RE: Used, Damaged, or Defective Transaxle Cores; Valuation under 19 U.S.C. § 1401a(f); Fallback Method

HQ H354593 August 26, 2026 OT:RR:CTF:VS H354593 RRB CATEGORY: Valuation Carmelita Santos, CTCS Consultant, Customs & Logistics Vehicle Logistics Toyota Canada Inc. 1 Toyota Place Toronto, ON M1H 1H9 Canada RE: Used, Damaged, or Defective Transaxle Cores; Valuation under 19 U.S.C. § 1401a(f); Fallback Method Dear Ms. Santos: This is in response to your September 11, 2025, request for a binding ruling, on behalf of Toyota Canada Inc. (“Toyota Canada” or “importer”) regarding the proper method of appraisement for prospective entries of used, damaged or defective transaxle cores. On August 18, 2026, our office held a teleconference with you to discuss this request. On August 20, 2026, you submitted a revised submission and supporting materials to explain the relationship and transactions between the relevant parties. Our response below takes into account all of the aforementioned documentation. FACTS: Toyota Canada imports used, damaged, or defective transaxle assemblies with torque converters (“returned cores”) into the United States under its Transaxle Core Program in conjunction with AISIN Aftermarket & Service of America, Inc. (“AASA”), located in Plymouth, Michigan. Toyota Canada explains that the Transaxle Core Program was designed to prevent after market access to its cores and to sustain its supply chain. Through this program, Toyota Canada initially purchases new or rebuilt transaxle assemblies from AASA and imports them into Canada. After use in Canada, Toyota Canada is the importer of record while AASA is the U.S. consignee and
remanufacturer, as explained in further detail below. Toyota Canada states that Toyota Canada and AASA are independent and unrelated. Under the Transaxle Core Program, when Toyota Canada purchases a new or rebuilt transaxle, a $1,000 core deposit is charged per unit at the time of purchase, separate from the product price. Toyota Canada may recover that $1,000 core deposit by returning any used transaxle cores under this program. Under the parameters of the Transaxle Core Program, Toyota Canada collects used, damaged or defective transaxle cores from its dealer network across Canada and exports them to the United States through the Port of Detroit, where they are consigned to AASA in Michigan. For these shipments, Toyota Canada acts as the importer of record in the United States and declares a customs value for the returned cores at entry even though they are not sold for export to the United States. Toyota Canada explains that it does not track or match returned transaxle cores to specific units previously purchased or to subsequent U.S. resale of rebuilt units, including the timing of any such resale. It is also unable to determine at the time of entry which returned cores AASA will later be remanufactured, and which units may later be disposed of through excess core sale channels. To further illustrate the parameters of the Transaxle Core Program, Toyota Canada provided two representative invoices involving the purchase of a rebuilt transaxle. As part of this transaction, AASA issued these invoices, both dated August 17, 2026, to Toyota Canada. These invoices identify the purchase price for the remanufactured transaxle core assembly plus a separately identified refundable core deposit. Toyota Canada also provided one representative invoice, reflecting Toyota Canada’s recovery of the pre-existing core deposit under the Transaxle Core Program when it exports returned cores from Canada, and consigns them to AASA. Toyota Canada issued this invoice, dated February 19, 2026, to AASA. After importation of the returned cores, AASA determines whether particular units will be remanufactured into rebuilt transaxles or disposed of through excess core sale channels in the United States. Some units are remanufactured into rebuilt transaxles for sale to customers in North America. For other units, however, AASA may elect not to remanufacture the used, damaged, or defective core for business reasons such as excess inventory, reduced demand, storage limitations, capacity constraints, inventory management considerations, or operational efficiencies. In these circumstances, such units may be sold as used, damaged, or defective cores to third-party core buyers. To reflect this scenario, Toyota Canada provided supporting documentation from AASA for one representative transaction involving excess returned cores that AASA has elected not to remanufacture, but instead to sell as used, damaged, or defective cores to third- party core buyers. This transaction is reflected in an invoice issued by AASA to an independent U.S. third-party core buyer for sale of a used, defective, or damaged 2
