How Incorrect Tariff Numbers Lead to Higher Duties, Delays, and Compliance Risks

What Tariff Numbers Are and Why They Matter in Imports

Tariff numbers, formally known as Harmonized Tariff Schedule (HTS) codes or HS codes, are the classification numbers assigned to every product imported or exported. These codes determine the duty rate (tax) a shipment will incur and whether any trade policies (like quotas or antidumping duties) apply. In essence, the tariff code is the key that customs authorities use to unlock a product’s identity and applicable fees. With the United States processing tens of millions of import entries worth over $3 trillion annually, each shipment’s HTS code can mean the difference between paying 0% duty or a double-digit rate on that item’s value. In other words, accurate tariff classification isn’t just paperwork, it directly impacts landed costs and competitive pricing.

Beyond duties, tariff numbers feed into trade statistics and compliance checks. Governments rely on these codes to enforce trade agreements, safety standards, and import restrictions. For importers, getting the number right is critical: it ensures you pay the correct duties and that your goods aren’t flagged unnecessarily. Conversely, a wrong code can trigger a cascade of issues through supply chains and balance sheets.

Common Causes of Incorrect Tariff Classification

Classifying products under the proper tariff code is often easier said than done. One major challenge is sheer complexity: the US tariff schedule contains thousands upon thousands of commodity codes (over 18,000 at the 10-digit level), each with fine-grained distinctions. Many products straddle multiple categories or have unique features that blur the lines. For example, is a smartwatch with fitness tracking classified as an “electronic communication device” or as a “sports accessory”? Such ambiguities can easily lead to misclassification when importers or brokers have to make a judgment call under time pressure.

Another common cause is ambiguous or incomplete product information. If a shipment’s documents use vague descriptions (e.g. “plastic item” vs. “polyethylene kitchenware”), even experienced compliance teams may assign the wrong code. In fact, experts note that unclear product descriptions are a leading source of tariff classification errors. The fast pace of innovation also contributes to mistakes: new gadgets and hybrid products may not fit neatly into the outdated tariff categories, forcing importers to guess the “closest” code. And of course, simple human error plays a role, manually sifting through thousands of codes under tight deadlines is a recipe for the occasional mistake. All these factors mean that even diligent companies can slip up on classification.

In some cases, misclassification isn’t accidental. Companies might be tempted to choose a lower-duty code to save costs. But as the next sections show, any short-term savings from such tactics can backfire severely in the long run.

How Wrong Tariff Numbers Increase Duty Payments

If you mistakenly classify a product under a code with a higher duty rate than necessary, you’ll overpay import taxes on each shipment. Many firms have discovered they were eroding their own profit margins simply because they used an overly conservative code. For instance, misclassifying a specialty automotive part under a generic car accessory code might incur an 8.5% duty when the correct specific part code only carries 2.5%. That’s an unintentional 240% increase in import tax for that item. Such errors quietly chip away at profitability shipment after shipment.

On the flip side, if you underpay duties due to a too-low classification, the bill eventually comes due. CBP actively audits import records and will demand back payment of duties owed (plus interest) when it finds misclassifications. The scale of these recoveries can be eye-opening. In just one month (February 2025), CBP conducted 28 audits that uncovered $2.9 million in unpaid duties and fees from importers using improper tariff codes. Including prior violations that were caught, CBP collected over $74 million in duties that should have been paid earlier. Those are real dollars that companies thought they had “saved” with wrong classifications, only to be hit with hefty bills later once CBP set the record straight.

Beyond the direct duty repayments, there’s also the administrative cost of amending entries and the opportunity cost of tying up capital for belated duty payments. Thus, misclassifying to a lower rate is a dangerous gamble. If (or rather when) customs catches it, you’ll owe the difference and then some. The safest course is always to classify correctly upfront so you pay the right amount of duty from the start, avoiding nasty surprises down the road.

Shipment Delays Caused By Tariff Misclassification

Incorrect tariff codes cost you money, and they hold up your cargo. When customs officials spot a mismatch between a product and its classification, they can delay clearance while they investigate. Even a small discrepancy in the HTS code can lead to hours, or days, of unexpected detention.

