Avalara uses AI to automate tariff code classification

In today’s fast-paced, global economy, compliance with international trade regulations is more important than ever. Tariff classification — the process of assigning Harmonized System (HS) or tariff codes to products for international shipping — remains a complex but critical task. With the rise of ecommerce and cross-border trade, businesses are faced with the challenge of accurately classifying thousands of products quickly and efficiently.

Avalara Automated Tariff Code Classification is an AI-driven solution designed to simplify and speed up the tariff classification process, helping businesses of all sizes meet international compliance standards. By leveraging machine learning, the solution classifies large product catalogs efficiently to HS or tariff codes, enabling near-real-time customs calculations and compliance with shipping requirements. In this post, we’ll dive into how Avalara Automated Tariff Code Classification can transform the way your business handles international shipments.

Why automated tariff code classification matters

International trade compliance can make or break a company’s ability to expand across borders. With tariff codes varying by country and product type, managing the classification process for every shipment can be overwhelming, especially for businesses scaling their product offerings. For companies that rely on manual processes, this can quickly turn into an expensive, time-consuming bottleneck — leading to costly delays, penalties, and frustrated customers.

Avalara Automated Tariff Code Classification helps solve these challenges by providing a faster, more cost-effective solution. By combining AI and machine learning technology with human expertise, Avalara automates the process of classifying products under the Harmonized System (HS) code framework while maintaining a high level of accuracy. Whether at the 6-digit or 10-digit level, this Avalara Automated Tariff Code Classification quickly classifies large product catalogs using our ever-improving content library and machine learning models, and helps eliminate the risks associated with manual errors.

Who is it suited for?

Avalara Automated Tariff Code Classification is designed to meet the diverse needs of a range of industries and business models. Here’s how the solution can benefit different types of customers:

B2C and B2B ecommerce retailers: With thousands of low-value items, these companies can’t afford to spend time and money on manual classification. Automated Tariff Code Classification offers a streamlined solution that helps them classify products quickly and efficiently, so they can focus on scaling their business.
Logistics providers and customs brokers: When managing multiple clients, accuracy is important, but cost is often a limiting factor. This AI-powered classification solution enables logistics providers to classify products efficiently, minimizing errors and reducing overhead costs.
Third-party logistics providers (3PLs) and shipping carriers: As new regulations such as Entry Type 86 in the U.S. and ICS2 in the EU become more prevalent, these companies need to comply with increasingly stringent customs requirements. Automated Tariff Code Classification sees to it that they meet these standards while keeping operational costs low.

What problems does Avalara Tariff Code Classification solve?

Classification for large product catalogs is time-consuming and requires specialized expertise. For businesses with product catalogs containing millions of SKUs, manually classifying each item is labor-intensive and costly. Every time a new product is introduced, it must be classified according to international standards — a process that is ongoing as product lines and tariff regulations change.

The complexity increases as companies expand their shipping reach to more countries, each with its own specific tax and customs rules. For many businesses, this requires hiring dedicated staff or outsourcing to partners who may not always be accurate or reliable. The manual nature of this process often leads to errors, delays, and increased compliance risks.

Automated Tariff Code Classification leverages AI to quickly classify products, eliminating the need for time-consuming manual processes. The system adapts to large product catalogs — ranging from 10 million to over 100 million SKUs — providing accurate HS or tariff code classifications across multiple countries.

Country-specific rules are complex. Each country has unique tariff classification rules, and keeping up with these ever-changing requirements is a daunting task. Details such as how an item is made, its materials, where it’s sold, and how it’s delivered all impact taxability and classification. Without the right expertise, determining the proper tariff code manually becomes an exercise in trial and error, increasing the likelihood of noncompliance and triggering fines, surcharges, or shipment delays.

Offloading tariff code classification to shipping carriers and customs brokers is expensive and not scalable. Many businesses rely on shipping carriers or customs brokers to handle classification. However, these carriers often view tariff classification as a necessary but unprofitable task. As a result, they may charge high fees, process classifications slowly, and refuse to share the output, forcing businesses to continuously pay for services — especially during audits. For businesses using multiple shipping carriers, this introduces even more complexity and cost.

Classifying goods incorrectly creates risk for the business. Accurately classifying goods is essential to avoiding hefty penalties, delays, and supply chain disruptions. Automated Tariff Code Classification helps businesses stay compliant by leveraging AI to classify products with a high degree of accuracy. By producing accurate 6- or 10-digit HS codes, the solution ensures businesses are providing the right information to calculate customs duties correctly. This reduces the risk of noncompliance, delays, and fines.

For companies in sectors that face heightened scrutiny — such as those affected by Entry Type 86 in the U.S. or ICS2 mandates in the EU — Avalara Automated Tariff Code Classification is invaluable. These regulations have increased the focus on proper classification, and Avalara’s solution enables businesses to meet these new standards without a heavy investment in internal resources.

How does Avalara Tariff Code Classification leverage the power of AI and machine learning?

At the core of Automated Tariff Code Classification is Avalara adaptive matching technology, which uses AI and machine learning (AIML) to analyze product data and generate the most accurate HS code for each product. The system continuously learns from our +30 million* regularly updated and refined previous classifications, making it smarter and more accurate over time. Avalara can even offer customers customer-specific AIML models that tailor classifications to the unique nuances of their product catalog.

