On Santa suits and Snuggies, a holiday tax treat – Wacky Tax Wednesday

On Santa suits and Snuggies, a holiday tax treat – Wacky Tax Wednesday

If you follow tax news, a contentious case involving Snuggies and import taxes may ring a bell. It calls to mind a similar case involving Santa suits. Both are worth revisiting this holiday season, when we take our tots to see Santa and seek “the perfect gift” for our friends and family.

The blanket with sleeves

There is no doubt both my kids would love the Snuggie, the “blanket with sleeves” that took the nation by storm almost a decade ago. During our chilly, damp winters, they’d happily wear a Snuggie that allows arms to stay warm when reaching for a cuppa or book. Or rather, they’d happily use a Snuggie. “Use” is the verb preferred by Attorney Joe Spraragen, who helped convince the United States Court of International Trade that the Snuggie is a blanket and not a garment.

That distinction is important for the manufacturers of the Snuggie, which has been embraced and gently mocked by the likes of Matt Damon, Jimmy Fallon, and Weezer. Because it’s made in China, it’s subject to customs duty and import taxes when imported into the U.S. for sale.

If it’s classified as a garment (Section 6114.30.30, Other Garments in the Harmonized Tariff Schedule), it’s subject to a tax rate of 14.9 percent when imported into the United States. Blankets are classified under Section 6301.40.00 and subject to a duty tax rate of 8.5 percent. That’s a significant difference — great enough for the Allstar Marketing Group, Snuggie’s parent company, to take the case to court to challenge its classification as “other garments” by the U.S. Customs and Border Protection (Customs).

Customs asserted that the Snuggie is “wearing apparel” because it “works as an outer covering for the human body at a particular time, such as when seated, standing, or reclining.” It likened it to “clerical or ecclesiastical garments and vestments” and “professional or scholastic gowns and robes,” both of which “have wide-armed sleeves that flow loosely around the body.”

The Court of International Trade was not persuaded. The ruling highlights the fact that the Snuggie was inspired by two other wearable blankets (the Slanket and the Freedom Blanket), marketed as a blanket, and lacked rear closure. Since the Snuggie won the lower tariff, in theory it can now be sold for less. The kids may get them this year after all.

Santa suit blues

The Snuggie opinion references a similar case involving Rubie’s Costume Company. In brief, in 1992, Rubie’s challenged U.S. Customs’ classification of certain Halloween costumes as “festive articles” (duty free), arguing that they were in fact “wearing apparel” (taxed). The Court of International Trade sided with Rubie’s, which at the time manufactured most of its costumes in the U.S. The ruling benefited Rubie’s by taxing its importing competitors.

But times and trade change, and Rubie’s now imports the majority of its costumes. A few years back, it again went to court over tariff classifications, this time to argue that its Santa suit should be classified as a duty-free festive article rather than taxable wearing apparel.

On October 31, 2017, the court issued its ruling. It found in favor of Customs, disagreeing with Rubie’s claim that the Santa Suit “is not well-made.” The ruling reads: “A relatively well-made, durable, dry clean only Santa Claus costume constitutes fancy dress, of textile, and is, therefore, excluded from classification as a festive article.”

This will complicate tax compliance for Rubie’s. Instead of one rate of zero for the whole outfit, the different components are classified and taxed differently, as follows:

  • Jacket: 32% (HTSUS 6110.30.30)
  • Pants: 28.2% (HTSUS 6103.43.15)
  • Gloves: 10% (HTSUS 6116.93.94)
  • Sack: 17.6% (HTSUS 4202.92.30)
  • Beard, belt, hat, shoe covers, and wig: Duty free

Adding insult to injury, the ruling was based in part on previous determinations involving Rubie’s: “The court is guided by the criteria stated in Rubie’s II.”

Want to simplify the complex world of customs duty and import tax? Check out AvaTax Cross-Border.

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