transaxle core at $100 per unit. According to Toyota Canada, it relies on that transaction as the best available objective evidence in the record of the U.S. market value of returned cores in used condition when not sold for export. Toyota Canada proposes to appraise the used, defective, or damaged cores that it imports into the United States and consigns to AASA for remanufacture under the “fallback” method set forth in 19 U.S.C. § 1401a(f). Accordingly, Toyota Canada proposes appraising each of the subject cores at $100 per unit based on the sale price of used, defective, or damaged cores to U.S. third-party core buyers. Toyota Canada asserts that this amount reflects the current U.S. market value for identical or similar used, damaged, or defective cores when not sold for export. Toyota Canada explains that supporting documentation for the proposed fallback value will be maintained and updated as needed. It further asserts that for entry documentation, invoices may be annotated as follows to indicate that the declared value is determined under the fallback method and that the returned cores were not sold for export: “Value declared for CBP purposes only under 19 U.S.C. § 1401a(f), returned cores not sold for export.” ISSUE: What is the proper method of appraisement for used, damaged or defective transaxle cores imported into the United States? LAW AND ANALYSIS: The preferred method of appraising merchandise imported into the United States is the transaction value method as set forth in section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”), codified at 19 U.S.C. § 1401a. The transaction value of imported merchandise is the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus amounts for five enumerated statutory additions. See 19 U.S.C. § 1401a(b). In order for imported merchandise to be appraised under the transaction value method, it must be the subject of a bona fide sale between a buyer and seller, and it must be a sale for exportation to the United States. The U.S. Court of Appeals for the Federal Circuit has defined a “sale” as a “transfer of title from one party to another for consideration.” See VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999) citing J.L. Wood v. United States, 62 C.C.P.A. 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974)). U.S. Customs and Border Protection (“CBP”) has held that the return of a core deposit is not a “sale” for purposes of customs valuation. In Headquarters Ruling Letter (“HQ”) W548697 dated June 13, 2006, the importer obtained used auto parts for remanufacturing from retailers and warehouse distributors by providing a refund of a core deposit that the customers paid when the parts were originally purchased. CBP agreed that “it would be inappropriate to use a value for the used alternators and starters that incorporates the Core Charge Value.” As a result, we concluded that the refund of the core charge was not a viable sale for purposes of transaction value. Because none of the more preferred methods of valuation were available, we 3
authorized appraisal under the fallback method, using the “fair market value” method prescribed in IRS Revenue Ruling 2003-20, 2003-6 CB 445, issued January 22, 2003. Similarly, in HQ H320981, dated September 29, 2022, the importer’s payment was not made in exchange for title to the goods. Instead, the payment was a refund of the core deposit originally paid by the foreign distributor, which was designed to incentivize the customer to return the used core at the end of its service life. Because the merchandise at issue in HQ H320981 was not subject to a sale (i.e., a transfer of title for consideration), the transaction value method did not apply. Here, AASA’s $1,000 payment as the U.S. consignee to Toyota Canada as the importer is not made in exchange for title to the goods or as a sale for export by Toyota Canada. Instead, the $1,000 payment is a refund of the core deposit obligation from a prior commercial arrangement, which was originally paid by Toyota Canada to AASA. Because the used, damaged or defective transaxle cores at issue here will not be subject to a sale, transaction value will not apply. When imported merchandise cannot be appraised based on transaction value, it is appraised in accordance with the remaining methods of valuation, applied in hierarchical order. See 19 U.S.C. § 1401a(a)(1). The alternative bases of appraisement, in order of precedence, are the transaction value of identical or similar merchandise (19 U.S.C. § 1401a(c)); deductive value (19 U.S.C. § 1401a(d)); computed value (19 U.S.C. § 1401a(e)); and the fallback method (19 U.S.C. § 1401a(f)). The transaction value of identical or similar merchandise is based on sales, at the same commercial level and in substantially the same quantity, of merchandise exported to the United States at or about the same time as that being appraised. See 19 U.S.C. § 1401a(c). Here, Toyota Canada states that it has no information of sales of identical or similar imported cores at or near the time of entry to establish a comparable value. Accordingly, transaction value of identical or similar merchandise is unavailable. The next method of appraisement is the deductive value method at 19 U.S.C. § 1401a(d). Deductive value provides for the appraisal of merchandise on the basis of the price at which it is sold in the United States in its condition as imported and in the greatest aggregate quantity either at or about the time of importation, or before the th close of the 90 day after the date of importation. Toyota Canada explains that it does not track the timing of subsequent U.S. resale of rebuilt units and cannot trace particular imported returned cores to downstream resale transactions with the deductions required under 19 U.S.C. § 1401a(d). Therefore, deductive value is unavailable. Under the computed value method, merchandise is appraised on the basis of the material and processing costs incurred in the production of the imported merchandise, plus an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind, and the value of any assists and packing costs. 