Is Duty Free Really Worth It?

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It's hard to miss the bright lights and ample displays at the duty-free stores in most international airports, cruise ship ports, and border stations. Designer clothes and jewelry, bottles of high-end liquor, and tobacco products are all screaming to be picked up and taken home. After all, it's a great deal and tax-free, right?

Getting a bargain at a duty-free shop requires some research in advance. Items found in these shops are free of the local import tax (also known as "duty") that would normally be placed on the item in a regular retail store. However, you may potentially owe a customs duty in the country you're heading back to. We're looking at you, America (sigh).

It's not all bad news. According to guidelines from U.S. Customs and Border Protection, if you are a U.S. resident returning from a foreign country other than one in the Caribbean (and you were there for more than 48 hours), you are allowed a duty-free exemption of up to $800. Your next $1,000 worth of goods is subject to a flat tax rate of 3 percent, which is still cheaper than many local taxes on similar items.

Don't go on a spending spree just yet: There are limitations with alcohol and tobacco products. Travelers returning from a European country like France or Germany are allowed to bring in up to 1 liter of alcohol duty-free, but the total amount is up to the laws in the state you head back to, so make sure to know what's permitted in your home state before you stock up. You are also allowed up to 100 cigars or 200 cigarettes within the $800 exemption. If you purchase duty-free items from a Caribbean country, like the U.S. Virgin Islands or Guam, there is a $1,600 duty-free exemption, and the next $1,000 worth of goods is taxed at 1.5 percent. (Spring Break trip, anyone?) Plus you can pick up to 5 liters of alcohol as long as one if a product of the U.S. Virgin Islands, Guam, or American Samoa. Residents are allowed 1,000 cigarettes as well.

Duty free Johnnie Walker Blue

When it comes to scoring a deal on duty-free items, the best bargains are the ones most heavily taxed in your home country (and state). In the U.S. this puts alcohol and tobacco-products at the top of the list. While U.S. federal tax is adjusted for the percentage of alcohol in a bottle of liquor, a 750ml bottle is taxed at $2.14 and just over $1 for a pack of 20 cigarettes. States also have their own tax on alcohol and tobacco. States like Washington, Oregon, and Virginia have some of the highest rates.

In general, beauty-related items, like perfumes and cosmetics, tend to be 15 to 20 percent cheaper than domestic U.S. prices. Pro tip: Fragrance multipacks are often created just for duty-free shops and could save you some cash compared to individual bottles. Consider free cosmetic samples and in-store sales at your local beauty store, which may tip the scale in favor of buying beauty items at an affordable price domestically.

Other goods like electronics, cameras, confections such as chocolate, and high-end jewelry and clothing are probably worth passing on. While discounts can range from 10 to 25 percent, an online or in-store sale in the U.S. might yield the same results. That being said, if the duty-free store is offering a one-of-a-kind product, or if you're interested in an item that never goes on sale, just saving the tax might be worth the purchase.

For the best deal, know what the customs regulations and exemptions applicable to you and your home turf. Make sure to check prices at your local retail stores so you can compare them when you get to a duty-free shop. And keep those receipts for when you enter customs at home – it will make declaring your new goodies that much easier!

  This article was posted on Hipmunk's Tailwind blog by The Hipmunk on February 21st.

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