Tariffs have been on everyone’s radar lately, with new U.S. policies targeting imports from Canada, China, and Mexico, alongside specific tariffs on steel and aluminum. These taxes on imported goods, paid by importers to the federal government, reshape costs for businesses and consumers.
A key question arises for businesses importing goods or selling to end consumers: Are tariffs part of the taxable base for sales tax? The answer hinges on state-specific rules, the structure of the transaction, the item that is being imported and whether the tariff cost is passed on to the buyer. Because states differ in their respective sales tax laws, importers and businesses need to be familiar with the laws of every state you do business in to avoid landing yourself in hot water with tax enforcement agencies.
Misapplying sales tax to tariffs can lead to overpayments or underpayments, especially when state guidance is unclear, or automated systems fail to account for these charges. Our sales tax experts can guide manufacturers, contractors, and retailers through tariff-related tax obligations. Contact our team today to evaluate your specific scenario and streamline your tax processes.
Tariffs and Their Role in Sales Transactions
Tariffs are a tax levied by the U.S. government on imported goods. The importer of record pays tariffs directly to U.S. Customs and Border Protection (CBP). These costs, often driven by trade policies targeting specific countries or products, can significantly increase a seller’s cost of goods sold. In turn, businesses are faced with a difficult decision, with the options normally being: (1) absorb the cost of the tariff; or (2) pass these costs on to customers. Normally, the result is to pass the costs on to customers, as businesses operate on certain margins, where they cannot afford to absorb the cost and operate at a competitive profitability rate.
A key distinction exists between tariffs and tariff fees. While tariffs are paid directly to the U.S. government by the importer of record, tariff fees are charges that sellers may add to invoices to recover tariff costs. These fees can appear as a separate line item or be embedded in the product’s sales price. The structure of these charges determines whether they are included in the taxable base under state tax laws.
For example, a retailer importing electronics from China might pay a 25% tariff and then list a tariff fee on the customer’s invoice. In states like California, this fee is often taxable if the seller is the importer, whereas in South Carolina, it depends on whether the cost is part of the gross proceeds of sale. Understanding these nuances helps any given business properly structure transactions to manage tax liabilities effectively.
to manage tax liabilities effectively.
Aspect | Tariffs | Tariff Fees |
Definition | Taxes imposed by the U.S. government on imported goods, paid to U.S. Customs and Border Protection. | Charges added by sellers to recover the cost of tariffs, passed on to buyers. |
Paid By | Importer of record (e.g., manufacturer, retailer, or contractor). | Buyer, if the seller chooses to pass on the tariff cost. |
Invoicing | Not listed on customer invoices, as paid directly to the government. | It may appear as a separate line item or be included in the product’s sales price. |
Sales Tax Impact | Generally, it is not included in the taxable base, as it is paid separately to CBP. | Often taxable if part of the sales price, depending on state laws (e.g., California, Wisconsin). |
Example | A 25% tariff on $100,000 of imported steel, paid by the importer to CBP. | A $25,000 fee added to a customer’s invoice to cover the tariff cost. |
State Variations in Sales Tax Tariff Fees
State tax laws differ significantly on whether tariff fees are included in the taxable base for sales tax. In California, tariff fees are taxable if the seller, as the consignee and importer, passes the cost to the buyer, as these fees are part of the taxable sale price per CDTFA Annotation 325.0232. Wisconsin similarly includes tariff fees in the taxable sales price, even if separately stated, as clarified in Wisconsin Tax Bulletin 205 (April 2019). However, in Wisconsin if the importer is the end user (the importer is not purchasing the item for resale, as an example), tariffs are excluded
from the taxable purchase price if they are legally imposed on the importer, and are separately stated on the invoice by the seller, or are paid directly to U.S. customs.
Washington explicitly states that tariff surcharges added to invoices are subject to sales tax, as they are not deductible from the selling price, per Washington Department of Revenue guidance. In states lacking specific rules, businesses often rely on general sales tax principles, where all receipts, including tariff fees, may be included in the taxable base, if the fee is necessary to complete the sale. This variability across jurisdictions underscores the need for businesses to review state-specific regulations to avoid costly errors.
As an example, Texas includes tariff fees in the taxable sales price when passed on to the buyer, as the “total sales price” encompasses all charges incident to the sale, per Texas Tax Code Section 151.007. The Texas Comptroller clarifies that surcharges, such as those for tariffs, are taxable unless explicitly exempted, with no specific exemption for tariff fees noted in 34 Texas Administrative Code Section 3.314. Texas businesses must include these fees in their sales tax calculations, whether listed separately or in the price.
Best Practices and Sales Tax Compliance Tips
State-specific sales tax rules for tariff fees demand expert guidance to avoid costly errors. A sales tax lawyer can ensure compliance with regulations. Their expertise helps companies navigate the nuances of tariff-related tax obligations efficiently and avoid costly errors or unnecessary headaches when determining obligations.
A sales tax lawyer provides essential services to manage these challenges, including:
- Review of state statutes to clarify tariff fee taxability.
- Auditing invoices to confirm tariff fees align with state-issued guidance.
- Advising on invoice structuring to meet state requirements.
- Ensuring proper use of exemption certificates to minimize tax on tariff fees.
- Defending businesses during state audits to resolve tariff fee disputes.
With a sales tax lawyer’s support, businesses can confidently address evolving tariff policies and state tax laws, reducing the risk of overpayments or underpayments.
Take Control of Your Tax Obligations
Tariffs have increased the cost of imported goods, complicating sales tax compliance across states like California, Wisconsin, and Texas. Misinterpreting these rules can result in major audit assessments, penalties and accrued interest, impacting your business’s bottom line. The good news? Non-compliance is avoidable with the team at Sales Tax Helper by your side.
Don’t risk costly errors by tackling tariffs and sales tax alone. Our skilled sales tax lawyers can audit your transactions, interpret state rules, and protect your business from audit risks. Contact us to schedule a consultation and stay up to date with the latest tariff-related sales tax law.