How Returns Complicate Duty Drawback for Ecommerce Brands

For a fashion brand paying 16% duties on a few million in imports, we're talking real money—sometimes $200K+ annually.

But there's a catch. Actually, several catches. And if you're running an ecommerce brand with a normal return rate, this gets messy fast.

Let me explain.

The concept is straightforward. You import a shipment of goods and pay, say, $50,000 in duties to U.S. Customs. Then you export those goods to Canada or destroy them because they're defective. The government says, "Fair enough—those goods never actually entered the U.S. market, so you shouldn't have paid duties on them. Here's your money back."

It makes sense. And for businesses with clean, linear supply chains—import, warehouse, export—it works beautifully.

But ecommerce brands? We don't have clean, linear anything.

Let's say you run a DTC apparel brand. Here's what actually happens:

You import 1,000 jackets in April. Pay $15,000 in duties. Those jackets go into your warehouse. Some sell to U.S. customers. Some sell to Canadian customers. Some get returned. The returned ones go back into your inventory, get mixed with the new shipment that arrived in May, maybe get returned again, and three months later, who knows which jacket came from which shipment?

This is called inventory commingling, and it's duty drawback's worst enemy.

To claim drawback, you need to prove a direct connection between:

The specific goods you imported (Import Entry #123456, April 15th)

The specific goods you exported or destroyed

When returns are in the mix, that connection gets blurry. Fast.

Let's walk through what happens with a single product:

May 10th: You import a dress. Entry #ABC123. Duty paid: $25.

May 20th: Customer in Texas buys it.

May 27th: Customer returns it. "Didn't fit."

June 3rd: It goes back into inventory, now sitting next to 200 other dresses from three different import shipments.

June 15th: Customer in Toronto orders a dress. Your warehouse ships one. But which one? Is it the returned dress from Entry #ABC123? Or one from the June shipment?

Unless you have a system that tracks this stuff at the individual unit level (spoiler: most ecommerce brands don't), you can't answer that question. And if you can't answer it, you can't claim drawback on it.

Here's what Customs wants to see for a drawback claim:

Import entry number

Proof you paid the duty

Export documentation showing the goods left the country

Evidence that the exported goods are the same ones (or commercially identical to) the ones you imported

Simple enough on paper. But when you're dealing with:

25% return rates (totally normal for fashion)

Products cycling through your warehouse multiple times

Sales across Shopify, Amazon, wholesale

Returns coming back through different channels

...the paper trail becomes a nightmare.

I've seen brands give up on drawback entirely because they look at their returns process and think, "There's no way we can track all of this."

If you're selling through FBA, it's even more complicated. Amazon handles your returns, commingles inventory from multiple sellers, and doesn't provide the granular tracking you'd need for drawback compliance.

Can you still do drawback if you sell on Amazon? Sometimes. But you need to be really strategic about which SKUs you target and how you structure your operations.

I'm not going to sugarcoat it: doing duty drawback properly when you have high return rates is hard. But it's not impossible.

Here's what I've seen work:

1. Get Selective

Don't try to claim drawback on everything. Focus on:

Direct international sales (less likely to be returned)

B2B exports (often final sale)

Clearly defective/damaged goods that you're destroying anyway

2. Segment Your Inventory

Some brands create separate SKUs or warehouse locations for returned items. It's extra work, but it maintains the chain of custody you need for drawback.

3. Fix Your Destruction Process

If you're already destroying unsellable returns, you're sitting on drawback money. You just need proper documentation. This is often the lowest-hanging fruit.

4. Accept That Some Money Will Be Left on the Table

Perfect is the enemy of good. You might not be able to claim drawback on every eligible item, especially those cycling through multiple returns. But capturing 60-70% of the potential value is better than capturing 0%.

Let's do some quick math.

Say you're importing $3M in goods annually. Duty rate averages 16%. You export or destroy about 15% of your inventory.

Potential drawback value: $3M × 16% × 15% = $72,000 per year.

For many brands, the ROI is clearly positive. But you need to go in with eyes open about the operational reality.

At Evana, this is literally all we do. We help ecommerce brands navigate the messy reality of duty drawback—including all the complications returns create.

We've built our systems specifically for Shopify and Amazon sellers who don't have enterprise-level inventory management. And because we work on performance (you only pay when we successfully recover your duties), you're not taking on risk to explore this.

If you're importing products and exporting or destroying any meaningful volume, let's have a conversation. We can look at your specific situation and give you an honest assessment of whether drawback makes sense for you.

Get in touch with Evana. Worst case, you learn something. Best case, we find you money you didn't know you had.