*Classification listing count as of January 1, 2023

Two tiers to fit your business needs: Essentials and Pro

Avalara Automated Tariff Code Classification is offered in two tiers: Essentials and Pro, each designed to cater to specific business needs.

Essentials tier: Quick and efficient classification

Pro tier: Tailored support and enhanced accuracy

The Essentials tier is designed for businesses seeking a rapid, low-cost solution for HS code classification. Powered by Avalara’s comprehensive content library, Essentials delivers near-real-time HS-6 or HS-10 classifications for a wide range of products.

Who it’s for: This tier is ideal for businesses with large, low-value product catalogs — especially B2C and B2B ecommerce retailers, marketplaces, shipping aggregators — looking to classify items quickly. Companies looking to scale their operations without allocating excessive resources to internal staff or manual classification processes can rely on the Essentials tier to handle bulk product classification, quickly and efficiently.

With a cost-effective price point, Essentials allows businesses to stay compliant with international trade regulations while managing large volumes of products, without breaking the bank. For businesses that prioritize speed and cost over customs-grade accuracy, Essentials is the ideal solution.

For businesses seeking more precise, customized results, the Pro tier offers a more sophisticated classification experience. Pro users benefit from a hybrid solution, combining limited classification analysis from our team of experts and customer-specific AIML models, ensuring the system learns from their unique product catalog to deliver increasingly accurate classifications over time. Pro users also receive post-audit support, leveraging Avalara’s team of experts to review and refine the classification process.

Who it’s for: The Pro tier is perfect for companies that need a higher degree of accuracy or that operate in industries where compliance errors could result in significant financial or legal repercussions. Customs brokers, logistics carriers, and third-party logistics providers (3PLs) may find the Pro tier particularly valuable, as they manage product catalogs on behalf of their clients and need to maintain a high level of trust and reliability.

How Avalara Automated Tariff Code Classification works

Users provide Avalara with their product catalog information, including:

1. Product title/name
2. Product description
3. Product category
4. Ship to/destination country

The more information that’s provided, the more accurate the HS classification will be. Information can be uploaded as a CSV file via SFTP or API.

Product catalog information is stored by Avalara.
Avalara then selects the input file, completes validation checks, and assigns HS tariff classification codes.
Avalara then renders the final output with HS codes and HS prediction confidence scores to that specified destination country.
With Automated Tariff Code Classification Pro, users can choose to receive additional classification support in a few ways:
1. Portions of your classifications can be reviewed and validated by our team of experts
2. Specific AI models based on your product listings
3. Post-audit support

Frequently asked questions

HS codes (Harmonized System codes) classify goods for international trade, while HTS codes (Harmonized Tariff Schedule codes) are U.S.-specific and based on the HS system. They have additional digits for more specific classifications used by U.S. Customs and Border Protection to determine tariffs and trade statistics. Tariff codes determine rates for a product and may be based on HS, HTS, or country-specific tariff schedules.

HS codes are important because they’re the language of international merchandise trade. Not only is HS classification a mandatory requirement for customs, but submitting an inaccurate HS code can result in an overpayment or underpayment of duties and taxes or a violation of trade compliance laws, which can lead to goods being delayed at the border and an assessment of penalties and fines.

It’s not recommended to use the same HS code for multiple products if the products are different in composition, form, or function. HS codes are assigned based on the specific characteristics of the product, so each product should be classified under the appropriate code that best describes its attributes.

HS codes are periodically reviewed and updated by the World Customs Organization (WCO) to ensure they reflect changes in technology, trade practices, and new products entering the market. The most recent version of the Harmonized System (the HS 2022) became effective on January 1, 2022. However, many countries still use older versions of the HS, which are noncompatible with HS 2022. It’s important to know that country-specific tariff codes and their associated duty rates can change several times a year as well.

All Avalara Tariff Code Classification offerings classify products to the country-specific tariff level and help with taxability determination and shipment requirements, although the level of support from our team of experts varies to cater to your needs.

Automated HS code classification is achieved through the deployment of machine learning (ML) and artificial intelligence (AI) technology. Avalara Tariff Code Classification offerings combine intuitive AI-enabled software with machine learning and human expertise.

The penalties for incorrect HS code classification vary depending on the country and the severity of the violation. However, in a recent joint Avalara and Reuters Events survey, respondents reported that the incorrect classification of goods resulted in more frequent delays in customs, added costs of tariffs and duties, increased supply chain costs, and failure to meet customers’ delivery expectations.

Looking ahead: A smarter, faster way to stay compliant

Avalara Automated Tariff Code Classification is a game changer for businesses navigating the complexities of international trade. By using AI and machine learning to automate the classification process, companies can reduce costs, improve efficiency, and increase their confidence in staying compliant with international shipping regulations.

Whether you’re a growing ecommerce retailer, a logistics provider, or a customs broker, Avalara Automated Tariff Code Classification offers the flexibility, accuracy, and speed you need to manage product classifications at scale. Learn more about the product here and to get started.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.