Endorphins set-in the moment we hit the airport’s international terminal to await a long anticipated departure. International travelers familiar with duty free tend to impulsively gravitate towards the allure of shoppes festooned with luxury goods to stockpile tobacco, alcohol, perfume and other products. In the ABC News article, Duty Free Shops: Not Really a Tax-Free Bargain, Suzy Greshman author of Frommer’s Born To Shop Series said, “The reason there is so much shopping in the airport is because people are trapped there for two hours.”
Experienced travelers, on the other hand, may not be so beguiled by the presumed duty free savings. These travelers know the misconceptions associated with duty free and how items can cost the same if not more than if they were purchased at a non-exempt retailer, especially an online retailer or wholesaler who may be able to offer lower prices.
US Customs and Border Protection (CBP) and import and export laws work to protect the country’s economy through control of the flow of goods into and out of the US by imposing duty on goods purchased in foreign countries when they are declared in the US.
Goods sold duty free in the shoppes of airport terminals, cruise lines, and aboard aircraft carriers are exempt from duty (import tax) because they are expected to be taken out of the country, where they will be declared at another port of entry and taxed according to that country’s jurisdiction. Those savings are presumably passed on to the end consumer. However, duty free regulations, price structure and hidden costs say it ain’t so.
One major misconception that travelers don’t realize is duty and sales tax may be due on goods purchased in the US if they travel outside the country and are brought back. Those same items may be taxed in the visiting country. To avoid taxation, some travelers will opt to have merchandise shipped back to the US, paying high shipping fees (and duty which may be refundable). Others are willing to depart with the items realizing the loss.
Regulations on personal exemptions mandate what can be purchased and brought into a country duty free. Each country has its own limits. In the US, residents are allowed a $200, $800 or $1,600 personal exemption. This depends on where you have traveled and requires a minimum 48-hour stay. However in some cases, such as with Mexico, the exemption is not applicable.
Another widespread misconception of duty free is that you can stockpile popular items such as cigarettes and alcohol, but there are regulations on quantities eligible for duty free. For example, US residents returning from abroad are only allowed 1 liter of alcohol per traveler duty free, and up to 5 liters if you’re traveling from a US insular possession (US Virgin Islands, American Somoa and Guam). Only 200 cigarettes (approximately 1 carton) and 100 cigars are considered duty free in the $800 personal exemption. However, if you’re traveling from a US insular possession you can declare up to 5 cartons in the $1600 personal exemption not more than once every 31 days.
Duty free doesn’t necessarily translate to the instant savings we think it will. Gershman suggests shoppers get a price list, including sizes, from their favorite retailer to comparison shop at the duty frees. CBP research is very involved, time consuming and can easily be misinterpreted, though you should check the CBP website before you travel if you plan to shop, but the best way to shop for bargains, especially luxury goods, is to plan your purchase and buy during peak season from an online retailer or wholesaler who is likely able to offer discounted rates for its merchandise. “Saks Fifth Avenue is often less expensive for perfume,” Gershman said.
The views expressed represent the opinion of the author and are not intended to reflect those of FutureAdvisor or serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities.