. The maximum processing fee is reached for Entries (shipments) with a value over $230,952. Many companies receive shipments over this dollar amount.
Typically, with ten shipments per week, each with a value of over $230,952, the merchandise processing fee would add up to $4,850 ($485 x 10) per week, or $252,000 per year. Companies using FTZ#3 could take advantage of the Weekly Entry procedure, saving $226,980 per year. Each company’s savings could be significantly more or less depending on the number of shipments received during the year.
Since Foreign Trade Zones are outside the Customs territory of the United States, goods are not imported until they leave the zone. Therefore, Customs duty is deferred until merchandise is imported from a Foreign Trade Zone into the United States. So, instead of companies having substantial monies tied up in Customs duties on their inventory, they have use of that money for other purposes.
Without a zone, an importer pays Customs duty owed as the shipment physically arrives at a U.S. Customs district and enters American commerce. This is because the material is considered imported at this point. If the processor or manufacturer is conducting its operations within a foreign trade zone environment, the merchandise is not considered imported, and therefore no duty is owed until it leaves the zone for shipment into the United States. Waste and scrap identified in the zone is never imported into the United States, thus no duty. Scrap and waste can be re-exported or disposed.
It is important to remember that foreign competitors making the same product already have the benefit of not having to pay on the yield loss in the production and distribution of their exports.
Merchandise found to be defective or faulty, may be returned to the country of origin for repair or simply destroyed. Whichever choice is taken, no duty is paid. Many companies suffer from the "double duty crunch." That is, they pay duty on imported merchandise, find it to be faulty and return it to the country of origin for repair, and then pay duty again when the merchandise reenters the United States. If you are a Foreign-Trade Zone user or Subzone, the "double duty crunch" is never a problem, because your rejected merchandise never enters the commerce of the United States.
The "value added" to a product in a FTZ (including manufacture using domestic parts, cost of labor, overhead, and profit) is not included in its dutiable value when the final product leaves the Zone. Final duties are assessed on foreign content only.
No duty is charged on merchandise sold from a Foreign-Trade Zone to the U.S. Military or NASA.
Without a zone, if a manufacturer or processor imports a component or raw material into the United States, it is required to pay the import duty at the time the component or raw material enters the country. However, a Foreign-Trade Zone is considered to be outside the commerce of the United States and the U.S. Customs territory. So, when foreign merchandise is brought into a Foreign-Trade Zone, no Customs duty is owed until the merchandise leaves the zone and enters the commerce of the United States. Only then is the merchandise considered imported and the duty paid. If the imported merchandise is exported back out of the country, no Customs duty is ever due.
Foreign merchandise stored in Foreign-Trade Zones, or merchandise held in a zone for export, is not subject to any state or local ad valorem taxes.
Generally, if foreign merchandise is brought into a Foreign-Trade Zone or Subzone and manufactured into a product that carries a lower duty rate, then the lower rate applies. For example, when a Foreign-Trade Zone user imports a motor (which carries a 5.3% duty rate) and uses it in the manufacture of a vacuum cleaner (which has a 1.4% duty rate). When the vacuum cleaner leaves the FTZ and enters the commerce of the U.S., the duty owed on the motor drops from the 5.3% motor rate to the 1.4% vacuum cleaner rate.
Goods coming out of a Foreign Trade Zone distribution center, warehouse, or subzone can take advantage of weekly Customs entry processing savings, duty deferral until an import is delivered from the zone, duty elimination on sales to the U.S. Military or NASA, and relief from local ad valorem taxes.
An abundance of tax credits, exemptions, and incentives are available to entities developing and or operating in the San Francisco Bay Area. Many of them are unique to the location, and include:
SF Clean Technology Payroll Tax Exclusion. The City of San Francisco provides a payroll tax exclusion for up to 10 years to clean technology companies located in the City. Any business that employs between 10 and 99 employees is eligible for the payroll tax exclusion.
SF Enterprise Zone (EZ) Payroll Tax Credit. The local Enterprise Zone program enables businesses located in targeted locations of the City to reduce their payroll tax expense for qualified employees. The tax credit is for new jobs created on or after January 1, 1992.
California Enterprise Zone (EZ) Tax Credits & Incentives. The State of California EZ program helps businesses reduce their state income tax liability through hiring tax credits, business expense deductions, accelerated depreciation, and a 15-year carry-over of up to 100% of net operating losses. Eligible businesses must be located in designated Enterprise Zone areas.
Federal Work Opportunity Tax Credit (WOTC). The Work Opportunity Tax Credit is an income tax credit for employers who hire employees from eligible groups including youth, ex-offenders, and public assistance recipients.
Federal Historic Preservation Tax Credit. The US Department of the Interior supports the preservation of historic buildings through federal tax incentives, including a 20% tax credit for the certified rehabilitation of historic structures, and a 10% tax credit for the rehabilitation of non-historic buildings built before 1936.
Federal Renewal Community (RC) Tax Credits & Incentives. San Francisco businesses are eligible to receive wage credits, tax deductions, capital gains exclusions and bond financing to stimulate economic development and job growth in locally designated Federal Renewal Community zones.
Companies conducting manufacturing, assembly, fabrication and value-add activities within a Foreign Trade Zone #3 general purpose zone or subzone can also take advantage of benefits such as inverted tariff savings, weekly Customs entry savings, duty deferral, duty elimination on waste and scrap, duty elimination on rejected or defective parts, duty elimination on re-exports, and duty elimination on domestic content or value added including labor, overhead and profits. Case studies published by the National Association of Foreign Trade Zones provide examples of the benefits to manufacturing within a foreign trade zone.