A hold at port can derail production, spike warehousing costs, and upset customer delivery windows. And when de minimis thresholds were removed in 2025, thousands of low-value e-commerce shipments were detained or destroyed due to improper classification paperwork .

Some companies now use automated pre-check tools that compare HTS codes with product descriptions to catch mismatches before entry. That quick validation step helps avoid unnecessary red flags and keeps freight moving.

Compliance Risks and Penalties from Incorrect Tariff Codes

US law penalizes importers that don’t exercise “reasonable care” in assigning tariff codes. Fines for negligent errors can hit 20% of goods’ value. In fraud cases, it can be 100%. And enforcement is ramping up. The DOJ’s new Trade Fraud Task Force has already targeted companies for misclassification schemes. 

Beyond fines, a bad compliance record can mean more audits, stricter exams, and revoked trade privileges. Classification shortcuts are rarely worth the fallout.

How AI Helps Prevent Tariff Classification Errors

AI is becoming a valuable guardrail against classification errors. By scanning product specs and comparing them to tariff databases and historical rulings, AI tools can suggest the right HTS code in seconds.

These systems learn over time, adapting when humans override a suggestion. Some even track tariff updates in real time. Companies using AI classification tools report faster filing, better consistency, and fewer customs issues. But it’s not plug-and-play. AI works best when paired with knowledgeable staff who validate its outputs. Think of it not as replacing your compliance team, but as giving them a sharper set of tools.

Conclusion

Misclassification represents a significant financial and operational risk. It can raise duty bills, stall deliveries, and trigger penalties that far exceed the value of the goods involved.

With enforcement rising and customs scrutiny tightening, accurate tariff codes are no longer optional. The right approach combines informed staff, solid processes, and tech support like AI tools that help flag problems early.

FAQ

Who is responsible for correct tariff classification?

In the US, the legal burden is on the importer of record to use “reasonable care” and ensure the tariff number is correct. Even if you hire a customs broker or rely on a supplier’s information, your company is ultimately accountable for any errors in the entry filing. If CBP finds a mistake, it’s the importer who must answer for it.

What are the penalties for using the wrong tariff code?

That depends on whether the mistake was accidental or intentional. For a good-faith error (negligence), you might just owe the unpaid duties plus interest and maybe a fine (often a percentage of the shipment’s value). For blatant fraud or evasion, penalties can be very steep, up to the full value of the merchandise in fines. There have been cases of multi-million dollar penalties and even criminal charges for systematic misclassification schemes. In short, the penalties range from a financial slap on the wrist to a devastating hit, depending on severity.

If I realize I misclassified a product, what should I do?

You should correct the mistake as soon as possible. If the goods are in transit or just arrived, you can submit a correction or disclosure to CBP before they find it. If you discover an error on past entries, consider filing a Prior Disclosure to CBP. A Prior Disclosure, which is essentially voluntarily confessing the mistake and tendering any owed duties, can significantly reduce penalties. Being proactive and transparent with customs goes a long way to showing that you’re trying to comply, not conceal.

How can I avoid tariff classification errors in the first place?

Start by having solid internal processes: maintain detailed product specifications, train staff on classification rules, and consult resources like CBP’s published rulings or expert advisors for tricky items. Many companies keep a database of their products with assigned HTS codes and regularly review it, especially when product designs change or tariff schedules are updated. Automation helps too. Classification software or AI-based tools can cross-reference your product data against tariff databases to suggest the right code or flag anomalies. And don’t forget the human touch. When in doubt, you can seek an official binding ruling from CBP for certainty. Investing the time to get the classification right upfront is far cheaper and easier than fighting a penalty case later.

How is AI actually used in classification? Is it reliable?

AI is used to augment the classification process. For example, an AI system might take a product description or a spec sheet and then query a database of all HTS codes to find the best match, even accounting for nuances like materials or usage. It can also learn from past corrections; if it suggested a wrong code and a human fixed it, the AI adapts. Companies using AI report faster processing of shipments and fewer errors. However, AI isn’t perfect, and it might not handle completely novel products well or understand context like a human. So, many use it as a decision support tool: it provides a recommendation and a human compliance specialist makes the final call. Over time, as the AI is exposed to more data, its suggestions get more accurate. But at least for now, think of it as your very well-read assistant, not a fully independent classifier.