If you’ve visited an international airport terminal any time within the past 60 years, then chances are the duty-free shop has caught your eye. They’re hard to miss: prominent red signs, bright lighting, row after row of fancy liquor bottles and designer perfume. And usually, the lines are fairly long.
The appeal is easy to understand. As the name implies, duty-free sales are exempt from local and national taxes under the condition that the items are then taken out of the country; for this reason, these items are exclusively available to international ticket-holders. It might seem like this requirement would restrict revenues, but duty-free shops still manage to turn a considerable profit. According to CNN, global duty-free sales generated $46 billion in 2011; the top-selling items included cosmetics and fragrances (which constituted 17 percent of all duty-free transactions), alcohol, tobacco products, and jewelry. Roughly 35 percent of all duty-free transactions were conducted at airports in Asia and the Pacific Islands, while Europe and the Americas boasted 34 percent and 23 percent of the share, respectively.
But does duty-free actually mean tax-free? Short answer: yes and no. Long answer: let me explain.
For U.S. citizens, the general rule is as follows. If you visit a foreign country (other than some Caribbean nations) for more than 48 hours, you are entitled to a duty exemption of $800 for all goods, souvenirs, and whatever else you purchased during your travels; if you exceed this $800 quota by up to $1,000, then all remaining items will be charged at a flat tax rate of 3 percent, and if you exceed the quota by more than $1,200, then the remaining items will be taxed at standard rates authorized by the Harmonized Tariff Schedule. On the other hand, if your international trip lasted 48 hours or less, you are entitled to a $200 duty exemption; with the exception of goods that were purchased in Mexico, the flat 3-percent rate is also applied to additional purchases up to $1,000. Duty exemptions may be used only once within any given 30-day period.
But of course there is some fine print. For instance, travelers are limited to 200 cigarettes, 100 cigars, and one liter of booze purchased outside the United States and its insular territories (such as American Samoa or Guam). Any perfumes, colognes, lotions, or other topical cosmetics must be meet trademark requirements dictated by the U.S. Treasury Department. Travelers are also prohibited from bringing certain items into the U.S.; the list of restricted goods included meat products, fruits and vegetables, dairy products, certain plants and seeds, live insects, and any merchandise imported from Cuba, Iran, Iraq, Libya, North Korea or Sudan.
And yes, you have to declare everything in your possession to customs ― and rest assured, they will almost certainly search your bag anyway. Anyone caught lying or attempting to conceal goods purchased overseas will receive a stiff fine that amounts to hundreds of dollars, and may also include jail time. Please also note that some of the most popular duty-free items (including alcoholic beverages and fragrances) must be stored in your checked baggage; airline passengers are not allowed to store any bottles in their carry-on items that contain more than 3.4 ounces of liquid.
Lastly, prospective duty-free shoppers ought to realize that certain items available in these stores are significantly marked up. Two years ago, Esquire published an article that compared duty-free shop prices with the rates offered at their non-exempt counterparts. In some cases, the duty-free savings were huge; for example, a one-liter bottle of Johnny Walker Red Label cost $20 at the duty-free store and $48 elsewhere, while a duty-free carton of Marlboro Golds was discounted by more than half when compared to New York state-mandated rates. On the other hand, the duty-free price tag on a Bulgari Diagono Automatic Steel Men’s Watch exceeded the Amazon.com cost by more than $500. It definitely pays to do a little background research before filling your basket in the duty-free aisles.
Tell us about your duty-free experiences. Have they been positive? Negative? Mixed?