The U.S. Foreign-Trade Zones (FTZ or Zone) program was created by the FTZ Act of 1934, in order to “expedite and encourage foreign commerce” in the United States. For a number of years, the program was largely ignored, and by 1970, there were only seven FTZ’s in the country. With the dramatic increase in import volumes and a better understanding of the advantages of the FTZ program, Zones have become much more popular. Today there are 296 FTZ’s within the nation.
By definition, an FTZ is a government-designated site where foreign and domestic materials remain in a kind of international commerce limbo. While the goods remain in the Zone, the materials may be stored, manipulated, mixed with domestic and/or foreign materials, used in assembly or manufacturing processes, or exhibited for sale without triggering the payment of U.S. Customs and Border Protection (CBP) duties and excise taxes.
Imports may flow directly into the Zone and be held there indefinitely duty free. Duty is assessed only when those goods are shipped out of the Zone and into the United States marketplace. However the most important new benefits are those that result in supply chain efficiencies and velocity improvement, while cutting costs from the supply chain. These new benefits are known as Weekly Entry and Direct Delivery. In the State of Arizona there is an additional state defined tax benefit further detailed in the section below.
- Weekly Entry was added to the FTZ benefits stream in the year 2000, by the Trade and Development Act. This benefit allows the importer to file a consolidated entry to CBP instead of the regular “entry per Bill of Lading” that normally occurs in shipping. By reducing the number of CBP entries, huge economies of scale can lower an importer’s internal paperwork processing costs and reduce the fees paid to CBP for each entry. This fee reduction can be $200,000, $300,000 up to $1 Million of savings annually for a large box, Distribution Center (DC) operator. The cost savings are so significant that the FTZ program is now being used by 45 of the top 100 importers in the U.S.
- Direct Delivery is a CBP procedure, only allowed in an FTZ. This benefit gives the users/tenant the ability to “Sign for” CBP upon receipt of goods that normally have to go to another location for signature, BEFORE the goods can be delivered to the DC. With Direct Delivery, the importers can cut out 1 – 2 days of inbound time on their receipt of goods. This is being proved out every day by Huffy Bikes, Black and Decker, Skechers, and others importers who have announced publicly that they are receiving improved supply chain velocity within their FTZ facility.
- Specifically in Arizona, and within no other state, there is a tax benefit tied to the real estate and property taxes that all real property, machinery and equipment pays in Arizona. The FTZ “re-classification” under Arizona State Law allows for any property in a Zone that is both approved and activated, to be re-classified down from 20% valuation to 5% valuation (this is a 75% reduction in taxable value). Therefore, Zone users, tenants, owners, and Zone Operators who locate inside an approved FTZ site, and activate the site, receive a discount on their taxes of 75% annually. This savings is approximately $0.84 per foot (annual) savings over a competing building, all other things being equal!