19 U.S.C. §1401a(e)(1). Here, Toyota Canada states that computed value is not available because Toyota Canada does not have access to the producer’s or 4
remanufacturer’s cost, profit, and expense data required to calculate value under 19 U.S.C. §1401a(e). Accordingly, we agree that the computed value method is unavailable. See, e.g., HQ H229800, dated July 16, 2013 (holding that because original cost information for gas turbine parts was no longer available, there was insufficient information available to appraise the merchandise under the computed value method); see also, HQ H320981, dated September 29, 2022. When merchandise cannot be appraised under the methods set forth in 19 U.S.C. § 1401a(b)-(e), the value may be determined under the “fallback” method set forth in 19 U.S.C. § 1401a(f). The fallback method provides that merchandise should be appraised on the basis of a value derived from one of the prior methods reasonably adjusted to the extent necessary to arrive at a value. See 19 U.S.C. § 1401a(f) and 19 C.F.R. § 152.107. However, the merchandise may not be appraised, inter alia, on the basis of the price in the domestic market of the country of export, the selling prices in the United States of merchandise produced in the United States, minimum values, or arbitrary or capricious values. See 19 U.S.C. § 1401a(f); 19 C.F.R. § 152.108. Under section 500 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1500(a), which constitutes CBP’s general appraisement authority, the appraising officer may “fix the final appraisement of merchandise by ascertaining or estimating the value thereof, under section 1401a of this title, by all reasonable ways and means in his power, any statement of cost or costs of production in any invoice, affidavit, declaration, other document to the contrary notwithstanding…” The Statement of Administrative Action (“SAA”), which forms part of the legislative history of the TAA, provides, in pertinent part: Section 500 is the general authority for Customs to appraise merchandise. It is not a separate basis of appraisement and cannot be used as such. Section 500 allows Customs to consider the best evidence available in appraising merchandise. It allows Customs to consider the contract between the buyer and seller, if available, when the information contained in the invoice is either deficient or is known to contain inaccurate figures or calculations….Section 500 authorize [sic] the appraising officer to weigh the nature of the evidence before him in appraising the imported merchandise. This could be the invoice, the contract between the parties, or even the recordkeeping of either of the parties to the contract. In those transactions where no accurate invoice or other documentation is available, and the importer is unable, or refuses, to provide such information, then reasonable ways and means will be used to determine the appropriate value, using whatever evidence is available, again within the constraints of section 402. th st Statement of Administrative Action, H.R. Doc. No. 153, 96 Cong., 1 Sess. at 2. 5
Such an approach was utilized in similar circumstances described in HQ H320981, dated September 29, 2022. In HQ H320981, CBP approved the use of the fallback method for appraisement of used engine parts that were imported for remanufacture under a core exchange program similar to Toyota’s Transaxle Core Program. The “core” referred to used goods that are the primary component input for remanufactured goods that are typically at the end of their useful life. The importer in HQ H320981 sold new and remanufactured engine parts. When it sold a remanufactured part to a Canadian distributor, the price included a separately listed “core deposit.” The Canadian distributor then sold the remanufactured engine part to a customer at a price that included the core deposit. One the remanufactured engine part reached the end of its useful life, the customer returned the core to the Canadian distributor, which refunded the deposit to the customer. Then, the Canadian distributor returned the spent core to the importer in the United States, which issued a credit memo to refund the entirety of the core deposit to the Canadian distributor. There, CBP held that it was reasonable to appraise the used engine parts imported for remanufacture under the fallback method based on the sales price of the remanufactured good adjusted to exclude the average cost of repair. CBP employed a similar approach in HQ H251594, dated September 22, 2014, in which the importer operated a business repairing and overhauling turbine engines and their components. There, we concluded that the importer’s proposed appraisement methodology—which subtracted the value of the repair from the value of the refurbished part or engine—was acceptable under the fallback method. See also HQ 548688, dated October 20, 2005 (holding that defective power supplies returned to the United States for repair or recalibration could be appraised under the fallback method based on the standard cost of new power supplies adjusted to exclude the average cost of repairs or recalibration). Here, Toyota Canada proposes appraisement of the used, damaged, or defective transaxle cores argues under the fallback method based on the $100 sales price of the excess used cores, which have not been remanufactured, to third-party core buyers in the United States. It asserts that this price reflects the best available objective evidence in the record of the U.S. market value of returned cores in used condition when not sold for export. Toyota Canada’s proposed appraisement under the fallback method applies a similar approach as in HQ H320981 and HQ H251948 by relying on the sales price of remanufactured cores to third party core buyers but without the need to deduct the cost of repair since it is implied from the submitted documentation that the cores will be so worn that they may not be remanufactured. However, in HQ H320981 and HQ H251948, there is no indication that the importers disposed of any excess, non- rebuildable cores through resale to third party core buyers for any units that could not 1 be remanufactured. Unlike in HQ H320981 and H2515948, Toyota Canada’s proposed 1 We note that in your initial ruling submission, dated September 11, 2025, you explained that “non- rebuildable or excess cores” are sold to third party core buyers. In your revised submission, dated 6
method of appraisement under the fallback method is based on the sales prices of used cores that will not be repaired, although they may be in a condition conducive for remanufacture. While this method may be appropriate for similarly used, damaged or defective cores that are sold to third party core buyers, it does not accurately reflect the value or condition of returned cores that the importer decides will be remanufactured. For cores that are selected for remanufacture and sold to customers in the United States, a more appropriate method of appraisement would be a fallback method based on the sales price of the remanufactured core adjusted to exclude the average cost of repair as in HQ H320981 and HQ H251948. Because Toyota Canada will need to track or match the returned cores to determine which cores are remanufactured into rebuilt transaxles and which cores are sold, as is, to third party core buyers, we strongly encourage Toyota Canada to use Reconciliation when appraising the returned cores that are selected to be remanufactured into rebuilt transaxles and the cores that are sold without remanufacture to third party core buyers. Reconciliation is the process that allows an importer, at the time an entry summary is filed, to identify undeterminable information (other than that affecting admissibility) to CBP, and provide the outstanding information at a later date. Modification and Clarification of Procedures of the National Customs Automation Program Test Regarding Reconciliation, 67 Fed. Reg. 61201 (Sept. 27, 2002). Importers notify CBP that an entry summary is subject to Reconciliation by flagging the entry summary for Reconciliation. The flagged entry summary is liquidated for all aspects of the entry except those issues that were flagged. The means of providing the outstanding information at a later date relative to the flagged issues is through the filing of a Reconciliation entry. HOLDING: Based on the facts submitted, the subject used, damaged, or defective cores may be appraised under the fallback method pursuant to 19 U.S.C. § 1401a(f). For the appraisement of used, damaged or defective cores that are not remanufactured into rebuilt transaxles, the importer may use the fallback method based on the sales price of non-rebuildable cores to third party core buyers in the United States. For appraisement of used, damaged or defective cores that are selected for remanufacture into rebuilt transaxles assemblies sold to customers in the United States, the importer may use the fallback method based on the sales price of the remanufactured core adjusted to exclude the average cost of repair. In both scenarios, we strongly recommend the importer use Reconciliation when appraising the returned cores. Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. August 20, 2026, you do not make reference to whether or not the cores sold to third party core buyers are non-rebuildable. 7
The application of a ruling letter by [CBP] field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.” A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction. Sincerely, Monika R. Brenner Chief, Valuation and Special Programs Branch 8