Duty-free. The concept is decades old, yet it continues to perplex travelers.
Like Kramer in Seinfeld, many are lured by the siren song of the duty-free shop. Others think like George Costanza. “Duty-free,” he says in an episode known as “The Airport,” “is the biggest sucker deal in retail.”
He has a point. Shopping in duty-free stores will not necessarily yield Costanza-grade bargains. But one place where travelers may actually score a good deal is the Caribbean — especially the U.S. Virgin Islands.
To increase your chances of that happening, it helps to understand what duty-free means. Customs duty is a tax on items moved across international borders. Anything you buy in a duty-free shop is duty-free “only for the country in which that shop is located,” as U.S. Customs and Border Protection puts it. You still potentially owe customs duty when you return to the United States. This depends on several factors, including your residency status, the country you’re coming from, how long you were there, what you bought or received as a gift, the country where the goods were made and what you paid for those goods.
$800 Duty-free exemption for U.S. travelers returning from most — but not all — places abroad
Happily, you don’t have to reach for your wallet each time you get off a plane. If you’re a U.S. resident returning from a foreign country after a stay of at least 48 hours, you’re carrying items that you purchased in that country and you have not been out of the United States more than once in a 30-day period, you may qualify for what’s known as a personal exemption. Often, this exemption is $800, which simply means that you can spend up to $800 without having to pay duty upon returning to the United States.
The next $1,000 worth of items you bring home is subject to a flat rate of 3 percent. If the value of what you purchase is more than $1,800, the remaining duty is determined based on rates in something known as the Harmonized Tariff Schedule, a reference manual with tariff rates for imported goods.
In addition to dollar limits, there are limits on how much alcohol and how many tobacco products you can bring into a particular state. For example, say you have an $800 personal exemption. No matter what you spend, even if you spend less than the $800 limit, you are nonetheless allowed only one liter of alcohol. You must be 21, and the alcohol must be for your personal use, not for sale. Some states may permit you to bring back more than one liter, although you will have to pay customs duty and Internal Revenue Service tax on the additional bottles. Other states may limit how much alcohol you can bring in without a license.
The law of the state you arrive in, even if it is more restrictive than the federal law, will prevail. So be sure to check with the state alcohol beverage authorities where you will be arriving about their rules and taxes. As for tobacco products, you generally cannot bring home more than 200 cigarettes and 100 cigars.
Travelers coming from the Caribbean, particularly the U.S. Virgin Islands, however, get a break. That’s because of the Caribbean Basin Initiative, a trade program meant to aid the economic development of the area. U.S. residents returning from islands such as Aruba and St. Lucia or the Bahamas are allowed an $800 duty-free personal exemption plus two liters of alcoholic beverages instead of just one — provided one of the liters is produced in one of the Caribbean Basin Initiative countries. (The same rule applies to alcohol purchased on a cruise ship.)
Best destination for U.S. residents to score a duty-free deal: U.S. Virgin Islands
If you’re returning from the U.S. Virgin Islands, you can indulge more. The duty exemption for travelers is double that of other islands: $1,600. And you may include up to five liters of alcoholic beverages in your duty-free exemption, as long as one of them is a product of the U.S. Virgin Islands, Guam or American Samoa. (Additional bottles are subject to a flat duty rate of 1.5 percent and Internal Revenue Service taxes.) You can also include 1,000 cigarettes as part of the exemption, although at least 800 of them must have been acquired in the U.S. Virgin Islands.
So what’s worth snapping up from a duty-free store? In general, the best deals are to be had on liquor and tobacco products because they are usually heavily taxed. You can find other goods for around 30 to 40 percent off U.S. prices. The U.S. Virgin Islands Department of Tourism notes that in St. Croix and St. John, items like perfume, jewelry and electronics are 30 to 60 percent off. In the Bahamas, the list includes watches, jewelry and china, which are about 25 to 35 percent off.
To get a duty-free bargain on anything other than liquor and cigarettes, you have to do some research before you travel. An online sale or in-store promotion can make an item cheaper at home than in a duty-free shop. And if you’re buying makeup, you might find that the discount is not better than the free samples or gift set offered at your hometown department store. If you’re in the market for a Louis Vuitton bag or Chanel perfume, know what it costs at home and on the Web so you’ll recognize a deal if and when you see it.